AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999
REGISTRATION NO. 333-________
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
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: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount To Be Aggregate Offering Aggregate Offering Registration
Registered (1) Registered Price per Share (2) Price (2) Fee
=================== ============ =================== ================== ============
<S> <C> <C> <C> <C>
Common Stock, $0.01
par value per share 5,000,000 $3.33 $16,650,000 $4,630
===============================================================================================
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
common stock which become issuable in connection with the shares registered
for sale hereby as a result of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of the
Registrant's outstanding shares of common stock.
(2) Estimated solely for the purpose of determining the registration fee and
computed pursuant to Rule 457(c) based on the average of the high and
low sales prices per share of the common stock on July 8, 1999 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 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 JULY 12, 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 5,000,000 shares of our common stock. All of the 5,000,000
shares of our common stock are being sold by us. No underwriter has been or
will be engaged by us in connection with the sale of these shares.
We will determine the price to purchasers on or before the sale of the
shares. The net proceeds to us will be the purchase price less our expenses
of the offering.
The purchase price may be equal or related to the market price prevailing
at that time or such other price as we may agree upon with the purchasers. Our
common stock is traded on the Nasdaq National Market under the symbol "ATIS."
On July 8, 1999, the closing sale price of the Common Stock was $3.25 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.
_______________
The date of this prospectus is July ___, 1999
<PAGE>
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, 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 Current Report on Form 8-K filed May 28, 1999;
4. 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
5. 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.
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.
Dermagraft (R), TransCyte (TM) and NeoCyte (TM) are our trademarks.
This prospectus also includes names and trademarks of other companies.
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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.
ADVANCED TISSUE SCIENCES, INC.
We are a leading tissue engineering company developing human-based tissue
products for therapeutic applications. We are currently focusing our efforts on
skin, cartilage and cardiovascular products. Our core technology uses the
principles of 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 three-dimensional 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 tissue engineering. Our
product strategy is to use our patented core technology to develop multiple
products which address unmet therapeutic needs or offer improved, cost-effective
alternatives to current treatment modalities. By building on our base of
scientific knowledge through the continued application of our core technology,
we believe we can achieve significant synergies in the development, clinical
testing and manufacture of successive tissue products.
Our first commercial product, TransCyte, 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 for the treatment of diabetic foot
ulcers, a living, human dermal replacement, 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 is a dermal replacement product grown on a
bioabsorbable scaffold. It is designed to provide a healthy, metabolically
active dermal matrix 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, 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, over 200,000
nursing home patients suffer from chronic pressure ulcers and approximately
500,000 patients are diagnosed with venous ulcers in the United States each
year.
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ORTHOPEDICS. Through a separate joint venture with Smith & Nephew, we are
developing tissue-engineered cartilage for orthopedic applications based on our
three-dimensional culture system. Over the past several years, the joint
venture's activities have focused on the development of human tissue-engineered
articular cartilage product. We believe a tissue-engineered 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 prototypes for a tissue-engineered meniscus
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 tissue engineering technology, we
are developing blood vessels that will grow and repair normally. Potentially,
these tissue-engineered 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 a multi-disciplinary effort to design, construct and evaluate
tissue-engineered vascular grafts produced from cells grown on a biocompatible
scaffold. This project is integrating current advances in 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 cardio-
vascular 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 vascular grafts.
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 tissue-engineered
cartilage for orthopedic applications. Under the terms of the agreement, we are
responsible for supervising the manufacturing of 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 human-based, tissue engineering 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 an extracellular matrix product for breast reconstruction.
Inamed also received an option to license rights to certain of our
tissue-engineered products which potentially may be used for soft tissue
augmentation such as in wrinkle and cosmetic correction, and as a bulking agent
in 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.
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.
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RECENT DEVELOPMENTS
In June 1999, we announced that Smith & Nephew plc, our partner in our
Dermagraft and cartilage joint ventures, increased its equity ownership
position in Advanced Tissue Sciences. A $10 million loan from Smith & Nephew
related to the Dermagraft Joint Venture 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. 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 Convertible Series B
Preferred Stock continued to convert their shares into common stock. As a
result, we have 100.8 shares of our Convertible Series B Preferred Stock and
approximately 52.2 million shares of our common stock outstanding as of June 30,
1999. We have also notified the holders of the Convertible 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. We may withdraw
this election on five days advance notice.
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
- -----------------------------
OUR PRODUCTS MAY NOT SUCCESSFULLY COMPLETE CLINICAL TRIALS REQUIRED FOR
COMMERCIALIZATION.
We believe that our profitability and 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 TransCyte in the
United States and the key international markets targeted by Smith & Nephew.
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. Assuming successful completion of the clinical trial, we will
still need to apply and receive FDA approval before we can market Dermagraft
for the treatment of diabetic foot ulcers in the United States.
We have received FDA approval to market TransCyte for first and second
degree burns and have been marketing that product since March 1997. Inter-
nationally, the Dermagraft Joint Venture is selling Dermagraft for diabetic
foot ulcers and TransCyte for burns as allowed under regulatory requirements
or as we receive regulatory approvals. Accordingly, the commercial acceptance
of Dermagraft for the treatment of diabetic foot ulcers has not been tested
in the United States, and both Dermagraft and TransCyte have only been marketed
and sold for a limited period of time.
Substantially all of our products under development and many of the
additional applications of our existing products will require successful
clinical trials to support the regulatory approvals required before our
products can be commercialized.
WE WILL NEED ADDITIONAL FUNDS TO SUPPORT OPERATIONS. IF WE ARE UNABLE TO OBTAIN
THEM, WE WOULD HAVE TO REDUCE OR CEASE OPERATIONS, OR ATTEMPT TO SELL SOME OR
ALL OF 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
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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
Corporation, our borrowing capacity under the cartilage joint venture with
Smith & Nephew, and our access to funds under an equity line. In addition,
we may pursue additional public or private offerings of debt or equity
securities or other means. We could also acquire additional funding through
collaborative arrangements or the extension of existing arrangements. With
the equity line, we believe such sources of funds will be sufficient to meet
our present operating and capital requirements for at least the next twelve
months.
We cannot provide assurance that we will satisfy the milestones for
additional funds under the joint ventures with Smith & Nephew or the Inamed
alliance. We also cannot provide assurance that adequate funds will be
available 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.
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 ACHIEVE THE MARKET ACCEPTANCE REQUIRED FOR SUCCESSFUL
COMMERCIALIZATION.
Our products are based on new and innovative technologies and we cannot
provide assurance that either the medical community or the general population
will broadly accept such products as alternatives to existing methods of
treatment. The acceptance of our 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 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.
WE RELY ON THIRD PARTIES TO MARKET AND SELL OUR PRODUCTS AND THOSE THIRD PARTIES
MAY NOT PERFORM SUCCESSFULLY.
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
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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 skin products. We cannot assure Smith & Nephew will perform its obligations
under the Dermagraft Joint Venture as expected. Our failure to achieve broad
acceptance of Dermagraft for the treatment of diabetic foot ulcers and, to a
lesser extent, TransCyte for burn care, would have a material adverse effect
on our business, financial condition and results of operations.
IF WE ARE NOT ABLE TO CONTROL THE AMOUNT AND TIMING OF RESOURCES OUR CURRENT AND
FUTURE COLLABORATORS DEVOTE TO OUR PROGRAMS OR POTENTIAL PRODUCTS, THEN OUR
PRODUCT DEVELOPMENT COULD BE DELAYED OR TERMINATED. THIS WOULD ADVERSELY AFFECT
OUR BUSINESS.
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 to such performance are not within our control, and we cannot
assure that Smith & Nephew will perform its obligations as expected. 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 our control. A termination of such agreements, or a failure of
Smith & Nephew to adequately perform its obligations thereunder, would have a
material adverse effect on our 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 our business, financial condition and results of operations.
We continually seek and consider collaborative arrangements to obtain
funding for the development of our products, such as our recent alliance with
Inamed Corporation. These arrangements may involve the issuance of additional
equity or debt securities and marketing rights to the funding party. We may
seek collaborative arrangements and separate funding for our programs which
may include joint ventures, third party equity investments or other financing
structures. 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.
In addition, we may encounter significant delays in introducing our proposed
products into certain markets or find that the development, manufacture or sale
of our proposed products in such markets is adversely affected by the absence of
such collaborative agreements.
OUR OPERATIONS ARE NOT CURRENTLY 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 March 31, 1999, we had
incurred cumulative net operating losses of $223.8 million. Our ability to
achieve profitability depends in part upon our ability, either independently or
in collaboration with Smith & Nephew and others, to successfully manufacture and
market Dermagraft and TransCyte for skin ulcers and burns. There can be no
assurance that we will ever achieve a profitable level of operations or that
profitability, if achieved, can be sustained on an ongoing basis.
IF OUR PRODUCTS ARE NOT EFFECTIVELY PROTECTED BY VALID, ISSUED PATENTS OR IF WE
ARE NOT OTHERWISE ABLE TO PROTECT OUR PROPRIETARY INFORMATION, WE WILL NOT BE
ABLE TO MAINTAIN A COMPETITIVE POSITION AND IT WOULD HARM OUR BUSINESS.
Our ability to compete effectively will depend, in part, on our ability to
maintain the proprietary nature of our technology and manufacturing processes.
We rely on patents, trademarks, trade secrets and know-how to maintain our
competitive position. As of July 6, 1999, we own thirty-two issued and four
allowed patents in the United States. In addition, thirty 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.
In October 1990, we received a United States patent on our core technology.
This product patent covers three-dimensional living stromal tissue produced by
culturing stromal cells in vitro or outside the body on a biocompatible
framework. The stromal tissue provides the growth factors and structural
proteins used in our three-dimensional matrix to grow organ tissues. This
patent expires in October 2007. In September 1995, we were granted a
corresponding patent by the European Patent Office covering a three-dimensional
stromal tissue and methods of use to grow skin, bone marrow and liver tissue.
The patent will expire in April 2007.
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In November 1993, we received a United States patent relating to
Dermagraft, covering both three-dimensional dermal tissue and full-thickness
skin tissue cultured on living stromal tissue prepared in vitro and, in August
1995, received a United States patent covering the growth and implantation of
our Dermagraft dermal skin replacement. These patents expire in November 2010
and August 2012, respectively. In October 1995, a United States patent was
issued relating to TransCyte. This product patent covers a variety of
transitional burn coverings that use a synthetic membrane with an attached
dermal component. This patent will expire in October 2012.
We received two new U.S. patents in 1998 and three to date in 1999. In
July 1998 and January 1999, we received U.S. patents covering methods for
culturing three-dimensional tissue products made with genetically-modified
cells for gene therapy applications. Under the technology described in the
patents, genetically-modified tissues can be grown on a biocompatible scaffold
using genetically-engineered stromal cells, genetically-engineered parenchymal
cells or both. These patents comprise both product and method of use claims.
These patents expire in July 2015 and January 2017, respectively. In December
1998, we received a U.S. patent covering an apparatus for the growth and
packaging of three-dimensional tissue constructs. We are presently using the
apparatus as a "bioreactor" for the automated production of our Dermagraft and
TransCyte products. This patent expires in December 2015.
In January 1999, we also received a U.S. patent covering tubular, living
three-dimensional tissue constructs, including blood vessels and
gastrointestinal and genitourinary tissues. This patent also covers methods for
preparing these tubular tissues. This patent expires in October 2007. In May
1999, we received a U.S. patent covering living cartilage tissues and methods
for preparing these cartilage tissues in vitro or outside the body. Under the
technology described in the patent, cartilage-producing cells, including
progenitor cells such as mesenchymal stem cells, can be cultured on a framework
to form a three-dimensional cartilage tissue. The rights to this patent extend
until May 2016.
Furthermore, in June 1998, three U.S. patents covering the growth of
vascularized human tissues or organs on three-dimensional biocompatible,
biodegradable and non-biodegradable polymer scaffolds inside the body or in vivo
were issued to the Massachusetts Institute of Technology and Children's
Hospital, Boston. These patents are licensed to us for a broad range of tissues
and organs and complement our core patents covering the growth of tissues
outside the body or ex vivo. The rights to these patents extend until October
2013.
Our other patents issued in the United States cover tissue-engineered
compositions, apparatus and methods for preparing same, processes for
therapeutic applications and laboratory testing. These patents expire between
2005 and 2016. We also have additional United States and foreign patent
applications relating to our tissue engineering technology. In addition, we
have certain licensing rights to United States and foreign patents and patent
applications filed by the Massachusetts Institute of Technology. These
license rights relate to cell growth and organ regeneration and repair, and
biodegradable polymers. They are subject to certain limitations as to
applicable tissues and fields of use. We have also licensed rights to a stem
cell proliferation factor from the University of Florida.
We cannot provide assurance that:
- any applications will result in issued patents;
- any current or future issued or licensed patents, trade secrets or
know-how will afford protection against competitors with similar
technologies or processes;
- any patents issued will not be infringed upon or designed around by
others; or
- others will not independently develop technologies or processes that
are the same as or substantially equivalent to ours.
We could also incur substantial costs in defending ourselves in suits brought
against us on such patents or in bringing suits to protect our patents or
patents we license against infringement. In addition to patent protection, we
rely on trade secrets, know-how and technological advances which we seek to
protect in part by confidentiality agreements with our collaborative partners,
employees and consultants. We cannot provide assurance that these agreements
will not be breached, that we will have adequate remedies for any breach, or
that our trade secrets will not otherwise become known or independently
discovered by competitors.
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WE DEPEND ON THIRD-PARTY SUPPLIERS TO SUPPLY THE MATERIALS NECESSARY TO
MANUFACTURE OUR PRODUCTS WHICH 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, which
could have the effect of restricting our ability to commercialize our products.
The mesh framework used by us in the manufacture of Dermagraft is avail-
able 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.
We cannot give any assurance that interruptions in supplies for the
manufacture of our Dermagraft and TransCyte products will not occur in the
future or that we will not have to obtain substitute vendors for these
materials. Any significant supply interruption would adversely affect 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
have a material adverse effect on our ability to manufacture products.
MANY OF OUR PRODUCTS ARE IN AN EARLY STAGE OF DEVELOPMENT AND MAY NEVER BE
SUCCESSFULLY COMMERCIALIZED WHICH WOULD HAVE AN ADVERSE IMPACT ON YOUR
INVESTMENT AND OUR BUSINESS.
Although TransCyte has been approved for commercial sale and clinical
trials are underway using Dermagraft for the treatment of diabetic foot ulcers
in the United States, 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, including extensive preclinical and clinical testing,
and regulatory approvals prior to commercialization. In addition, even assuming
successful completion of the additional Dermagraft clinical trial, we cannot
provide assurance that the FDA will approve the marketing of Dermagraft.
All of our 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 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
- -----------------------------
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION IN OUR INDUSTRY AND MAY FAIL
TO RECEIVE REGULATORY APPROVAL WHICH COULD PREVENT OR DELAY THE
COMMERCIALIZATION OF OUR PRODUCTS.
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in manufacturing, marketing, researching and
developing our products. Our preclinical studies, clinical trials,
manufacturing and marketing is subject to extensive, costly and rigorous
regulation by various governmental authorities in the United States and other
countries. Most of our 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
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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. We cannot give any
assurance that any products we develop, independently or in collaboration with
others, will receive the required approvals for manufacturing and marketing.
In the United States, the FDA regulates the clinical testing, manufacture,
distribution and promotion of medical devices, biologics and pharmaceuticals
pursuant to the Federal Food, Drug and Cosmetic Act or the FDC Act and related
regulations. Our TransCyte, Dermagraft and cartilage products are subject to
regulation by the FDA as medical devices. Our other tissue replacement
products, currently in various stages of development, could be regulated as
medical devices, biologic products or pharmaceutical products. Legislative and
regulatory initiatives concerning the regulation of tissue and organ transplants
are ongoing and could possibly affect the future regulation of our
tissue-engineered products. We cannot accurately predict the time frame for
such action or the ultimate effect of any such initiatives on the products we
are developing. Unlike 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 device
application.
To obtain FDA approval to market medical devices that are not substantially
equivalent to existing devices, the FDA requires proof of safety and efficacy in
human clinical trials. Clinical trials are performed under an Investigational
Device Exemption or 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 FDA approves an IDE application, human clinical trials may
begin. If the results of these trials are satisfactory, they are accumulated
and submitted to the FDA in support of an application for approval to market the
product. The FDA must give prior approval or clearance before commercial
distribution of medical devices in the United States.
The application for approval for marketing of a medical device must be
supported by extensive data, including preclinical and human clinical trial
data, to prove the safety and efficacy of the device. The application contains
information about the device and its components including, among other things,
manufacturing, labeling and promotion. By regulation, the FDA has 180 days to
review the application. During that time an advisory panel may evaluate the
application and provide recommendations to the FDA. While the FDA has responded
to applications within the allotted time period, reviews more often occur over a
significantly protracted period, often twelve to thirty-six months. A number of
devices for which companies have submitted applications were never cleared for
marketing. The FDA often significantly exceeds the 180-day review time because
it may need additional information or clarification of information provided.
Also, based on deficiencies in the application or its interpretation of the
information provided, the FDA may determine that additional clinical trials are
required. The process is lengthy and expensive and we cannot give any assurance
that we will obtain FDA approval for the marketing of our products.
If the FDA's evaluation of the application for marketing 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. Once the requirements are satisfied,
the FDA will issue an approval for marketing the device for specific
indications, which can be more limited than those originally sought by the
manufacturer. It can also include post-approval conditions that the FDA
believes are necessary to ensure the safety and effectiveness of the device.
These may include 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, a new application or a supplement is required if there is a
modification to the device, its labeling or its manufacturing process.
FDA regulations also require 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, we submitted an application requesting approval of
Dermagraft for the treatment of diabetic foot ulcers. In February 1997, the
FDA accepted the application for filing. We based the submission on the
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results of a pivotal clinical trial from patients receiving Dermagraft within
a therapeutic range identified retrospectively from the trial. Patients
receiving Dermagraft within the therapeutic range represented a majority but
not all the evaluable patients in the trial. We believe 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. The
recommendation included conditions that we 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 we perform 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.
After the advisory panel meeting, the FDA continued to raise concerns
about approving our application based on our retrospective efficacy analysis of
the twelve week data and the use of a post-marketing study to confirm efficacy
at twelve weeks. In June 1998, the FDA indicated the marketing application
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.
We have constructed a commercial manufacturing facility for our TransCyte
and Dermagraft products. This facility must be registered, inspected, and
licensed by various regulatory authorities, including the California Department
of Health and Human Services. The facility also must comply with the FDA's
regulations for quality systems, which elaborate testing, control, documentation
and other quality assurance procedures. The manufacturing facility was
initially inspected and found to be satisfactory by the FDA in 1996, prior to
the approval of TransCyte for the treatment of full-thickness burns. 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 objectionable 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.
In general, if as a result of FDA inspections, adverse event reports or
information derived from any other source, the FDA believes we are not in
compliance with laws or regulations or that our products pose a significant
health risk, the FDA can take the following actions:
- refuse to approve pending applications for marketing;
- withdraw previously approved applications for marketing;
- require notification to users regarding risks;
- request corrective labeling, promotional or advertising materials;
- issue warning letters;
- require companies 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 us, our
officers or employees.
The FDA may not impose civil penalties unless 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 the FDA imposes civil
penalties, judicial review is available.
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With respect to the manufacture of products for which approval is granted,
we 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 quality regulations, adverse event reporting requirements, and other
applicable regulations. Congress has also approved the Food and Drug
Administration Modernization Act of 1997 or 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 affect:
- FDA approval processes;
- 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.
We cannot predict how or when these changes will be implemented or what effect
the changes will have on the regulation of our products. We cannot give any
assurance that we 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 our business, financial condition or results of operations.
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.
Whether regulated by the FDA as a medical device or biologic, or otherwise
by any state or foreign authorities, the approval process for all of our
products is expensive and time consuming. We cannot give any assurance that
the FDA or any regulatory agency will grant its approval. The inability to
obtain, or delays in obtaining, such approvals would adversely affect our
ability to commence marketing therapeutic applications of our technology. We
cannot give any assurance that we will have sufficient resources to complete
the required testing and regulatory review processes. Furthermore, we are
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 we distribute 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.
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. We believe that our safety procedures for handling and
disposing of such materials comply with the standards prescribed by federal,
state and local regulations. However, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, we could be held liable for any damages that result. This
liability could have a material adverse effect on the our business, financial
condition and results of operations.
We also are subject to various federal, state and local laws, regulations
and recommendations relating to such matters as safe working conditions,
laboratory and manufacturing practices. Although we believe we are in
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compliance with these laws and regulations in all material respects, we cannot
give any assurance that we will not be required to incur significant costs to
comply with such laws or regulations in the future.
HEALTHCARE REFORM MEASURES AND REIMBURSEMENT PROCEDURES ARE UNCERTAIN AND MAY
ADVERSELY IMPACT THE COMMERCIALIZATION OF OUR PRODUCTS.
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.
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. We cannot provide assurance that adequate government or private
payor coverage or levels of reimbursement will be available for any of our
products or that we will 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 have a material adverse effect on the market acceptance of such
products and our business, financial condition and results of operations.
In connection with its review of our application for approval of
Dermagraft in the treatment of diabetic foot ulcers, the FDA has approved our
application for a Treatment Investigational Device Exemption or a "Treatment
IDE." The Treatment IDE is a new regulatory provision for devices that permits
companies to make available promising new products under an agreed protocol to
patients with serious diseases for which there is no satisfactory alternative.
Under a Treatment IDE, companies are allowed to recover manufacturing and
distribution costs. We cannot provide assurance, however, that we will be
successful in obtaining reimbursement under the Treatment IDE.
WE FACE INTENSE COMPETITION IN OUR INDUSTRY, WHICH COULD RENDER OUR POTENTIAL
PRODUCTS LESS COMPETITIVE OR OBSOLETE AND COULD HARM OUR COMPETITIVE POSITION.
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. Our ability to attract and retain qualified
scientific, manufacturing, marketing and other personnel, obtain and maintain
patent protection and secure funding are also key competitive factors for our
business.
In the field of tissue engineering and the treatment of damaged or diseased
tissue, we compete with several companies that are developing various tissue
replacement products, including skin substitutes and cultured cartilage. In
addition, we are 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.
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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 dermal replacement, such as LifeCell
Corporation, or sheets of epidermis 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 an
animal-derived (bovine) 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.
We are not aware of any competitor that is developing an off-the-shelf,
human cartilage tissue.
We believe that our tissue-engineered products may have many attributes
that differentiate them from other competitor's products, including the fact
that our products are human-based tissue products designed to be available
"off-the-shelf" to the end-users. However, 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. In addition, for all of our products, we expect to
compete primarily on:
- the uniqueness of our technology and product features,
- on the quality and cost-effectiveness of our products, and
- on the timing of commercial introduction.
We cannot provide assurance we will have the resources to compete
successfully or that competition will not adversely affect our results of
operations or ability to successfully market our products.
IF WE ARE NOT ABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND ADVISORS, 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 have a material adverse
effect on our business.
OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL WHICH COULD IN TURN DELAY
COMMERCIALIZATION OF OUR PRODUCTS.
The market price of our 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 often unrelated to the operating performance of such
companies. The market price of our common stock may be affected by
announcements regarding:
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- 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;
- changes in government regulation;
- developments concerning rights;
- litigation and related developments; or
- public perception regarding the safety of our products.
Fluctuations in our financial performance from period to period, the issuance of
analysts' reports and general market conditions also may have a significant
impact on the market price of our common stock.
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. We cannot provide
assurance that adequate insurance coverage will 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
could have a material adverse effect on our business, financial condition and
results of operations.
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. We cannot provide assurance a
product recall or withdrawal will not occur. The cost of a market withdrawal or
product recall could be significant and could have a material adverse effect on
our business, financial condition and results of operations.
IF WE FAIL TO BE YEAR 2000 OR "Y2K" COMPLIANT IT COULD HARM 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. Our 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.
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 approximate
$175,000 and $100,000, respectively, 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.
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With respect to Phase I and II, substantial all required system
modifications have been made to computer servers, operating systems and
telecommunication network equipment. We identified several pieces of manu-
facturing 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 would not be expected to have a material impact on the our financial
condition or operating results.
This Y2K discussion contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements are
based on our best current estimates, which use numerous assumptions about future
events, including the continued availability of certain resources,
representations received from third parties and other factors. We cannot
guarantee that these estimates will be achieved. In addition, actual results
could differ materially from those anticipated. Specific factors that might
cause material differences include:
- the ability to identify and remediate all relevant Y2K issues;
- the results of actual Y2K testing;
- adequate resolution of Y2K issues by third-party vendors and
suppliers of goods and services;
- unanticipated system costs; and
- the adequacy of and our ability to develop and implement contingency
plans.
Risks Related to this Offering
- ------------------------------
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD LOWER OUR STOCK
PRICE AND IMPAIR OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
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.
You will suffer immediate and substantial dilution in this offering. For
example, assuming an offering price of $3.25 per share, the last sale price of
the Common Stock on July 8, 1999, the pro forma net tangible book value of the
common stock as of March 31, 1999 would be $0.54 per share resulting in dilution
to you of $2.71 per share. To the extent that outstanding options to purchase
the Common Stock are exercised, there will be further dilution.
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OUR CHARTER DOCUMENTS AND STOCKHOLDER RIGHTS PLAN MAY PREVENT 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.
USE OF PROCEEDS
Assuming an offering price of $3.25 per share, we estimate that the net
proceeds from this offering will be approximately $16.6 million, after deducting
our estimated offering expenses. We expect the majority of the net proceeds of
this offering will be used to fund operations including clinical trials and
regulatory filings, investments in support of commitments to our joint ventures
and strategic alliances, product development and research, redemptions of our
Series B Convertible Preferred Stock, if any, and general corporate purposes.
We cannot predict precisely the cost, timing and amount of the anticipated uses.
The amounts and timing of our actual expenditures will depend upon a number of
factors, including but not limited to:
- the scope and results of preclinical studies and clinical trials;
- the progress of research and development activities;
- the cost, timing and outcomes of regulatory review;
- the rate of technological advances;
- determinations as to the commercial potential of our products under
development;
- the amount and timing of administrative and legal expenses;
- the status of competitive products;
- the establishment of manufacturing capacity or third-party manufacturing
arrangements;
- the establishment of collaborative arrangements with other companies;
and
- the availability of other financing.
We will require substantial additional funds to conduct our 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 and planned operations for at least the next twelve months.
Pending application of the proceeds as described above, we intend to invest the
net proceeds of this offering in investment-grade, interest-bearing instruments.
18
<PAGE>
DILUTION
As of March 31, 1999, the net tangible book value applicable to our common
stockholders was approximately a $10.6 million deficit, or $0.26 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. Net tangible book value as of March 31, 1999 does not reflect
the conversion of the Smith & Nephew loan to common stock in June 1999 or
conversions of our Convertible Series B Preferred Stock into common stock
since March 31, 1999.
Assuming we sell all 5,000,000 at $3.25 per share, and after giving
effect to the conversion of the Smith & Nephew loan and the conversions of our
Convertible Series B Preferred Stock since March 31, 1999, the pro forma net
tangible book value of the common stock as of March 31, 1999 would have been
$30.2 million, or $0.54 per share, after deducting the estimated expenses of
this offering. This represents an immediate increase in net tangible book
value of $0.27 per share to existing stockholders and an immediate dilution of
$2.71 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 the net tangible book
value per share at March 31, 1999 as adjusted to give effect to the sale of
5,000,000 shares in this offering, the conversion of the Smith & Nephew loan
and conversions of our Convertible Series B Preferred Stock since March 31,
1999. 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 $ 3.25
----------
Net tangible book value per share as of
March 31, 1999 (0.26)
Increase to present stockholders due to the
loan conversion and conversions of
preferred stock 0.53
Increase to present stockholders due to this
offering 0.27
----------
Pro forma net tangible book value after this
offering 0.54
----------
Dilution to investors in this offering $ 2.71
==========
_________
The table includes the effect of the June 1999 conversion of
our $10 million loan from Smith & Nephew related to the Dermagraft
Joint Venture into common stock and the conversion of shares of
our preferred stock into common stock during the period from
April 1, 1999 to July 8, 1999. Our calculations do not assume
the exercise of stock options and warrants outstanding on
March 31, 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.
19
<PAGE>
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.
Prior to the closing date, all investor funds will be placed in an escrow
account established for the benefit of the investors or will be transmitted
directly to us. If used, the escrow agent will act only as an escrow agent for
the offering of the securities described in this prospectus. The escrow agent
will invest such funds in accordance with Rule 15c2-4 of the Exchange Act. The
escrow agent will advise us when payment for the purchase of the common stock
has been received. Upon receipt of such notice or the funds, we will instruct
our transfer agent to deliver the shares of common stock to the purchasers.
Investor funds will be paid by the escrow agent or transmitted directly to us on
the closing date. The offering will not continue after the closing date. In
the event that the offering is not completed, all funds deposited in the escrow
account, plus any interest will be promptly returned to the investors.
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.
20
<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.
===============================================================================
TABLE OF CONTENTS
-----------------
Page
----
Where You Can Find More Information 3
Information Incorporated By Reference 3
Forward-Looking Statements 4
Advanced Tissue Sciences, Inc. 4
Recent Developments 6
Risk Factors 6
Use of Proceeds 18
Dilution 19
Plan of Distribution 20
Legal Matters 20
Experts 20
===============================================================================
5,000,000 SHARES
ADVANCED TISSUE
SCIENCES, INC.
COMMON STOCK
-----------------------------
PROSPECTUS
-----------------------------
JULY __, 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.
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 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.
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, 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
<PAGE>
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, and has obtained, a directors' and officers' liability policy to
insure its officers and directors against certain liabilities. In addition, the
Company has entered into indemnification agreements with its directors and its
officers containing provisions that may require the Company, 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 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.
(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
<PAGE>
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 this
registration statement.
________________________
+ 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
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
Article 3 of Regulation S-X are not set forth in the Prospectus, to deliver,
or cause to be delivered to each person to
<PAGE>
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 Company 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.
<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 12th day of
July, 1999.
ADVANCED TISSUE SCIENCES, INC.
By: /s/ Arthur J. Benvenuto
----------------------------------
Arthur J. Benvenuto, Chairman of the
Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Arthur J. Benvenuto and Michael V.
Swanson and each of them acting individually, as his or her attorney-in-fact,
each with full power of substitution and resubstitution, for him or her in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact 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 their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title
--------- -----
/s/ Arthur J. Benvenuto Chairman of the Board and Chief July 12, 1999
- ----------------------------- Executive Officer (Principal
Arthur J. Benvenuto Executive Officer)
/s/ Dr. Gail K. Naughton Director, President and Chief July 12, 1999
- ----------------------------- Operating Officer
Dr. Gail K. Naughton
/s/ Michael V. Swanson Senior Vice President and Chief July 12, 1999
- ----------------------------- Financial Officer (Principal
Michael V. Swanson Financial and Accounting Officer)
/s/ Jerome E. Groopman, M.D. Director July 12, 1999
- -----------------------------
Jerome E. Groopman, M.D.
/s/ Jack L. Heckel Director July 12, 1999
- -----------------------------
Jack L. Heckel
/s/ Ronald L. Nelson Director July 12, 1999
- -----------------------------
Ronald L. Nelson
/s/ Dayton Ogden Director July 12, 1999
- -----------------------------
Dayton Ogden
<PAGE>
/s/ David S. Tappan, Jr. Director July 12, 1999
- ----------------------------
David S. Tappan, Jr.
/s/ Dr. Gail R. Wilensky Director July 12, 1999
- ----------------------------
Dr. Gail R. Wilensky
<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 this
registration statement.
________________________
+ 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
Exhibit 5.1
July 12, 1999
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, CA 92037
Re: Advanced Tissue Sciences, Inc. Registration Statement on Form S-3
for 5,000,000 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 proposed issuance and sale
by the Company of up to 5,000,000 shares of the Company's Common Stock (the
"Shares") 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 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,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITIORS
---------------------------------------------------
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 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 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) 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
July 8, 1999
