FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION STATEMENT NO. 333-46508
PROSPECTUS
3,494,365 SHARES
ADVANCED TISSUE SCIENCES, INC.
COMMON STOCK
This prospectus relates to the public offering, which is not being
underwritten, of 3,494,365 shares of our common stock, which is held by one of
our current stockholders. This stockholder acquired the shares directly from us
in a private placement completed on September 20, 2000.
Our common stock is traded on the Nasdaq National Market under the symbol
"ATIS." On October 2, 2000, the average of the high and low price for the
common stock was $7.6875.
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THE COMMON STOCK OFFERED INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 FOR A DISCUSSION OF SOME IMPORTANT RISKS YOU SHOULD
CONSIDER BEFORE BUYING ANY OF OUR COMMON STOCK.
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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.
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The date of this prospectus is October 3, 2000
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TABLE OF CONTENTS
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Page
Advanced Tissue Sciences, Inc................................... 3
Risk Factors.................................................... 5
Forward-Looking Statements...................................... 12
Where You Can Find More Information............................. 12
Information Incorporated by Reference........................... 12
Use of Proceeds................................................. 13
Plan of Distribution............................................ 13
Selling Stockholder............................................. 14
Legal Matters................................................... 15
Experts......................................................... 15
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ADVANCED TISSUE SCIENCES, INC.
We are a leading company in developing tissue products grown from human
cells. We develop these tissue products for medical applications. We are
currently focusing our efforts on skin, cartilage and cardiovascular products.
We apply a broad range of scientific disciplines, such as cell biology,
bioengineering, biochemistry, and polymer and transplant science to culture
living human cells "in vivo" or in the body, or "ex vivo" or outside the body.
We culture the cells in a manner that allows them to develop and assemble into a
functioning tissue. We have successfully replicated a variety of human tissues
using our technology.
Our objective is to redefine tissue repair and transplantation by
developing, manufacturing and marketing products produced through our
technology. Our product strategy is to use our patented methods to develop
multiple products which address unmet therapeutic needs or offer improved,
cost-effective alternatives to current methods of treating patients. By building
on our base of scientific knowledge through the continued application of our
technology, we believe we can achieve significant advances in the development,
clinical testing and manufacture of each of our tissue products.
Our first commercial product, TransCyte(TM), a temporary covering for
burns, was first cleared for commercial sale by the Food and Drug
Administration or FDA in March 1997 for full-thickness, or third degree burns,
and for partial-thickness, or second degree burns, in October 1997.
Dermagraft(R) for the treatment of diabetic foot ulcers, a living replacement
for the lower or dermal layer of human skin, has completed clinical trials in
the United States and a Pre-Market Approval or PMA application has been
submitted for approval by the FDA. 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, known as the Dermagraft Joint
Venture. 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 use in covering the treatment area. 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,
which involves taking tissue from another area of the person's body. TransCyte
was initially approved to address the approximately 1,500 severely burned
patients with burns exceeding 20% of their body surface area. Another 30,000 to
40,000 burn victims, often children, suffer from the partial to mid-dermal burns
also being addressed by TransCyte. These burns frequently result from household
hazards such as scalds from hot liquids, faulty heating pads or misuse of
ignition fluids.
DERMAGRAFT. Dermagraft consists of living skin cells called fibroblasts
grown on a framework that will dissolve over time. It is designed to provide a
healthy tissue which retains the normal activity of living tissue to be placed
in chronic skin ulcers to support wound closure. Healing skin ulcers faster can
potentially reduce the risk of infection (and, in the case of diabetic foot
ulcers, the subsequent risk of amputation), as well as the need for taking skin
from another area of the body and reconstructive procedures. Chronic skin ulcers
that may be addressed by Dermagraft include diabetic foot ulcers, skin ulcers on
the lower part of the leg, generally known as venous ulcers, and pressure
ulcers.
In the United States, approximately 300,000 to 400,000 diabetics suffer
each year from the full-thickness foot ulcers that represent the target market
for Dermagraft. Approximately 700,000 patients suffer with venous ulcers in the
United States each year. It is estimated that more than 1.5 million patients are
affected by acute pressure ulcers, with over 500,000 nursing home patients
suffering from chronic pressure ulcers each year.
ORTHOPEDICS. Through a separate joint venture with Smith & Nephew, we are
developing cartilage tissues for orthopedic applications. Over the past several
years, the joint venture's activities have focused on the development of
articular cartilage, a smooth cartilage that covers the surfaces of joints. We
believe a manufactured articular cartilage could be used to repair cartilage
defects in joints. This would provide an opportunity to treat patients at an
earlier stage of joint degeneration, thereby delaying, or in some cases
eliminating, the need for total joint replacements. We are working to optimize
the product before advancing into clinical trials. The joint venture has also
developed prototypes for a meniscus, the fibrous "shock absorbing" cartilage in
the knee.
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It is estimated there are over 2 million arthroscopic procedures for repair
of the knee, including procedures involving articular cartilage, meniscus and
ligament, performed annually in the United States.
AESTHETIC AND RECONSTRUCTIVE SURGERY. Through a strategic alliance with
Inamed Corporation, we are developing aesthetic and reconstructive applications,
including products for use in cosmetic surgery such as the temporary covering
after chemical peels or laser resurfacing, human collagen for wrinkle and
cosmetic correction and as a bulking agent for the treatment of urinary
incontinence, cartilage for plastic and reconstructive applications and
extracellular matrix for breast reconstruction. There are over 250,000 collagen
injections given annually and over 1.1 million chemical peel or laser
resurfacing procedures performed annually in the United States. In addition, the
number of patients receiving injections to treat urinary incontinence is
expected to rise to over 80,000 this year.
CARDIOVASCULAR. Through the use of our technology, we are developing blood
vessels that will grow and repair normally. Potentially, these blood vessels
could provide enhanced compatibility with the body and may have an improved
chance to remain open with a reduced need for the anticoagulant drugs required
with currently available products. In collaboration with the Department of
Bioengineering at the University of California, San Diego, we are currently
leading an effort to design, construct and evaluate blood vessel grafts produced
from cells grown on a framework that would be compatible with implantation. This
project is using current advances in various scientific areas, such as cell
culture, bioreactor technology, biomaterials and blood vessel mechanics to
create a unique, living tissue replacement for blood vessels. The successful
integration of these technologies could lead to the development of grafts to
treat coronary and peripheral artery vascular diseases.
In the United States, over 900,000 people die each year from cardiovascular
disease. Approximately 12.2 million people suffer from coronary artery disease
and over 600,000 coronary artery bypass procedures are performed annually in the
United States. Likewise, each year in the United States approximately 350,000
patients are diagnosed with peripheral vascular disease, with over 115,000
bypass procedures for the thigh vein alone being performed annually.
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 responsible for manufacturing and Smith & Nephew is
principally responsible for the worldwide sales and marketing of Dermagraft and
TransCyte. Smith & Nephew is a world leader in wound care sales with an
established sales force in over 90 countries. It develops, manufactures and
markets a wide range of tissue repair products, principally addressing the areas
of bone, joints, skin and other soft tissue. Smith & Nephew is known in the
United States for its comprehensive training and customer education programs,
and it has successfully launched several advanced wound care products.
In 1994, we entered into a separate joint venture with Smith & Nephew for
the worldwide development, manufacture and marketing of human cartilage tissue
based on our technology for orthopedic applications, known as the NeoCyte Joint
Venture. Under the terms of the agreement, we are responsible for supervising
the manufacturing of the cartilage tissue products. The joint venture will
execute the research and development program, develop a worldwide marketing
plan, and will use Smith & Nephew's established selling and distribution network
to market the products.
INAMED CORPORATION. In May 1999, we entered into a strategic alliance with
Inamed Corporation for the development and marketing of aesthetic and certain
reconstructive applications of our technology. Specifically, we licensed Inamed
rights to develop, market and sell certain products for use in cosmetic surgery,
cartilage for plastic and reconstructive applications, and a product for breast
reconstruction. In addition, in September 1999, Inamed also received license
rights to use extracellular matrix, including human collagen, from our
three-dimensional culture system for soft tissue augmentation (wrinkles and
cosmetic correction) and as a bulking agent for the treatment of urinary
incontinence. Inamed Corporation is a global surgical and medical device company
engaged in the development, manufacture and marketing of medical devices for the
plastic and reconstructive, obesity treatment and general surgery markets.
Dermagraft(R), TransCyte(TM) and NeoCyte(TM) are our trademarks. This
prospectus also includes names and trademarks of other companies.
Our 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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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS AND UNCERTAINTIES BEFORE PURCHASING
SHARES OF OUR COMMON STOCK. EACH OF THESE RISK AND UNCERTAINTIES COULD ADVERSELY
AFFECT OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION, AS WELL AS
ADVERSELY AFFECTING THE VALUE OF AN INVESTMENT IN OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
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WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE.
To date, we have experienced significant operating losses in funding the
research, development, testing and marketing of our products and expect to
continue to incur substantial operating losses. To June 30, 2000, we had
incurred cumulative net operating losses of $255.5 million. Our ability to
achieve profitability depends in part upon our ability to successfully
manufacture and market Dermagraft and TransCyte for skin ulcers and burns. We
may never achieve a profitable level of operations or even if we achieve
profitability, we may not be able to sustain it on an ongoing basis.
IF OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, IT COULD MATERIALLY ADVERSELY
AFFECT YOUR INVESTMENT AND OUR ABILITY TO RAISE ADDITIONAL CAPITAL.
We expect our operating results to fluctuate from quarter to quarter based
upon when we incur expenses and receive revenues from product sales, contract
fees, milestones and other fees. We believe some of these fluctuations may be
significant, and you could lose all or some of your investment.
IF OUR PRODUCTS FAIL IN CLINICAL STUDIES, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL AND WILL NOT BE ABLE TO SELL THOSE PRODUCTS.
To sell our products that are under development, and our existing products
for additional applications, we must receive regulatory approval for our
products. To obtain those approvals, we must conduct clinical studies
demonstrating that our products are safe and effective. We may be unable to
obtain FDA approval on a timely basis, if at all. If we cannot obtain FDA
approval for a product or any additional application of a product, that product
cannot be sold and revenues will suffer.
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. The clinical trial began in late 1998 and the results
of a planned interim analysis of data from this trial were announced in December
1999. These data showed that, although statistical significance was not achieved
at the interim analysis, Dermagraft was healing more ulcers than the control
treatment in those diabetic foot ulcers having a duration of greater than six
weeks. In February 2000, the FDA approved an application for an amendment to the
Investigational Device Exemption (IDE) for the clinical trial of Dermagraft in
the treatment of diabetic foot ulcers. Based on the data presented to the FDA in
December, the IDE has been amended to revise the enrollment criteria and the
statistical plan for data analysis. Enrollment in this additional clinical trial
has been completed and we submitted our PMA application for approval of
Dermagraft for the treatment of diabetic foot ulcers to the FDA in August 2000.
Commercial introduction within the United States is subject to FDA approval. We
cannot predict with any certainty that the FDA will accept our PMA application
filing or that the FDA will ever approve any such application.
Dermagraft may not be successful in this additional clinical trial or other
future clinical trials. Our ongoing clinical study of Dermagraft, and clinical
studies of our other products, may be delayed or halted for various reasons,
including:
o the product is not effective, or physicians think that it is not
effective;
o patients experience severe side effects during treatment;
o patients do not enroll in the study at the rate we expect; or
o product supplies are not sufficient to treat the patients in the study.
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In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that we have demonstrated that Dermagraft, or any of our other
products, are safe and effective after we complete clinical trials.
WE WILL NEED ADDITIONAL FUNDS TO SUPPORT OPERATIONS. IF WE ARE UNABLE TO OBTAIN
THEM, WE WOULD BE UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT PROGRAMS AND WOULD
HAVE TO REDUCE OR CEASE OPERATIONS, OR ATTEMPT TO SELL SOME OR ALL OF OUR
OPERATIONS OR TO MERGE WITH ANOTHER ENTITY.
The further development of our technology and products as well as any
further development of manufacturing capabilities or the establishment of
additional sales, marketing and distribution capabilities will require the
commitment of substantial funds. Our existing working capital will not be
sufficient to meet our needs. Potential sources of additional funds include
payments from our alliances with Smith & Nephew and Inamed Corporation. If, for
any reason, Smith & Nephew were to terminate the Dermagraft Joint Venture or, to
a lesser extent, the NeoCyte Joint Venture, we would experience a substantial
increase in the need for and use of our working capital to support the
commercialization and manufacture of our Dermagraft and TransCyte products or
the development of our orthopedic cartilage products. We may pursue additional
public or private offerings of debt or equity securities or other means to
obtain funds. We could also acquire additional funding through collaborative
arrangements or the extension of existing arrangements, which could require the
issuance of additional equity interests in us.
We may not satisfy the milestones for additional funds under the joint
ventures with Smith & Nephew or the alliance with Inamed. We also may not be
able to obtain adequate funds under other existing or future arrangements when
such funds are needed or, if available, on terms acceptable to us.
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 or otherwise reduce or cease operations.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET AND MAY NOT BE SUCCESSFULLY
COMMERCIALIZED BECAUSE PHYSICIANS AND PATIENTS MAY NOT PURCHASE OR USE THEM.
Our products are based on new and innovative technologies and the medical
community or the general population may not broadly purchase or use our products
as alternatives to existing methods of treatment. Sales of our products may be
adversely affected by:
o their respective cost;
o concerns related to efficacy;
o the effectiveness of alternative methods of treatment; and
o the insufficiency of third-party reimbursement.
Any future negative events or other unfavorable publicity involving the use
of our products could also adversely affect acceptance of our products. Both we
and Smith & Nephew have limited direct experience marketing or obtaining
third-party reimbursement for these types of products.
Additionally, TransCyte has been marketed and sold in the United States
since 1997. To date, it has not achieved widespread commercial acceptance in the
United States. Similarly, Dermagraft has only been sold internationally and may
never achieve commercial acceptance in the United States even if it receives FDA
approval.
WE RELY ON THIRD PARTIES TO MARKET, DEVELOP AND SELL OUR PRODUCTS AND THOSE
THIRD PARTIES MAY NOT PERFORM SUCCESSFULLY. OUR DEPENDENCE ON THIRD PARTIES AND
OUR LACK OF SALES AND MARKETING PERSONNEL COULD LIMIT OUR ABILITY TO DEVELOP OUR
PRODUCTS OR TO GENERATE REVENUES FROM PRODUCT SALES.
We are particularly dependent on Smith & Nephew with respect to the
Dermagraft Joint Venture and NeoCyte Joint Venture. The amount and timing of
resources to be devoted by Smith & Nephew is not within our control. In
addition, the Dermagraft and NeoCyte joint venture agreements provide that they
may be terminated
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before their expiration under certain circumstances that are outside our
control. If Smith & Nephew does not perform its obligations as expected or if
Smith & Nephew has a strategic shift in its business focus, it would be
difficult for us to successfully complete the development efforts of the
Dermagraft Joint Venture and NeoCyte Joint Venture. We are relying on Smith &
Nephew and others to market our products both domestically and internationally.
Our success in generating market acceptance of Dermagraft and TransCyte
will depend on the marketing efforts of Smith & Nephew. We cannot control the
amount and timing of resources that Smith & Nephew or others may devote to
marketing and selling our products. Smith & Nephew may not perform its
obligations under the Dermagraft Joint Venture as expected. Our failure to
achieve broad use of Dermagraft for the treatment of diabetic foot ulcers and,
to a lesser extent, TransCyte for burn care, would hurt our ability to generate
revenues and any future profits.
To the extent that we choose not to or are unable to establish such
arrangements, we would experience increased capital requirements to undertake
research, development and marketing of our proposed products at our own expense.
If we are unable to meet these expenses we may be unable to continue our
operations.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE TO
PREVENT OTHER COMPANIES FROM USING OUR TECHNOLOGY IN COMPETITIVE PRODUCTS. IF WE
INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY BE PREVENTED FROM
DEVELOPING OR MARKETING OUR PRODUCTS.
Our ability to compete effectively will depend, in part, on our ability to
maintain the proprietary nature of our technology and manufacturing processes.
Our competitors may develop similar products that are the same as our products
and market those products after our patents expire, or may design around our
existing patents. If this happens, sales of our products would suffer and our
ability to generate revenues will be severely impacted. Furthermore, patents may
be issued to others that prevent the manufacture or sale of our products. We may
have to pay significant fees or royalties to license those patents to continue
marketing our products. This would cause any future profits on sales of our
products to decline.
Our dependence upon having exclusive rights to the technology covered under
our owned or licensed patents and patent applications is subject to the
following risks:
o applications may not result in issued patents;
o current or future issued or licensed patents, trade secrets or know-how
may not afford protection against competitors with similar technologies
or processes;
o any patents issued may be infringed upon or designed around by others
or be challenged and invalidated;
o others may independently develop technologies or processes that are the
same as or substantially equivalent to ours.
In addition to patent protection, we also rely on trade secrets, know-how
and technology advances. We enter into confidentiality agreements with our
employees and others, but these agreements may not be effective in protecting
our proprietary information. Others may independently develop substantially
equivalent information or obtain access to our know-how.
Litigation, which is very expensive, may be necessary to enforce or defend
our patents or rights and may not end favorably for us or, even if successful,
may consume enormous financial and management resources. Any of our licenses,
patents or other intellectual property may be challenged, invalidated, canceled,
infringed or circumvented and may not provide any competitive advantage to us.
IF THE THIRD-PARTY SUPPLIERS THAT SUPPLY THE MATERIALS NECESSARY TO MANUFACTURE
OUR PRODUCTS DO NOT SUPPLY QUALITY MATERIALS IN A TIMELY MANNER, IT MAY DELAY OR
IMPAIR OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS ON A TIMELY AND
COMPETITIVE BASIS OR ADVERSELY AFFECT OUR POTENTIAL FUTURE PROFITABILITY.
Although most of the raw materials used in the manufacture of our
Dermagraft and TransCyte products are available from more than one supplier,
changes in certain critical components could cause the FDA to require us to
prove equivalency of the materials or potentially to modify or perform
additional clinical trials for our Dermagraft and TransCyte products, which
could have the effect of restricting our ability to commercialize our products.
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The mesh framework used by us in the manufacture of Dermagraft is available
from only one FDA-qualified manufacturing source. Similarly, the synthetic mesh
framework used by us in the manufacture of TransCyte is available from only one
FDA-qualified 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 suppliers.
Interruptions in supplies for the manufacture of our Dermagraft and
TransCyte products may occur in the future and we may have to obtain substitute
vendors for these materials. Any significant supply interruption would delay our
clinical trials as well as our product development and marketing programs. In
addition, an uncorrected impurity or supplier's variation in a raw material,
either unknown to us or incompatible with our manufacturing process, could
prevent or delay our ability to manufacture products. These delays would have an
adverse effect on our revenues.
IF OUR PRODUCTS THAT ARE IN AN EARLY STAGE OF DEVELOPMENT ARE NEVER SUCCESSFULLY
COMMERCIALIZED WE MAY NOT HAVE REVENUES TO CONTINUE OPERATIONS.
We have products that are in an early stage of development. To date, only
TransCyte has been approved for commercial sale and only Dermagraft has advanced
to clinical trials in the United States. However, Dermagraft will still require
further marketing approvals from the FDA, and all of our other products are at
earlier stages of research, development and testing. These products, including
additional indications for Dermagraft and TransCyte, will require significant
additional research and development, as well as extensive preclinical and
clinical testing.
Since our products are based on innovative technologies, there are many
reasons why our products may not advance beyond their early stage of
development. These reasons include the possibilities that:
o any or all of these products will be found to be unsafe or ineffective
or otherwise fail to receive necessary regulatory approvals;
o our products are uneconomical to market;
o third parties may hold legal rights that preclude us from marketing
such products; or
o our products fail to achieve market acceptance because of competing
technologies and products.
RISKS RELATED TO OUR INDUSTRY
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IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY
OF OUR PRODUCTS, OR IF APPROVAL IS DELAYED, IT COULD INCREASE THE COST OF
PRODUCT DEVELOPMENT, OR ULTIMATELY PREVENT OR DELAY OUR ABILITY TO SELL OUR
PRODUCTS AND GENERATE REVENUES.
We and our development and commercial partners are subject to extensive
government regulation. The FDA and other state and foreign regulatory
authorities require rigorous preclinical testing, clinical trials and other
product approval procedures for our products. Numerous regulations also govern
the manufacturing, safety, labeling, storage, recordkeeping, reporting and
marketing of our products. The process of obtaining these approvals and
complying with applicable government regulations is time consuming and
expensive. The FDA and other state or foreign regulatory authorities have
limited experience with our technology and products. As a result, our products
are susceptible to requests for clinical modifications or additional supportive
data, or changes in regulatory policy, which could substantially extend the test
period for our products resulting in delays or rejections. Even after
substantial time and expense, we may not be able to obtain regulatory product
approval by the FDA or any equivalent state or foreign authorities. If we obtain
regulatory product approval, the approval may limit the uses for which we may
market the product.
For example, in June 1998, the FDA indicated that our marketing application
for Dermagraft for the treatment of diabetic foot ulcers was not approvable
without supportive data from an additional clinical trial. We are currently
conducting the additional clinical trial as requested by the FDA. If the trial
is not successful or if we do not receive FDA approval at the conclusion of the
clinical trial it will prevent or at least delay sales of Dermagraft.
In addition, although the FDA has classified TransCyte as a medical device,
the state of California and the state of New York have notified us that we must
register as a tissue bank to manufacture or distribute TransCyte in those
states. Although some states do not regulate tissue banks, there are certain
other states besides California and
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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 petition to the FDA requesting an advisory opinion that the FDA's
federal regulation of this product as a medical device preempts conflicting New
York laws from regulating the product as banked human tissue. In January 2000,
the FDA denied our petition to preempt applicable New York laws. In view of the
FDA's decision, the Company has initiated discussions at the individual state
level, beginning with the State of California in an attempt to resolve this
matter. We and our customers will be subjected to a costly new layer of
regulation unless the outcome of these discussions concludes otherwise. 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 California and New York under tissue
banking licenses. Due to the similarities of our products, regulations
applicable to TransCyte are also expected to apply to our Dermagraft product and
potentially to our NeoCyte product as well.
After regulatory approval is obtained, our product, and its manufacture and
related manufacturing facilities will be subject to continual review and
periodic inspections. Any subsequent discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
For example, after inspecting the manufacturing facility early in 1998 in
conjunction with our application for the approval of Dermagraft for the
treatment of diabetic foot ulcers, the FDA notified us of numerous 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. However, we must continue to pass future facility inspections by the
FDA and foreign regulatory authorities.
Our research and development activities and manufacturing 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. If an accident occurs, we could be held
liable for any damages that result. In addition, these research activities and
operations are subject to continual review under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other federal, state or local
laws and regulations which impact our ability to develop and market our
products.
HEALTHCARE REFORM MEASURES AND REIMBURSEMENT PROCEDURES MAY PREVENT US FROM
OBTAINING AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS THAT IN TURN WOULD
DECREASE OUR ABILITY TO GENERATE REVENUES.
Our ability to commercialize products successfully will depend in part on
the extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health insurers and other organizations. In the United States,
government and other third-party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement for
new products. 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.
Our TransCyte and Dermagraft products are novel and as such are subject to
inherent uncertainty in the area of reimbursement. Adequate government or
private payor coverage or levels of reimbursement may not be available for any
of our products and we may not be able to maintain price levels sufficient for
the realization of an appropriate return on our investment in such products.
Failure to obtain sufficient coverage and reimbursement levels for uses of our
products could decrease the market acceptance of such products.
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DISCOVERIES OR DEVELOPMENT OF NEW TECHNOLOGIES BY OUR COMPETITORS OR OTHERS MAY
MAKE OUR PRODUCTS LESS COMPETITIVE OR MAKE OUR PRODUCTS OBSOLETE.
The biomedical technology industry is subject to rapid, unpredictable and
significant technological change. Competition from universities, research
institutions and pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities and manufacturing and marketing
experience than we do. In general, the first biomedical product to be
commercialized for a particular therapeutic indication is often at a significant
competitive advantage relative to later entrants to the market. Accordingly, the
relative speed with which we can develop products, complete clinical trials,
obtain regulatory approvals and develop commercial manufacturing capability may
affect our competitive position.
Other factors such as our ability to secure regulatory approval for our
products, to implement production and marketing plans, and to secure adequate
capital resources will also impact our competitive position. We may not have the
resources to compete successfully.
IF WE ARE UNABLE TO ATTRACT KEY PERSONNEL AND ADVISORS OR IF OUR CURRENT
MANAGEMENT AND TECHNICAL PERSONNEL LEAVE THE COMPANY, IT MAY ADVERSELY AFFECT
OUR ABILITY TO OBTAIN FINANCING OR TO 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, it
will limit our ability to achieve our business objectives and could make it
difficult to raise additional funds or to attract partners.
WE MAY NOT HAVE ADEQUATE INSURANCE AND IF WE BECOME SUBJECT TO PRODUCT LIABILITY
CLAIMS, IT MAY RESULT IN REDUCED DEMAND FOR OUR PRODUCTS OR DAMAGES THAT EXCEED
OUR INSURANCE LIMITATIONS.
The use of any of our products, whether for commercial applications or
during clinical trials, exposes us to an inherent risk of product liability
claims if such products cause injury, disease or result in adverse effects. Such
liability might result from claims made directly by healthcare institutions,
contract laboratories or others selling or using such products. We currently
maintain product liability insurance coverage; however, such insurance coverage
might not be sufficient to fully cover any potential claims. Such insurance can
be expensive and difficult to obtain. Adequate insurance coverage may not be
available in the future at an acceptable cost, if at all, or in sufficient
amounts to protect us against any such liability. Any product liability claim in
excess of insurance coverage would have to be paid out of our cash reserves
which would have a detrimental effect on our financial condition.
DISCOVERY OF PREVIOUSLY UNKNOWN PROBLEMS WITH A PRODUCT, MANUFACTURER, OR
FACILITY COULD RESULT IN PRODUCT RECALLS OR WITHDRAWALS AND SIGNIFICANTLY
REDUCE OUR RESOURCES.
Our tissue repair and transplantation products are complex and must be
manufactured under well-controlled and sterile conditions, in addition to
meeting strict product release criteria. Any manufacturing errors or defects, or
uncorrected impurity or variation in a raw material, either unknown or
undetected by us, could affect the quality and safety of our products. If any of
the defects were material, we could be required to undertake a market withdrawal
or recall of the affected products. The cost of a market withdrawal or product
recall could significantly reduce our resources.
10
<PAGE>
RISKS RELATED TO OFFERING
-------------------------
OUR STOCK PRICE COULD CONTINUE TO BE VOLATILE AND ANY INVESTMENT COULD SUFFER A
DECLINE IN VALUE, ADVERSELY AFFECTING OUR ABILITY TO RAISE ADDITIONAL CAPITAL
WHICH COULD IN TURN DELAY COMMERCIALIZATION OF OUR PRODUCTS.
The market price of our Common Stock has fluctuated significantly in recent
years and is likely to fluctuate in the future. For example, from April 1998 to
August 2000, our Common Stock has closed as high as $12.13 per share and as low
as $1.97 per share. Factors contributing to this volatility have included:
o the results of research or scientific discoveries by us or others;
o progress or the results of preclinical and clinical trials;
o new technological innovations;
o the approval and commercialization of products;
o developments concerning technology rights;
o litigation and related developments; and
o public perception regarding the safety and efficacy of our products.
Fluctuations in our financial performance from period to period, the issuance of
analysts' reports and general industry and market conditions also tend to have a
significant impact on the market price of our Common Stock.
FUTURE SALES OF OUR SECURITIES IN THE PUBLIC MARKET COULD LOWER OUR STOCK PRICE
AND IMPAIR OUR ABILITY IN NEW STOCK OFFERINGS TO RAISE FUNDS TO CONTINUE
OPERATIONS.
The market price of our securities could drop due to sales of a large
number of our securities 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.
OUR CHARTER DOCUMENTS AND STOCKHOLDER RIGHTS PLAN MAY PREVENT US FROM
PARTICIPATING IN TRANSACTIONS THAT COULD BE BENEFICIAL TO STOCKHOLDERS.
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 price.
These provisions also may limit our stockholder's ability to approve
transactions that they deem to be in their best interest. In addition, our Board
of Directors may issue shares of preferred stock without any further action by
stockholders. Such issuances may have the effect of delaying or preventing a
change in our ownership.
11
<PAGE>
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 IN THIS PROSPECTUS. WE ARE NOT OBLIGATED TO UPDATE OR
REVISE THESE FORWARD-LOOKING STATEMENTS.
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 Sections 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,
1999, including specified information in our definitive proxy statement
in connection with our 2000 annual meeting of stockholders;
2. Our quarterly report on Form 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000;
3. Our current report on Form 8-K filed September 20, 2000;
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. THE SELLING STOCKHOLDER IS NOT AUTHORIZED TO MAKE 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 THIS DOCUMENT.
12
<PAGE>
USE OF PROCEEDS
Advanced Tissue Sciences will not receive any of the proceeds from the sale
of the shares by the selling stockholder.
PLAN OF DISTRIBUTION
Advanced Tissue Sciences is registering all 3,494,365 shares on behalf of
the selling stockholder. We issued all of the shares to the selling stockholder
in a private placement transaction. The selling stockholder, the State of
Wisconsin Investment Board, named in the table below or pledgees, donees,
transferees or other successors-in-interest selling shares received from the
selling stockholder as a gift, partnership distribution or other non-sale
related transfer after the date of this prospectus (collectively, the selling
stockholder) may sell the shares from time to time. The selling stockholder will
act independently of us in making decisions regarding the timing, manner and
size of each sale. The sales may be made on the Nasdaq National Market or in the
over-the-counter market or otherwise, at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The selling stockholder may effect these transactions by selling
the shares to or through broker-dealers. The shares may be sold by one or more
of, or a combination of, the following:
o a block trade in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by such broker-
dealer for its account under this prospectus;
o an exchange distribution in accordance with the rules of the respective
exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o in privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in the resales.
The selling stockholder may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with the selling stockholder.
The selling stockholder also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholder may enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares covered by this prospectus. The selling stockholder also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may sell the pledged
shares under this prospectus. Broker-dealers or agents may receive compensation
in the form of commissions, discounts or concessions from the selling
stockholder. Broker-dealers or agents may also receive compensation from the
purchasers of the shares for whom they act as agents or to whom they sell as
principals, or both. Compensation as to a particular broker-dealer might be in
excess of customary commissions and will be in amounts to be negotiated in
connection with the sale. Broker-dealers or agents and any other participating
broker-dealers or the selling stockholder may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933 in connection
with sales of the shares. Accordingly, any such commission, discount or
concession received by them and any profit on the resale of the shares purchased
by them may be deemed to be underwriting discounts or commissions under the
Securities Act. Because the selling stockholders may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
selling stockholder will be subject to the prospectus delivery requirements of
the Securities Act. In addition, any securities covered by this prospectus which
qualify for sale in compliance with Rule 144 promulgated under the Securities
Act may be sold under Rule 144 rather than under this prospectus. The selling
stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities. There is no underwriter or coordinating broker
acting in connection with the proposed sale of shares by the selling
stockholder.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
13
<PAGE>
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a restricted
period before the commencement of such distribution. In addition, each selling
stockholder will be subject to applicable provisions of the Exchange Act and the
associated rules and regulations under the Exchange Act, including Regulation M,
which provisions may limit the timing of purchases and sales of shares of our
common stock by the selling stockholder. Advanced Tissue Sciences will make
copies of this prospectus available to the selling stockholder and has informed
him of the need to deliver copies of this prospectus to purchasers at or before
the time of any sale of the shares.
Advanced Tissue Sciences will file a supplement to this prospectus, if
required, to comply with Rule 424(b) under the Securities Act, upon being
notified by a selling stockholder that any material arrangements have been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer. Such supplement will disclose:
o the name of each such selling stockholder and of the participating
broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
o other facts material to the transaction.
In addition, upon being notified by a selling stockholder that a donee or
pledgee intends to sell more than 500 shares, Advanced Tissue Sciences will file
a supplement to this prospectus.
Advanced Tissue Sciences will bear all costs, expenses and fees in
connection with the registration of the shares, including a limited amount of
the selling stockholder's fees and expenses, but excluding fees and expenses of
any other advisers to the selling stockholder. In addition, the selling
stockholder will bear all commissions and discounts, if any, attributable to the
sales of the shares. The selling stockholder may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
shares against various liabilities, including liabilities arising under the
Securities Act. The selling stockholder has agreed to indemnify Advanced Tissue
Sciences, its directors and officers who sign the registration statement, and
control persons against specified liabilities in connection with the offering of
the shares, including liabilities arising under the Securities Act.
SELLING STOCKHOLDER
The following table sets forth the number of shares owned by the selling
stockholder. This registration statement also shall cover any additional shares
of common stock which become issuable in connection with the shares registered
for sale hereby by reason of any stock dividend, stock split, recapitalization
or other similar right, or transaction effected without the receipt of
consideration which results in an increase in the number of Advanced Tissue
Sciences' outstanding shares of common stock. The selling stockholder has not
had a material relationship with Advanced Tissue Sciences within the past three
years other than as a result of the ownership of the shares or other securities
of Advanced Tissue Sciences. No estimate can be given as to the amount of shares
that will be held by the selling stockholder after completion of this offering
because the selling stockholder may offer all or some of the shares they hold
and because there currently are no agreements, arrangements or understandings
with respect to the sale of any of the shares. The shares offered by this
prospectus may be offered from time to time by the selling stockholder named
below.
<TABLE>
<CAPTION>
Shares Beneficially Owned Prior
to This Offering
------------------------------------------- Number of
Percentage of Common Shares Registered
Name of Selling Stockholder Number Stock Outstanding for Sale Hereby
------------------------------------ ------------------ -------------------- -----------------
<S> <C> <C> <C>
State of Wisconsin Investment Board 11,949,365 18.9% 3,494,365
</TABLE>
14
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by
Brobeck, Phleger & Harrison LLP, San Diego, California.
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, 1999, as set forth in their
reports, which are incorporated by reference in this prospectus. 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.
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.
3,494,365 Shares
ADVANCED TISSUE
SCIENCES, INC.
COMMON STOCK
-----------------------------
PROSPECTUS
-----------------------------
October 3, 2000
15
