AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1999
REGISTRATION NO. 333-82683
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________
ADVANCED TISSUE SCIENCES, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 14-1701513
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
__________
10933 North Torrey Pines Road, La Jolla, California 92037 (858) 713-7300
(Address, Including Zip Code, And Telephone Number, Including Area Code, Of
Registrant's Principal Executive Offices)
__________
Arthur J. Benvenuto
Chairman of the Board And Chief Executive Officer
ADVANCED TISSUE SCIENCES, INC.
10933 North Torrey Pines Road, La Jolla, California 92037 (858) 713-7300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
__________
Copies to:
Faye H. Russell, Esq.
Maria P. Sendra, Esq.
BROBECK, PHLEGER & HARRISON LLP
550 West C Street
San Diego, California 92101
(619) 234-1966
__________
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement.
If only the securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
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: [ ]
__________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
===============================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1999
PRELIMINARY PROSPECTUS
The information in this preliminary prospectus is not complete and may be
changed. The common stock covered by this preliminary prospectus may not be
sold until the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell
the common stock and it is not soliciting an offer to buy the common stock in
any state where the offer or sale is not permitted.
5,000,000 SHARES
ADVANCED TISSUE SCIENCES, INC.
COMMON STOCK
This prospectus relates to the public offering, which is not being
underwritten, of up to 5,000,000 shares of our common stock. All of the
5,000,000 shares of our common stock are being offered and may be sold by us.
However, there is no minimum offering amount and it is possible that we may not
sell all of the shares being offered.
Our common stock is traded on the Nasdaq National Market under the symbol
"ATIS." On September 9, 1999, the average of the high and low sales prices per
share of the common stock was $3.42 per share.
_______________
THE COMMON STOCK OFFERED INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF SOME IMPORTANT RISKS YOU
SHOULD CONSIDER BEFORE BUYING ANY SHARES OF COMMON STOCK.
_______________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
===============================================================================
Proceeds to
Price to Public Advanced Tissue Sciences
===============================================================================
Per Share
- -------------------------------------------------------------------------------
Total
===============================================================================
The proceeds to Advanced Tissue Sciences are based on proceeds before deducting
expenses payable by us estimated at $82,130.
The shares of common stock offered hereby are offered directly by us.
It is expected that delivery of certificates representing shares will be
made against payment on or about ___________________, 1999.
_______________
The date of this prospectus is September ___, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Advanced Tissue Sciences, Inc. 4
Recent Developments 6
Risk Factors 6
Forward-Looking Statements 15
Where You Can Find More Information 15
Information Incorporated by Reference 15
Use of Proceeds 16
Dilution 17
Plan of Distribution 17
Legal Matters 18
Experts 18
-3-
<PAGE>
ADVANCED TISSUE SCIENCES, INC.
We are a leading company in developing tissue products grown from human
cells. We develop these tissue products for medical applications. We are
currently focusing our efforts on skin, cartilage and cardiovascular products.
We apply a broad range of scientific disciplines, such as cell biology,
bioengineering, biochemistry, and polymer and transplant science to culture
living human cells "in vivo" or in the body, or "ex vivo" or outside the body.
We culture the cells in a manner that allows them to develop and assemble into a
functioning tissue. We have successfully replicated a variety of human tissues
using our technology.
Our objective is to redefine tissue repair and transplantation by
developing, manufacturing and marketing products produced through our
technology. Our product strategy is to use our patented methods to develop
multiple products which address unmet therapeutic needs or offer improved, cost-
effective alternatives to current methods of treating patients. By building on
our base of scientific knowledge through the continued application of our
technology, we believe we can achieve significant advances in the development,
clinical testing and manufacture of each of our tissue products.
Our first commercial product, TransCyte[TM], a temporary covering for
burns, was first approved for commercial sale by the FDA in March 1997 for
full-thickness, or third degree burns, and for partial-thickness, or second
degree burns, in October 1997. Dermagraft[R] for the treatment of diabetic
foot ulcers, a living replacement for the lower or dermal layer of human skin,
is in clinical trials in the United States. Dermagraft for diabetic foot
ulcers and TransCyte for burns have been introduced in other countries as
permitted by regulatory requirements. Both TransCyte and Dermagraft are being
commercialized through a joint venture with Smith & Nephew plc. Our other
products are at earlier stages of development.
TRANSCYTE. TransCyte consists of a dermal tissue with an ultra-thin
synthetic covering that acts as a protective cover. In the treatment of third
degree burns, TransCyte 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. TransCyte, as compared to silver sulfadiazine in treating second
degree burns, has been shown to heal burns faster.
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.
TransCyte 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 TransCyte. These burns frequently result from household
hazards such as scalds from hot liquids, faulty heating pads or misuse of
ignition fluids.
DERMAGRAFT. Dermagraft consists of living skin cells called fibroblasts
grown on a scaffold that will dissolve over time. It is designed to provide a
healthy, metabolically active tissue to be placed in chronic skin 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), as well as the need for skin grafting and reconstructive
procedures. Chronic skin ulcers that may be addressed by Dermagraft include
diabetic foot ulcers, skin ulcers on the lower part of the leg, generally known
as 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 more than
1.2 million patients are affected by acute pressure ulcers, and over 200,000
nursing home patients suffer from chronic pressure ulcers. Approximately
500,000 patients are diagnosed with venous ulcers in the United States each
year.
ORTHOPEDICS. Through a separate joint venture with Smith & Nephew, we are
developing cartilage tissues for orthopedic applications. Over the past several
years, the joint venture's activities have focused on the development of
articular cartilage, a smooth cartilage that covers the surfaces of joints. We
believe a manufactured articular cartilage could be used to repair cartilage
defects in joints. This would provide an opportunity to treat patients at an
earlier stage of joint degeneration, thereby delaying, or in some cases
eliminating, the need for total joint replacements. We are working to optimize
the product before advancing into clinical trials. The joint venture has also
developed
-4-
<PAGE>
prototypes for a meniscus, the fibrous "shock absorbing" cartilage in the
knee, and is performing preclinical studies during 1999.
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 our technology, we are developing blood
vessels that will grow and repair normally. Potentially, these blood vessels
could provide enhanced biocompatibility and improved patency with a reduced need
for the anticoagulant drugs required with currently available products. In
collaboration with the Department of Bioengineering at the University of
California, San Diego, we are currently leading an effort to design, construct
and evaluate blood vessel grafts produced from cells grown on a scaffold that
would be compatible with implantation. This project is using current advances
in various scientific areas, such as cell culture, bioreactor technology,
biomaterials and blood vessel mechanics to create a unique, living tissue
replacement for blood vessels. The successful integration of these technologies
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 380,000 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 blood vessels.
SMITH & NEPHEW PLC. In April 1996, we 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 was expanded in 1998 to include venous ulcers, pressure ulcers, burns
and other skin tissue wounds. Under the joint venture agreement with Smith &
Nephew, we are principally responsibility for manufacturing and Smith & Nephew
has primary responsibility for the worldwide sales and marketing of Dermagraft
and TransCyte. Smith & Nephew is a world leader in wound care sales with an
established sales force in over 90 countries. It develops, manufactures and
markets a wide range of tissue repair products, principally addressing the areas
of bone, joints, skin and other soft tissue. Smith & Nephew is known in the
United States for its comprehensive training and customer education programs,
and it has successfully launched several advanced wound care products.
In 1994, we entered into a separate joint venture with Smith & Nephew for
the worldwide development, manufacture and marketing of human cartilage tissue
based on our technology for orthopedic applications. Under the terms of the
agreement, we are responsible for supervising the manufacturing of the cartilage
tissue products. The 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.
INAMED CORPORATION. We recently entered into a strategic alliance with
Inamed Corporation for the development and marketing of aesthetic and certain
reconstructive applications of our technology. Specifically, we licensed Inamed
rights to develop, market and sell certain products for use in cosmetic surgery,
cartilage for plastic and reconstructive applications, and a product for breast
reconstruction. Inamed also received an option to license rights to certain of
our products which potentially may be used for soft tissue augmentation such as
in wrinkle and cosmetic correction, and for the treatment of urinary
incontinence. Inamed Corporation is a global surgical and medical device
company engaged in the development, manufacture and marketing of medical devices
for the plastic and reconstructive, bariatric and general surgery markets.
Dermagraft[R], TransCyte[TM] and NeoCyte[TM] are our trademarks. This
prospectus also includes names and trademarks of other companies.
Advanced Tissue Sciences was incorporated in Delaware in 1987. Our
principal executive offices are located at 10933 North Torrey Pines Road, La
Jolla, California 92037, and our telephone number is (858) 713-7300.
-5-
<PAGE>
RECENT DEVELOPMENTS
In June 1999, we announced that a $10 million loan and accrued interest
payable to Smith & Nephew, our partner in the Dermagraft and cartilage joint
ventures, was converted into approximately 2.8 million shares of our common
stock. The loan agreement allowed us to pay the loan in cash or common stock at
our election. The loan was due and payable in less than a year. The conversion
increased Smith & Nephew's interest in our common stock to approximately 8%.
During the quarter ended June 30, 1999, holders of our series B preferred
stock continued to convert their shares into common stock. To date, 399.2
shares of our series B preferred stock has been converted into approximately 8.9
million common shares at an average conversion price of $2.25 per share. As a
result, we have 100.8 shares of our series B preferred stock and approximately
52.4 million shares of our common stock outstanding as of August 19, 1999.
At the end of June, we notified the holders of the series B preferred
stock of our election to redeem for cash at 105% of liquidation value any
preferred shares submitted for conversion from July 1, 1999 to September 30,
1999 at a conversion price equal to or below $3.58 per share. For example,
for each share of preferred stock submitted for conversion at a conversion
price equal to or below $3.58 per share, we would be required under this
election to redeem each share by paying the holder $52,500 plus accrued
dividends. If all of the shares were submitted for conversion at or below
$3.58 per share, we would be required to use approximately $5.4 million of
our existing cash and investments to redeem those shares. If the shares are
submitted for conversion at a conversion price above $3.58 per share, the
preferred stock would be converted at a minimum price of at least $4.77 per
share. These conversions would generally be at a discount to the then current
market price of our common stock. This could result in the issuance of up to
approximately 1.1 million shares of our common stock and additional dilution
to you.
We may withdraw this redemption election on five days advance notice. We
may also continue the election on a quarter by quarter basis for so long as we
have adequate cash available for the redemption. We may not have enough cash
available to continue this election if this offering is not successful. If we
decide to discontinue or do not have sufficient cash available to redeem the
preferred stock, conversions of the preferred stock can be made at conversion
prices at or below $3.58 per share. As the conversion price is determined based
on stock prices over a 45-day period, conversion prices will vary and can be at
a substantial discount to the market price. There is no limit as to how low the
conversion price can go. As a result you could experience substantial dilution
as a result of any such conversions. As of August 19, 1999, the conversion
price is $3.14 per share. If all the outstanding preferred shares were
converted at this price, we would issue another 1.6 million shares of common
stock.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS AND UNCERTAINTIES BEFORE DECIDING TO
PURCHASE SHARES OF OUR COMMON STOCK. AN INVESTMENT IN OUR COMMON STOCK INVOLVES
A HIGH DEGREE OF RISK.
RISKS RELATED TO OUR BUSINESS
- -----------------------------
IF OUR PRODUCTS FAIL IN CLINICAL STUDIES, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL AND WILL NOT BE ABLE TO SELL THOSE PRODUCTS.
In order to sell our products that are under development, and our existing
products for additional applications, we must receive regulatory approval for
our products. To obtain those approvals, we must conduct clinical studies
demonstrating that our products are safe and effective. If we cannot obtain FDA
approval for a product or any additional application of a product, that product
cannot be sold and revenues will suffer.
-6-
<PAGE>
Early in 1998, an FDA Advisory Panel recommended the FDA approve Dermagraft
for marketing in the United States for the treatment of diabetic foot ulcers.
The Advisory Panel's recommendation included certain conditions we would have
needed to satisfy after the commercial introduction of Dermagraft. However,
in June 1998, the FDA requested we complete an additional controlled clinical
trial to support our application for approval to market Dermagraft for the
treatment of diabetic foot ulcers. We are currently conducting this additional
pivotal clinical trial. Commercial introduction within the United States is
subject to successful completion of the additional clinical trial and FDA
approval.
Although Dermagraft appears promising based on clinical studies to date,
it may not be successful in this additional clinical trial or other future
clinical trials. Our ongoing clinical study of Dermagraft, and clinical
studies of our other products, may be delayed or halted for various reasons,
including:
- the product is not effective, or physicians think that it is not
effective;
- patients experience severe side effects during treatment;
- patients do not enroll in the study at the rate we expect, or
- product supplies are not sufficient to treat the patients in the study.
In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that we have demonstrated that Dermagraft, or any of our other
products, are safe and effective after we complete clinical trials.
WE WILL NEED ADDITIONAL FUNDS TO SUPPORT OPERATIONS. IF WE ARE UNABLE TO OBTAIN
THEM, WE WOULD BE UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT PROGRAMS AND WOULD
HAVE TO REDUCE OR CEASE OPERATIONS, OR ATTEMPT TO SELL SOME OR ALL OF OUR
OPERATIONS OR TO MERGE WITH ANOTHER ENTITY.
The further development of our technology and products as well as any
further development of manufacturing capabilities or the establishment of
additional sales, marketing and distribution capabilities will require the
commitment of substantial funds. Our existing working capital will not be
sufficient to meet our needs. Potential sources of additional funds include
payments from our alliances with Smith & Nephew and Inamed, our borrowing
capacity under the cartilage joint venture with Smith & Nephew, and our access
to funds under an equity line. If, for any reason, Smith & Nephew were to
terminate the Dermagraft Joint Venture or, to a lesser extent, the cartilage
joint venture, we would experience a substantial increase in the need for
and use of our working capital to support the commercialization and
manufacture of our Dermagraft and TransCyte products or the development
of our orthopedic cartilage products. We could also acquire additional
funding through collaborative arrangements or the extension of existing
arrangements.
To the extent that we choose not to or are unable to establish such
arrangements, we would experience increased capital requirements to undertake
research, development and marketing of our proposed products at our own
expense. If we are not able to meet these expenses we may be unable to
continue our operations.
We may not satisfy the milestones for additional funds under the joint
ventures with Smith & Nephew or the Inamed alliance. We also may not be able to
obtain adequate funds under other existing or future arrangements when such
funds are needed or, if available, on terms acceptable to us. In certain
circumstances, funds under the equity line could be limited or, in some cases,
completely unavailable. Limitations on the equity line include:
- any draw by us under the equity line may not exceed $15 million;
- draws by us within any three-month period cannot exceed 4.9% of the
outstanding shares of our common stock;
- the investor group does not have to accept any draw which would result in
such group owning more than 4.9% of the outstanding shares of our common
stock; and
- we cannot draw against the equity line during the pricing period for an
earlier draw.
-7-
<PAGE>
In addition, we may not effect a drawing under the equity line if:
- our common stock is trading at less than $2 per share;
- trading of our common stock on the Nasdaq National Market has been
suspended;
- our common stock has been delisted from the Nasdaq National Market; or
- we do not have in effect a registration statement under the Securities
Act of 1933 covering the issuance and resale of the common stock to be
issued pursuant to the draw.
Insufficient funds may require us to delay, scale back or eliminate certain
of our research and product development programs or that we license third
parties the right to commercialize products or technologies that we would
otherwise commercialize ourselves or that we attempt to merge with another
entity.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET AND MAY NOT BE SUCCESSFULLY
COMMERCIALIZED BECAUSE PHYSICIANS AND PATIENTS MAY NOT PURCHASE OR USE THEM.
Our products are based on new and innovative technologies and the medical
community or the general population may not broadly purchase or use our products
as alternatives to existing methods of treatment. Sales of our products could
be adversely affected by:
- their respective cost;
- concerns related to efficacy;
- the effectiveness of alternative methods of treatment; or
- the lack of sufficient third-party reimbursement.
Any future negative events or other unfavorable publicity involving the
use of our products could also adversely affect acceptance of our products.
Both we and Smith & Nephew have limited direct experience marketing or
obtaining third-party reimbursement for these types of products.
Additionally, TransCyte has only been marketed and sold in the United
States for a limited period of time and may not achieve commercial acceptance in
the United States. Similarly, Dermagraft has only been sold internationally and
may never achieve commercial acceptance in the United States even if it receives
FDA approval.
WE RELY ON THIRD PARTIES TO MARKET, DEVELOP AND SELL OUR PRODUCTS AND THOSE
THIRD PARTIES MAY NOT PERFORM SUCCESSFULLY. OUR DEPENDENCE ON THIRD PARTIES AND
OUR LACK OF SALES AND MARKETING PERSONNEL COULD LIMIT OUR ABILITY TO DEVELOP OUR
PRODUCTS OR TO GENERATE REVENUES FROM PRODUCTS SALES.
We are particularly dependent on Smith & Nephew with respect to the
Dermagraft and the cartilage joint ventures. The amount and timing of resources
to be devoted by Smith & Nephew is not within our control. 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 our control. If Smith & Nephew does not perform its obligations as
expected or if Smith & Nephew has a strategic shift in its business focus, it
would be difficult for us to successfully complete the development efforts of
the Dermagraft and cartilage joint ventures. We are relying on Smith & Nephew
and others to market our products both domestically and internationally. Our
success in generating market acceptance of Dermagraft and TransCyte will depend
on the marketing efforts of Smith & Nephew. We cannot control the amount and
timing of resources that Smith & Nephew or others may devote to marketing and
selling our products. Smith & Nephew may not perform its obligations under the
Dermagraft Joint Venture as expected. Our failure to achieve broad use of
Dermagraft for the treatment of diabetic foot ulcers and, to a lesser extent,
TransCyte for burn care, would hurt our ability to generate revenues and
profits.
-8-
<PAGE>
WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE.
To date, we have experienced significant operating losses in funding the
research, development, testing and marketing of our products and expect to
continue to incur substantial operating losses. To June 30, 1999, we had
incurred cumulative net operating losses of $228.7 million. Our ability to
achieve profitability depends in part upon our ability to successfully
manufacture and market Dermagraft and TransCyte for skin ulcers and burns. We
may never achieve a profitable level of operations or even if we achieve
profitability, we may not be able to sustain it on an ongoing basis.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE TO
PREVENT OTHER COMPANIES FROM USING OUR TECHNOLOGY IN COMPETITIVE PRODUCTS. IF
WE INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY BE PREVENTED FROM
DEVELOPING OR MARKETING OUR PRODUCTS.
Our ability to compete effectively will depend, in part, on our ability to
maintain the proprietary nature of our technology and manufacturing processes.
Our competitors may develop products that are the same as our products and
market those products after our patents expire, or may design around our
existing patents. If this happens, sales of our products would suffer and our
ability to generate revenues will be severely impacted. Furthermore, patents
may be issued to others that prevent the manufacture or sale of our products.
We may have to pay significant fees or royalties to license those patents in
order to continue marketing our products. This would cause our profits on sales
of our products to decline.
Our dependence upon having exclusive rights to the technology covered
under our patent applications and licensed patent applications is subject to
the following risks:
- applications may not result in issued patents;
- current or future issued or licensed patents, trade secrets or know-how
may not afford protection against competitors with similar technologies
or processes;
- any patents issued may be infringed upon or designed around by others; or
- others may independently develop technologies or processes that are the
same as or substantially equivalent to ours.
In addition to patent protection, we also rely on trade secrets, know-how
and technology advances. We enter into confidentiality agreements with our
employees and others, but these agreements may not be effective in protecting
our proprietary information. Others may independently develop substantially
equivalent information or obtain access to our know-how.
Litigation, which is very expensive, may be necessary to enforce or defend
our patents or rights and may not end favorably for us. Any of our licenses,
patents or other intellectual property may be challenged, invalidated, canceled,
infringed or circumvented and may not provide any competitive advantage to us.
IF THE THIRD-PARTY SUPPLIERS THAT SUPPLY THE MATERIALS NECESSARY TO MANUFACTURE
OUR PRODUCTS DO NOT SUPPLY QUALITY MATERIALS IN A TIMELY MANNER, IT MAY DELAY OR
IMPAIR OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS ON A TIMELY AND
COMPETITIVE BASIS OR ADVERSELY AFFECT OUR POTENTIAL FUTURE PROFITABILITY.
Although most of the raw materials used in the manufacture of our
Dermagraft and TransCyte products are available from more than one supplier,
changes in certain critical components could cause the FDA to require us to
prove equivalency of the materials or potentially to modify or perform
additional clinical trials for our Dermagraft and TransCyte products. This
could have the effect of restricting our ability to commercialize our products.
-9-
<PAGE>
The mesh framework used by us in the manufacture of Dermagraft is available
under a supply agreement with only one FDA-approved manufacturing source.
Similarly, the synthetic mesh framework used by us in the manufacture of
TransCyte 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.
Interruptions in supplies for the manufacture of our Dermagraft and
TransCyte products may occur in the future and we may have to obtain substitute
vendors for these materials. Any significant supply interruption would delay
our clinical trials as well as our product development and marketing programs.
In addition, an uncorrected impurity or supplier's variation in a raw material,
either unknown to us or incompatible with our manufacturing process, could
prevent or delay our ability to manufacture products.
IF OUR PRODUCTS THAT ARE IN AN EARLY STAGE OF DEVELOPMENT ARE NEVER SUCCESSFULLY
COMMERCIALIZED WE MAY NOT HAVE REVENUES TO CONTINUE OPERATIONS.
We have products that are in an early stage of development. To date only
TransCyte has been approved for commercial sale, and only Dermagraft has
advanced to clinical trials for the treatment of diabetic foot ulcers in the
United States. However, Dermagraft will still require further marketing
approvals from the FDA, and all of our other products are at earlier stages of
research, development and testing. These products, including additional
indications for Dermagraft and TransCyte, will require significant additional
research and development, as well as extensive preclinical and clinical testing.
Since our products are based on innovative technologies, there are many
reasons why our products may not advance beyond their early stage of
development. These reasons include the possibilities that:
- any or all of these products will be found to be unsafe or ineffective
or otherwise fail to receive necessary regulatory approvals;
- our products are uneconomical to market;
- third parties may hold legal rights that preclude us from marketing such
products; or
- our products fail to achieve market acceptance in light of competing
technologies and products.
RISKS RELATED TO OUR INDUSTRY
- -----------------------------
IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY
OF OUR PRODUCTS, OR IF APPROVAL IS DELAYED, IT COULD INCREASE THE COST OF
PRODUCT DEVELOPMENT, OR ULTIMATELY PREVENT OR DELAY OUR ABILITY TO SELL OUR
PRODUCTS AND GENERATE REVENUES.
We and our collaborators are subject to extensive government regulation.
The FDA and other state and foreign regulatory authorities require rigorous
preclinical testing, clinical trials and other product approval procedures for
our products. Numerous regulations also govern the manufacturing, safety,
labeling, storage, record keeping, reporting and marketing of our products.
The process of obtaining these approvals and complying with applicable
government regulations is time consuming and expensive. The FDA and other
state or foreign regulatory authorities have limited experience with our
technology and products. As a result, our products are susceptible to
requests for clinical modifications or additional supportive data, or changes
in regulatory policy, which could substantially extend the test period for
our products resulting in delays or rejections. Even after substantial time
and expense, we may not be able to obtain regulatory product approval by the
FDA or any equivalent state or foreign authorities. If we obtain regulatory
product approval, the approval may limit the uses for which we may market the
product.
-10-
<PAGE>
For example, in June 1998, the FDA indicated that our marketing application
for Dermagraft for the treatment of diabetic foot ulcers was not approvable
without supportive data from an additional clinical trial. We are currently
conducting the additional clinical trial of Dermagraft in the treatment of
diabetic foot ulcers as requested by the FDA. If the trial is not successful or
if we do not receive FDA approval at the conclusion of the clinical trial it
will prevent or at least delay sales of Dermagraft.
In addition, although the FDA has classified TransCyte as a medical
device, the state of California and the state of New York have notified us
that we must register as a tissue bank in order to manufacture or distribute
TransCyte 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 TransCyte. In June 1997, we 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 our request. To
date, the FDA has not ruled. If states are permitted to regulate TransCyte
as a human tissue, we and our 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. We are currently distributing TransCyte in the
State of New York under a provisional tissue banking license. Due to the
similarities of the products, regulations applicable to TransCyte are also
expected to apply to our Dermagraft product as well.
After regulatory approval is obtained, our product, its manufacture and
related manufacturing facilities will be subject to continual review and
periodic inspections. Any subsequent discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
For example, after inspecting the manufacturing facility early in 1998 in
conjunction with our application for the approval of Dermagraft for the
treatment of diabetic foot ulcers, the FDA notified us of numerous objection-
able conditions under a Form FDA 483 list of observations. These observations
concerned our manufacturing processes and systems for Dermagraft and TransCyte.
In March 1998, the FDA issued a warning letter requiring us to investigate and
correct the conditions identified by the FDA. In September 1998, we
successfully completed a reinspection by the FDA of our manufacturing facility
and quality systems. However, we must continue to pass future inspections by
the FDA of our manufacturing facility.
Our research and development activities and operations involve the
controlled use of small quantities of radioactive compounds, chemical solvents
and other hazardous materials. In addition, our business involves the growth
of human tissues. In the event of an accident, we could be held liable for
any damages that result. In addition, these research activities and
operations are subject to continual review under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other federal, state or local
laws and regulations which impact our ability to develop and market our
products.
HEALTHCARE REFORM MEASURES AND REIMBURSEMENT PROCEDURES MAY PREVENT US FROM
OBTAINING AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS THAT IN TURN WOULD
DECREASE OUR ABILITY TO GENERATE REVENUES.
Our 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. In some cases, such payors may
refuse to provide any coverage for uses of approved products for indications
that the FDA has not granted marketing approval. Initiatives to reform
healthcare delivery are increasing these cost containment efforts. As managed
care organizations continue to expand as a means of containing healthcare costs,
we believe 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 us,
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.
-11-
<PAGE>
We have supported health economics studies and research and have developed
cost offset or cost-effectiveness models with respect to our TransCyte 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. Adequate government or private payor coverage or levels of
reimbursement may not be available for any of our products and we may not be
able to maintain price levels sufficient for the realization of an appropriate
return on our investment in such products. Failure to obtain sufficient
coverage and reimbursement levels for uses of our products could decrease the
market acceptance of such products.
DISCOVERIES OR DEVELOPMENTS OF NEW TECHNOLOGIES BY OUR COMPETITORS OR OTHERS MAY
MAKE OUR PRODUCT LESS COMPETITIVE OR MAKE OUR PRODUCTS OBSOLETE.
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 we do. 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 we can develop products, complete clinical trials,
obtain regulatory approvals and develop commercial manufacturing capability may
affect our competitive position.
In the area of burns, we compete primarily with cadaver skin or porcine
tissue. We are also aware of several companies that have developed technologies
involving processed cadaver skin used as a skin replacement, such as LifeCell
Corporation, or sheets of cells grown from the patient's own skin, such as
Genzyme Tissue Repair and Cell Culture Technology. Integra Life Sciences or
Integra has Integra Artificial Skin consisting of a bovine or animal-derived
matrix with a synthetic covering, for the treatment of burn wounds. In June
1999, Integra announced that Johnson & Johnson Medical obtained worldwide
exclusive marketing and sales rights, excluding Japan, to Integra Artificial
Skin. In addition, we are aware that Ortec International, Inc. has completed a
pilot clinical trial with its composite cultured skin product, consisting of two
types of skin cells, fibroblasts and keratinocytes, on a bovine or
animal-derived collagen sponge, for the treatment of burn wounds. Several other
companies are also developing or plan to develop growth factors as a treatment
for second degree or small first degree burns.
In the area of diabetic foot ulcers, Chiron Corporation and the Ortho-
McNeil division of Johnson & Johnson have received FDA approval and are
marketing a platelet-derived growth factor for the treatment of diabetic foot
ulcers. In addition, Organogenesis, Inc. has completed clinical trials for
the use of Apligraf, a product using cultured human cells seeded onto a bovine
or animal-derived matrix, for the treatment of diabetic foot ulcers.
Organogenesis received FDA approval to market Apligraf in the treatment of
venous ulcers or "leg ulcers" in May 1998. Organogenesis has also 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 defects in the knee. We are also aware that Integra and Osiris
Therapeutics, Inc. are engaged in research on cultured cartilage products.
Other factors such as our ability to secure regulatory approval for our
products, to implement production and marketing plans, and to secure adequate
capital resources will also impact our competitive position. We may not have
the resources to compete successfully.
IF WE ARE NOT ABLE TO ATTRACT KEY PERSONNEL AND ADVISORS OR IF OUR CURRENT
MANAGEMENT AND TECHNICAL PERSONNEL LEAVE THE COMPANY, IT MAY ADVERSELY AFFECT
OUR ABILITY TO OBTAIN FINANCING OR DEVELOP OUR PRODUCTS.
Our success will depend in large part upon our ability to attract and
retain qualified scientific, administrative and management personnel as well as
the continued contributions of our existing senior management and scientific and
technical personnel. We face strong competition for such personnel and we
cannot give any assurance that we will be able to attract or retain such
individuals. In particular, if we lose the services of either Arthur J.
Benvenuto, our chairman and chief executive officer, or Dr. Gail K. Naughton,
our president and chief operating officer, it will limit our ability to achieve
our business objectives and could make it difficult to raise additional funds or
to attract partners.
-12-
<PAGE>
OUR STOCK PRICE COULD CONTINUE TO BE VOLATILE AND YOUR INVESTMENT IN OUR STOCK
COULD SUFFER A DECLINE IN VALUE, ADVERSELY AFFECTING OUR ABILITY TO RAISE
ADDITIONAL CAPITAL WHICH COULD IN TURN DELAY COMMERCIALIZATION OF OUR PRODUCTS.
The market price of our common stock has fluctuated significantly in recent
years and is likely to fluctuate in the future. For example, from September
1997 to September 1999, our common stock has closed as high as $17.00 per share
and as low as $1.97 per share. Factors contributing to this volatility have
included:
- the results of research or scientific discoveries by us or others;
- progress or the results of preclinical and clinical trials;
- new technological innovations;
- the approval and commercialization of products;
- developments concerning technology rights;
- litigation and related developments; and
- public perception regarding the safety and efficacy of our products.
Fluctuations in our financial performance from period to period, the issuance of
analysts' reports and general industry and market conditions also tend to have a
significant impact on the market price of our common stock.
WE MAY NOT HAVE ADEQUATE INSURANCE AND IF WE BECOME SUBJECT TO PRODUCT LIABILITY
CLAIMS, IT MAY RESULT IN REDUCED DEMAND FOR OUR PRODUCTS OR DAMAGES THAT EXCEED
OUR INSURANCE LIMITATIONS.
The use of any of our products, whether for commercial applications or
during clinical trials, exposes us 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.
We currently maintain product liability insurance coverage; however, such
insurance coverage might not be sufficient to fully cover any potential claims.
Such insurance can be expensive and difficult to obtain. Adequate insurance
coverage may not be available in the future at an acceptable cost, if at all, or
in sufficient amounts to protect us against any such liability. Any product
liability claim in excess of insurance coverage would have to be paid out of our
cash reserves which would have a detrimental effect on our financial condition.
DISCOVERY OF PREVIOUSLY UNKNOWN PROBLEMS WITH A PRODUCT, MANUFACTURER, OR
FACILITY, COULD RESULT IN PRODUCT RECALLS OR WITHDRAWALS AND SIGNIFICANTLY
REDUCE OUR RESOURCES.
Our 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 us, could affect the quality and safety of our products. If any
of the defects were material, we could be required to undertake a market
withdrawal or recall of the affected products. The cost of a market withdrawal
or product recall could significantly reduce our resources.
IF WE OR OUR SUPPLIERS FAIL TO BE YEAR 2000 OR Y2K COMPLIANT IT COULD CAUSE
INTERRUPTIONS IN OUR SUPPLY OF PRODUCTS FOR CLINICAL TRIALS, DELAY THE
COMPLETION OF THE TRIALS, AND GENERATE SUBSTANTIAL EXPENSES FOR OUR BUSINESS.
The Y2K issue is a situation that results from computer systems and
software products being coded using two digits rather than four to define the
applicable year. Computer systems and software products utilize embedded
technology that is time-sensitive and may recognize a date as the year 1900
rather than the year 2000 which could cause computer system failures and errors
leading to a disruption of our business operations. The Y2K issue could affect
not only our operations but also the operations of our business partners,
customers, suppliers and regulatory agencies among others.
-13-
<PAGE>
In response to the risks presented by the Y2K issue, we developed and are
currently implementing a Y2K compliance plan. We have approached the Y2K issue
in two specific phases. Phase I involved the review and analysis of computer
systems, software products, equipment and vendor relationships considered
critical to our operations. Phase II involves the review and analysis of
computer systems, software products, equipment and vendor relationships not
considered critical to our operations. In both phases, we have used qualified
independent consultants to help achieve compliance goals. We currently estimate
the cost of our phase I and II activities to be less than $200,000, exclusive of
internal manpower costs. These estimated costs are primarily for consulting
services and equipment upgrades. We do not expect these costs to be material to
our financial condition or results of operations.
With respect to phase I and II, substantially all required system
modifications have been made to computer servers, operating systems and
telecommunication network equipment. We identified several pieces of
manufacturing and laboratory equipment and facility access control systems
which are currently being upgraded. We believe all significant Y2K problems
relating to systems considered critical to our operations have been identified
and specific plans are in place to assure Y2K compliance, thereby reducing the
risk of a critical Y2K failure or error. We are also assessing approximately
260 vendor relationships. Every reasonable effort will be made to identify
and correct or develop contingency plans for those that are not Y2K compliant.
We have not yet completed our formal contingency plan relative to
undetected Y2K problems. However, at the current time, there does not appear
to be any critical piece of equipment for which backup cannot be provided.
The worst case scenario would likely involve adding additional short-term labor
to perform repetitive manufacturing tasks. There could also be some
incremental costs of replacing current testing capabilities should on-site
test equipment fail. While these extra costs have not yet been estimated,
they are currently not expected to have a material impact on our financial
condition or operating results. In a worst case scenario, if we have not been
able to identify all relevant Y2K issues or resolve any third party issues,
our supply of products and clinical trials could be delayed resulting in
substantial expenses.
RISKS RELATED TO THIS OFFERING
- ------------------------------
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD LOWER OUR STOCK
PRICE AND IMPAIR OUR ABILITY IN NEW STOCK OFFERINGS TO RAISE FUNDS TO CONTINUE
OPERATIONS.
The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. Such sales also might make it more difficult for us to sell equity
securities in the future at a price that we deem appropriate.
PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THEIR STOCK.
You will suffer immediate and substantial dilution in this offering. For
example, assuming an offering price of $3.42 per share, the average of the high
and low sales prices per share of the common stock on September 9, 1999, the pro
forma net tangible book value of the common stock as of June 30, 1999 would be
$0.50 per share resulting in dilution to you of $2.92 per share. To the extent
that outstanding options to purchase the common stock are exercised, there will
be further dilution.
THE LACK OF A MINIMUM OFFERING REQUIREMENT IN THIS OFFERING MAY LIMIT OUR
ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.
In connection with this offering, the amount of funds we may raise is
uncertain. In the event we do not raise sufficient funds, we may not accomplish
our business objectives.
-14-
<PAGE>
OUR CHARTER DOCUMENTS AND STOCKHOLDER RIGHTS PLAN MAY PREVENT US FROM
PARTICIPATING IN TRANSACTIONS THAT COULD BE BENEFICIAL TO YOU.
Our stockholder rights plan and provisions in our certificate of
incorporation and bylaws may discourage transactions involving an actual or
potential change in our ownership, including transactions in which you might
otherwise receive a premium for your shares over the then-current market prices.
These provisions also may limit your ability to approve transactions that you
deem to be in your best interests. In addition, our board of directors may
issue shares of preferred stock without any further action by you. Such
issuances may have the effect of delaying or preventing a change in our
ownership.
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS PROSPECTUS MAY CONTAIN
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS OR IN DOCUMENTS
INCORPORATED BY REFERENCE. WE ARE NOT OBLIGATED TO UPDATE OR REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public on the SEC's website at http://www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings we make with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until our
offering is completed.
1. Our annual report on Form 10-K for the fiscal year ended December 31,
1998, as amended on September 15, 1999, including certain information
in our definitive proxy statement in connection with our 1999 annual
meeting of stockholders;
2. Our quarterly report on Form 10-Q for the quarterly period ended March
31, 1999;
3. Our quarterly report on Form 10-Q for the quarterly period ended June
30, 1999, as amended on August 20, 1999 and September 15, 1999;
4. Our proxy statement for our annual meeting of stockholders held on May
25, 1999;
5. Our current report on Form 8-K filed May 28, 1999;
6. The description of our common stock contained in our registration
statement on Form 8-A filed July 28, 1992, including any amendments or
reports filed for the purpose of updating such descriptions; and
7. The description of our preferred stock purchase rights, contained in
our registration statement on Form 8-A filed on January 6, 1995,
including any amendments or reports filed for the purpose of updating
such descriptions.
-15-
<PAGE>
The reports and other documents that we file after the date of this
prospectus will update and supersede the information in this prospectus.
You may request a copy of these filings, at no cost, by writing or
telephoning us at:
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, California 92037
(858) 713-7300
Attn: Investor Relations
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING OR AUTHORIZING AN OFFER OF THESE
SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THE DOCUMENT.
USE OF PROCEEDS
Assuming an offering price of $3.42 per share based on the average of the
high and low sales prices per share of the common stock on September 9, 1999 as
reported on the Nasdaq National Market, we estimate that the net proceeds from
this offering will be approximately $17.0 million, after deducting our estimated
offering expenses. If shares of our series B preferred stock are submitted for
conversion and we can redeem those shares, we intend to use up to $5.4 million
of the net proceeds to redeem such shares of our series B preferred stock. We
expect the balance of the net proceeds of this offering will be used to fund
existing operations. If we receive less than all of the net proceeds estimated
above either due to a lower purchase price per share, fewer shares being sold or
both, there will be less proceeds available to fund our existing operations. In
addition, should we receive less than all the net proceeds, we will need to
raise additional funds from the sources described below.
We will require substantial additional funds other than those raised in
this offering to conduct our existing operations in the future. We believe that
our existing resources, including the proceeds of this offering and interest
earned thereon, together with anticipated funding of estimated reimbursable
costs, equity investments and milestone payments under collaborative agreements,
and the existing equity line will be sufficient to support our current
operations for at least the next twelve months. We are pursuing funds from each
of the above sources; however, we expect to use the equity line only if
sufficient funds cannot be raised from these other sources. Pending application
of the proceeds as described above, we intend to invest the net proceeds of this
offering in investment-grade, interest-bearing instruments.
-16-
<PAGE>
DILUTION
As of June 30, 1999, the net tangible book value applicable to our common
stockholders was approximately $11.6 million, or $0.22 per share. "Net tangible
book value per share" represents the amount of our total tangible assets reduced
by total liabilities and the liquidation value of our preferred stock
outstanding, divided by the number of shares of common stock we have
outstanding.
Assuming we sell all 5,000,000 shares at $3.42 per share, the average of
the high and low sales prices per share of the common stock on September 9,
1999 as reported on the Nasdaq National Market, the pro forma net tangible
book value of the common stock as of June 30, 1999 would have been $28.6
million, or $0.50 per share, after deducting the estimated expenses of this
offering. This represents an immediate increase in net tangible book value of
$0.28 per share to existing stockholders and an immediate dilution of $2.92 to
the investors on purchasing shares of common stock in this offering. "Dilution
per share" represents the difference between the price per share of common
stock paid by the investors in this offering and the net tangible book value
per share at June 30, 1999 as adjusted to give effect to the sale of 5,000,000
shares in this offering. The dilution to investors in this offering will be
increased to the extent we sell less than 5,000,000 shares of common stock.
The following table illustrates the dilution per share taking into account
the estimated expenses of this offering:
Assumed public offering price per share $ 3.42
-------
Net tangible book value per share as of June 30, 1999 0.22
Increase to present stockholders due to this offering 0.28
----
Pro forma net tangible book value after this offering 0.50
----
Dilution to investors in this offering $ 2.92
=======
_________
Our calculations do not assume the exercise of stock options and warrants
outstanding on June 30, 1999. To the extent these options and warrants
are exercised, there could be further dilution to investors. We
estimated expenses of the offering to be $82,130.
PLAN OF DISTRIBUTION
The common stock is being offered directly by us to a limited number of
investors. We will determine the price of the common stock through negotiations
between us and the purchasers which will take place after effectiveness of the
registration statement. We will not accept any investor funds prior to
effectiveness of the registration statement. The price of the common stock we
offer could be below the current market price. This would result in dilution to
existing stockholders. It could also have an adverse effect on the market for
our stock. We cannot be certain that we will be able to sell all of the shares
offered, and it is possible we will close this offering for less than the
5,000,000 shares being offered.
Our chief executive officer, with the assistance of other officers as
needed, will participate in the sale of the common stock to the investors.
These officers will not receive any compensation for these activities. They
will not be deemed to be brokers pursuant to Rule 3a4-1 under the Exchange Act.
They will seek to identify prospective investors from among institutional and
other potential investors known to have investments in the biotechnology
industry, as well as current stockholders who may be interested in increasing
their investment in Advanced Tissue Sciences. No broker-dealers will
participate as potential investors.
On the closing date, all investor funds will be transmitted directly to us.
Upon receipt of such funds, we will instruct our transfer agent to deliver the
shares of common stock to the purchasers. The offering will not continue after
the closing date.
-17-
<PAGE>
In order to comply with the securities laws of certain states, if
applicable, the common stock will be sold in these jurisdictions only through
registered or licensed brokers or dealers.
We will pay all the expenses for the offering and the sale of the common
stock to the public. We estimate such expenses to be $82,130.
LEGAL MATTERS
Brobeck, Phleger & Harrison LLP, San Diego, California, is giving its
opinion on the validity of the shares you are purchasing in this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Advanced Tissue Sciences, Inc. and the combined
financial statements of the Dermagraft Joint Venture included in our annual
report on Form 10-K for the year ended December 31, 1998, as set forth in their
reports, which are incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements are incorporated by
reference in reliance upon Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
-18-
<PAGE>
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE A STATEMENT THAT DIFFERS FROM WHAT IS
IN THIS PROSPECTUS. IF ANY PERSON DOES MAKE A STATEMENT THAT DIFFERS FROM WHAT
IS IN THIS PROSPECTUS, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, NOR IS IT AN OFFER TO BUY, THESE SECURITIES IN ANY STATE IN WHICH
THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS
COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE INFORMATION MAY CHANGE AFTER THAT
DATE.
5,000,000 SHARES
ADVANCED TISSUE
SCIENCES, INC.
COMMON STOCK
-----------------------------
PROSPECTUS
-----------------------------
SEPTEMBER __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates,
except for the SEC registration fee.
SEC registration fee $ 4,630
Nasdaq National Market fee 17,500
Legal fees and expenses 25,000
Accounting fees and expenses 25,000
Miscellaneous expenses 10,000
--------
TOTAL $ 82,130
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our restated certificate of incorporation or certificate provides that,
except to the extent prohibited by the General Corporation Law of the State of
Delaware ("DGCL"), our directors shall not be personally liable to the Company
or its stockholders for monetary damages for any breach of fiduciary duty as our
directors. Under DGCL, the directors have a fiduciary duty to us 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 us, for acts or omissions which are found by a court of competent
jurisdiction to be not in good faith or which involve 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.
Section 145 of the DGCL 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.
Our by-laws provide that we 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 our director or officer, or that such
director or officer is or was serving at our request 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 us, 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 our best interests, 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, 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 our best interests, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
II-1
<PAGE>
Our by-laws provide further that we 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 our best interests, 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 us 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 our by-laws, we have the power to purchase and maintain, and
have obtained, a directors' and officers' liability policy to insure our
officers and directors against certain liabilities. In addition, we have
entered into indemnification agreements with our directors and officers
containing provisions that may require us, among other things, to indemnify such
directors and officers against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
maintained for other directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have 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.
(A) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 + Instruments defining the rights of stockholders
4.2 ++ Rights Agreement, Dated as of January 6, 1995, between
the Company and Chemical Trust Company of California,
including the Certificate of Determination for the
Series A junior participating preferred stock as Exhibit
A, the Form of Summary of Rights to Right Certificate as
Exhibit B and the Purchase Preferred Shares as Exhibit C
4.3 +++ Investment Agreement between Advanced Tissue Sciences,
Inc., and Ramius Hatteras Partners, L.P., Dated February
9, 1996
4.3(a)++++ Amendment No. 1 to Investment Agreement between Advanced
Tissue Sciences, Inc., and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.), Dated
January 26, 1998
4.3(b)+++++ Amendment No. 2 to Investment Agreement between Advanced
Tissue Sciences, Inc. and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.) Dated
July 10, 1998
5.1* Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23.2* Consent of Brobeck, Phleger & Harrison LLP. Included in
the Opinion of Brobeck, Phleger & Harrison LLP filed as
Exhibit 5.1
24.1* Power of Attorney. Included on page II-5 of registration
statement no. 333-82683
_________________
+ INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENTS ON FORM 8-A,
FILED ON JULY 28, 1992 AND JANUARY 6, 1995
++ INCORPORATED BY REFERENCE TO EXHIBIT 1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 5, 1995
+++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED FEBRUARY 9, 1996
++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 26, 1998
+++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JULY 10, 1998
* PREVIOUSLY FILED
ITEM 17. UNDERTAKINGS.
The undersigned 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 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;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of Regulation S-K at the date of any delayed offering or
throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
II-3
<PAGE>
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all 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, State of California, on the 15th day of
September, 1999.
ADVANCED TISSUE SCIENCES, INC.
By: /s/ Arthur J. Benvenuto
--------------------------------
Arthur J. Benvenuto, Chairman of
the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title
--------- -----
/s/ Arthur J. Benvenuto Chairman of the Board and September 15,
- --------------------------- Chief Executive Officer 1999
Arthur J. Benvenuto (Principal Executive Officer)
/s/ Dr. Gail K. Naughton Director, President and Chief September 15,
- --------------------------- Operating Officer 1999
Dr. Gail K. Naughton
/s/ Michael V. Swanson Senior Vice President and September 15,
- --------------------------- Chief Financial Officer 1999
Michael V. Swanson (Principal Financial and
Accounting Officer)
* Director September 15,
- --------------------------- 1999
Jerome E. Groopman, M.D.
* Director September 15,
- --------------------------- 1999
Jack L. Heckel
* Director September 15,
- --------------------------- 1999
Ronald L. Nelson
* Director September 15,
- --------------------------- 1999
Dayton Ogden
* Director September 15,
- --------------------------- 1999
David S. Tappan, Jr.
* Director September 15,
- --------------------------- 1999
Dr. Gail R. Wilensky
* By: /s/ Arthur J. Benvenuto
-------------------------
Arthur J. Benvenuto
Attorney-In-Fact
II-5
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1+ Instruments defining the rights of stockholders
4.2++ Rights Agreement, Dated as of January 6, 1995, between
the Company and Chemical Trust Company of California,
including the Certificate of Determination for the
Series A Junior Participating Preferred Stock as Exhibit A,
the Form of Summary of Rights to Right Certificate as
Exhibit B and the Purchase Preferred Shares as Exhibit C
4.3+++ Investment Agreement between Advanced Tissue Sciences,
Inc., and Ramius Hatteras Partners, L.P., Dated February
9, 1996
4.3(a)++++ Amendment No. 1 to Investment Agreement between Advanced
Tissue Sciences, Inc., and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.), Dated January
26, 1998
4.3(b)+++++ Amendment No. 2 to Investment Agreement between Advanced
Tissue Sciences, Inc. and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.) Dated July 10,
1998
5.1* Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Ernst & Young, LLP, Independent Auditors
23.2* Consent of Brobeck, Phleger & Harrison LLP. Included in
the Opinion of Brobeck, Phleger & Harrison LLP filed as
Exhibit 5.1
24.1* Power of Attorney. Included on page II-5 of registration
statement no. 333-82683
_________________
+ INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENTS ON FORM 8-A,
FILED JULY 28, 1992 AND JANUARY 6, 1995
++ INCORPORATED BY REFERENCE TO EXHIBIT 1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 5, 1995
+++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED FEBRUARY 9, 1996
++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 26, 1998
+++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JULY 10, 1998
* PREVIOUSLY FILED
II-6
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITIORS
---------------------------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 2 to the Registration Statement (Form S-3) and related Prospectus
of Advanced Tissue Sciences, Inc. for the registration of 5,000,000 shares of
its common stock and to the incorporation by reference therein of our report
dated January 29, 1999, with respect to the consolidated financial statements
of Advanced Tissue Sciences, Inc., and our report dated January 18, 1999, with
respect to the combined financial statements of the Dermagraft Joint Venture
included in the Annual Report (Form 10-K/A) of Advanced Tissue Sciences, Inc.
for the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
September 10, 1999
