<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999
REGISTRATION NO. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ISIS PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0336973
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2292 Faraday Avenue
Carlsbad, California 92008
(760) 931-9200
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
B. Lynne Parshall, Esq.
Executive Vice President
ISIS PHARMACEUTICALS, INC.
2292 Faraday Avenue
Carlsbad, California 92008
(760) 931-9200
(Name, address, including zip code, and telephone number,
including area code, of agent for
service)
Copies to:
D. Bradley Peck, Esq.
Scott R. Cutler, Esq.
COOLEY GODWARD LLP
4365 Executive Drive
San Diego, CA 92121
(619) 550-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class Proposed maximum
of securities Amount to offering price per Proposed maximum
to be registered be registered share(1) aggregate offering price Amount of registration fee
- ---------------- ------------- -------- ------------------------ --------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 per share 4,000,000 $13.25 $53,000,000 $14,734
</TABLE>
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933 based upon the average
of the high and low prices of the Registrant's Common Stock as reported on the
Nasdaq National Market on February 3, 1999.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
Subject to Completion, dated February 5, 1999
PROSPECTUS
4,000,000 SHARES
ISIS PHARMACEUTICALS, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
Isis. The price of such shares will be determined by negotiations between Isis
and the purchasers. Isis' Common Stock is traded on the Nasdaq National Market
under the symbol "ISIP". On February 4, 1999, the last reported sale price for
the Common Stock on the Nasdaq National Market was $12.75 per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to the Public Discounts, Fees and Commissions Proceeds to the Company (1
------------------- ------------------------------- --------------------------
<S> <C> <C> <C>
Per Share $ 0 $
Total $ 0 $
</TABLE>
(1) Before deducting expenses of the offering payable by the Company,
estimated at $100,000.
The date of this Prospectus is , 1999
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE> 3
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copies at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's following
regional offices: Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission also
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information regarding the Company. The address
for such site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules thereto, which may be inspected without charge at, and
copies thereof may be obtained at prescribed rates from, the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Isis' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and Isis' Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998, the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders filed pursuant to Rule 14a-6 of the
Exchange Act, and the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed on April 2, 1991, each as filed with
the Commission, are hereby incorporated by reference in this Prospectus except
as superseded or modified herein.
All documents filed with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in any document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
Isis will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been or
may be incorporated by reference herein (other than exhibits to such documents
which are not specifically incorporated by reference into such documents). Such
requests should be directed to the Vice President of Finance at Isis' principal
executive offices at 2292 Faraday Avenue, Carlsbad, California 92008, telephone
number (760) 931-9200.
2.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and consolidated financial statements appearing
elsewhere or incorporated by reference in this Prospectus.
THE COMPANY
Isis was incorporated in California in January 1989 and in April 1991
changed its state of incorporation to Delaware. Our executive offices are
located at 2292 Faraday Avenue, Carlsbad, California 92008, and our telephone
number is (760) 931-9200. Isis' World Wide Web address is http://www.isip.com.
Information contained in our World Wide Web site should not be considered to be
part of this Prospectus.
In February 1999, Dr. Daniel Kisner, President, Chief Operating
Officer and a director of Isis, resigned all positions to assume the position
of Chief Executive Officer of Caliper Technologies, a privately held
biotechnology Company.
Isis Pharmaceuticals is a trademark of the Company. All other brand
names or trademarks appearing in this Prospectus are the property of their
respective holders.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby 4,000,000 shares
Common Stock outstanding
after the offering 31,147,000 shares(1)
Use of proceeds For research, drug discovery and development
activities, including preclinical and
clinical studies, production of compounds
for such studies and capital expenditures,
and other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol ISIP
</TABLE>
- -------
(1) Based on shares outstanding as of January 31, 1999. Does not
include 7,606,730 shares of Common Stock issuable upon exercise of outstanding
options or 1,248,001 shares of Common Stock issuable upon exercise of
outstanding warrants as of January 31, 1999.
3.
<PAGE> 5
RISK FACTORS
Please consider the following risk factors carefully in addition to the other
information contained in this Report.
UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS
We must conduct time-consuming, extensive and costly clinical trials,
in compliance with U.S. Food and Drug Administration ("FDA") regulations, to
show the safety and effectiveness ("efficacy") of each of our drug candidates,
as well as its optimum dosage, before the FDA can approve a drug candidate for
sale.
To begin the process, preclinical studies are conducted, first in the
research laboratory and then in animals, to identify potential safety problems.
For certain diseases, there are animal models that we believe will predict the
effects of the drug candidate in humans. For these diseases, a drug candidate is
first tested in such an animal model. For several of our drug candidates, no
such animal model exists, so evidence of the drug candidate's efficacy must wait
until testing on humans. If the research and preclinical development support
further development, we must then submit an Investigational New Drug ("IND")
application to the FDA to obtain authorization for human clinical testing.
However, our IND application may not be granted by the FDA.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which typically involves giving the
drug to healthy human subjects before giving it to patients, the drug candidate
is tested for safety and tolerance. Phase II typically involves studies in a
somewhat larger population of diseased patients to identify possible negative
effects and safety risks, to begin gathering preliminary efficacy data and
to investigate possible dose sizes and schedules. Phase III trials further
evaluate the drug's efficacy and further test for safety within an expanded
patient population. Each trial follows certain standards and procedures set out
in a scientific document, called a protocol, that describes the objectives of
the study, the standards to be used to monitor safety and the efficacy criteria
to be measured. Each proposed study protocol must be submitted to the FDA as
part of the IND. In addition, in the United States, each clinical study is
observed by an independent Institutional Review Board ("IRB"). The IRB will
consider, among other things, ethical factors, the safety of human subjects and
patients and the possible liability of the study center. Foreign countries have
similar protocol review procedures and review boards.
Even when human clinical trials are authorized, such testing of any of
our current or future drug candidates may not be completed within the specified
time period, if at all. The rate of patient enrollment is a critical factor in
determining whether a clinical trial will be completed. Patient enrollment
depends upon many different factors, including the number of patients suffering
from the disease, the type of procedure involved in the trial, whether patients
live near the clinical site and if patients meet the criteria to allow them to
participate in the study. Delays in planned patient enrollment may result in
significant increased costs and delays to us.
We, the FDA or foreign regulatory agencies may also suspend clinical
trials at any time if it is shown that the subjects or patients participating in
such trials are being exposed to unacceptable health risks. Clinical testing may
show any current or future drug candidate to be unsafe or ineffective, and the
FDA or foreign regulatory agency might not approve any such product.
Once the clinical trials are completed, data from preclinical testing
and clinical trials are submitted to the FDA in a New Drug Application ("NDA")
in order to obtain approval to sell the drug. Preparing an NDA involves
considerable data collection, verification, analysis and expense. The NDA often
takes months to prepare. NDA approval may not be granted on a timely basis, if
at all. A number of factors are weighed by the FDA in the approval process,
including the severity of the disease, whether other treatments are currently
available and the risks and benefits demonstrated in clinical trials. The FDA
may deny an NDA if applicable regulatory criteria are not satisfied. The FDA may
also require additional testing or information prior to approval, or approve the
application but require post-marketing testing and surveillance to monitor the
safety of the drug. Quality control and appropriate manufacturing procedures are
also conditions for NDA approval. We must submit a similar separate application
to foreign regulatory agencies for their review in order to obtain approval to
sell the drug in other countries.
NO ASSURANCE OF REGULATORY APPROVAL
Our ongoing research and development activities, as well as the
production and marketing of our products, are regulated by many federal, state
and local governmental authorities in the United States. Similar regulatory
authorities exist in other countries where we intend to test and market our
products. Various federal, state and foreign statutes also affect the labeling,
storage and record keeping of drug products. The regulatory process, which
includes preclinical and clinical testing of each drug candidate to establish
its safety and effectiveness, can take many years and is very expensive. Data
obtained from
4.
<PAGE> 6
preclinical and clinical activities can be interpreted in different ways, which
could delay, limit or prevent FDA or other regulatory approval. If FDA drug
approval policies change during the period of product development and regulatory
review, delays or rejections can also result. We, our licensees or our marketing
partners may encounter similar delays, difficulties or unanticipated costs in
foreign countries. Therefore, even after spending significant amounts of time,
money, and effort, regulatory approval may not be obtained for drugs developed
by us in the United States or in other countries in which we wish to sell those
drugs.
Even if regulatory approval of a drug is granted, the approval may
limit the drug to certain uses or "indications." Additional clinical trials may
be necessary to obtain approval for the use of a drug for any additional
indications. An approved drug, we as its manufacturer and our manufacturing
facilities are also subject to continual review and periodic inspections by the
FDA or foreign regulatory agencies, even after the drug is on the market. As a
manufacturer, we must spend considerable time, money and effort, especially in
the areas of production and quality control, to comply with FDA or foreign
manufacturing regulations. Later discovery of previously unknown problems with a
product or facility may result in restrictions being placed on us or that
product, including forcing a withdrawal of the product from the market. If our
manufacturing facility is not approved or that approval is withdrawn, it can
take a considerable amount of time to obtain recertification or to certify a new
facility. Our failure to comply with applicable regulatory requirements could,
among other things, result in fines, suspensions of regulatory approvals,
product recalls, operating restrictions and criminal prosecution. Additional
government regulations may be created in the future that could prevent or delay
regulatory approval of our products.
NO ASSURANCE OF MARKET ACCEPTANCE
We currently have one product, Vitravene, a treatment for CMV retinitis
in AIDS patients, which has achieved limited market acceptance in a small
commercial market with significant competition. We cannot guarantee that any of
our products in development, if approved for marketing, will achieve market
acceptance. The degree of market acceptance depends upon a number of factors,
including the receipt and scope of regulatory approvals, the establishment and
demonstration in the medical and patient advocacy community of the clinical
efficacy and safety of our product candidates and their potential advantages
over competitive products, and reimbursement policies of government and
third-party payors. In addition, we cannot guarantee that physicians, patients,
patient advocates, payors or the medical community in general will accept and
utilize any products that may be developed by us.
DEPENDENCE ON COLLABORATIVE PARTNERS
We have relied on certain established pharmaceutical companies
interested in our technology and products to pay for a portion of our research
and development expenses. We have entered into research, development and
distribution agreements with these collaborative partners whereby the partners
provide money in exchange for certain research services, product rights or
marketing rights related to the products or targets involved. Under certain of
these agreements, the collaborative partner has some responsibility for
conducting preclinical testing and human clinical trials and for preparing and
filing the submission for regulatory approval of the drug candidate with the FDA
and foreign regulatory agencies. In addition, certain of these agreements
provide for us to receive royalties or other revenues based on sales of products
developed or marketed by our corporate partners.
If any collaborative partner fails to successfully develop or sell any
product in which we have rights, our business may be negatively affected. While
we believe that our collaborative partners will have sufficient motivation to
continue their funding, development and commercialization activities, we cannot
be sure that any of these collaborations will be continued or result in
successfully commercialized products. The failure of a corporate partner to
continue funding any particular program could delay or stop the development or
commercialization of any products resulting from such program. Collaborative
partners may be pursuing other technologies or developing other drug candidates
either on their own or in collaboration with others, including our competitors,
to develop treatments for the same diseases targeted by our own collaborative
programs. We also may wish to rely on additional collaborative arrangements to
develop and commercialize our products in the future. However, we may not be
able to negotiate acceptable collaborative arrangements in the future, and, even
if successfully negotiated, the collaborative arrangements themselves may not be
successful.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
We are still at an early stage of development. Most of our resources
are dedicated to applying molecular biology and medicinal chemistry to the
discovery and development drug candidates based upon antisense technology, a
novel technology. Laboratory results obtained in preclinical studies do not
necessarily indicate the results that will be obtained in later stages of
preclinical development or in human clinical testing. For example, we are
attempting to develop products for certain diseases for which no appropriate
animal model that might predict efficacy currently exists. As a result, drug
candidates for these diseases must advance at least to Phase II human clinical
trials before we will have evidence of efficacy outside of the laboratory. Drugs
discovered by us may not effectively combat the targeted disease and, even if
they work, may not be commercially successful.
5.
<PAGE> 7
CONTINUING OPERATING LOSSES
Because of the nature of the business of drug discovery and
development, our expenses have exceeded our revenues since the Company was
founded in January 1989. Most of the losses have resulted from costs incurred in
connection with our research and development programs and from general and
administrative costs associated with our growth and operations. These costs have
exceeded our revenues, most of which have come from collaborative arrangements,
interest income and research grants. Our current product revenues are derived
solely from sales of Vitravene. This product has limited sales potential
relative to most pharmaceutical products. We expect to incur additional
operating losses over the next several years and we expect losses to increase as
our preclinical testing and clinical trial efforts continue to expand. We cannot
guarantee that we will successfully develop, receive regulatory approval for,
commercialize, manufacture, market and sell any additional products, or achieve
or sustain future profitability.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
We believe we have enough money to satisfy our needs until at least the
end of 2000. Our future capital requirements will depend on many factors,
including continued scientific progress in our research, drug discovery and
development programs; the size of these programs and progress with preclinical
and clinical trials; the time and costs involved in obtaining regulatory
approvals; the market acceptance of Vitravene; the costs involved in filing,
prosecuting and enforcing patent claims; competing technological and market
developments; changes in existing collaborative relationships and our ability to
establish and maintain additional collaborative arrangements. Our need for
additional funding will also depend upon the cost of manufacturing products on a
larger scale and our ability to establish and maintain effective marketing and
sales activities and arrangements. If we find that we do not have enough money,
additional funds may be raised, including through public or private financing.
Additional financing may not be available, or, if available, may not be on
acceptable terms. If additional funds are raised by issuing equity securities,
the shares of existing stockholders will be subject to further dilution and
share prices may decline. If adequate funds are not available, we may be
required to cut back on one or more of our research, drug discovery or
development programs or obtain funds through arrangements with collaborative
partners or others. These arrangements may require us to give up rights to
certain of our technologies, product candidates or products.
LIMITED LARGE-SCALE MANUFACTURING EXPERIENCE
Our ability to operate profitably will depend in part on our ability to
manufacture our drug products, or to have another company manufacture our
products, at a cost low enough to enable us to charge a competitive price to
buyers. To successfully establish additional commercial manufacturing capability
on a large scale, we must improve our manufacturing processes and reduce our
product costs. The manufacture of sufficient quantities of new drugs is
typically a time-consuming and complex process. Pharmaceutical products based on
chemically modified oligonucleotides have never been manufactured on a large
commercial scale. There are a limited number of suppliers for certain capital
equipment and raw materials that we use to manufacture our drugs, and some of
these suppliers will need to increase their scale of production to meet our
projected needs for commercial manufacturing. We may not be able to manufacture
at a cost or in quantities necessary to make commercially successful products.
POSSIBLE OBSOLESCENCE DUE TO TECHNOLOGICAL CHANGE; COMPETITION
Certain companies, both private and publicly traded, are conducting
research and development activities with antisense technology and products. We
believe that the investigation of the potential of antisense drugs will continue
and may increase as these drug design and development techniques become more
widely understood. Our competitors are engaged in all areas of drug discovery in
the United States and other countries, are numerous, and include, among others,
major pharmaceutical and chemical companies, specialized biopharmaceutical
firms, universities and other research institutions. Our competitors may succeed
in developing antisense drugs or other new therapeutic drug candidates that are
more effective than any drug candidates that we have been developing. Such
competitive development could make our technology and products obsolete or
non-competitive before we have had enough time to recover our research,
development or commercialization expenses.
Many of our competitors have substantially greater financial, technical
and human resources than we do. In addition, many of these competitors have
significantly greater experience than we do in conducting preclinical testing
and human clinical trials of new pharmaceutical products and in obtaining FDA
and other regulatory approvals of products for use in health care. Accordingly,
our competitors may succeed in obtaining regulatory approval for products
earlier than we do. We will compete with respect to manufacturing
6.
<PAGE> 8
efficiency and marketing capabilities, areas in which we have limited or no
experience.
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
Our success will depend in part on our ability to obtain patent
protection for our products both in the United States and in other countries. We
file applications, as appropriate, for patents covering both our products and
processes. Patents may not issue from any of these applications. Patent
applications in the United States are maintained in secrecy until the patents
actually issue, and publication of discoveries in the scientific or patent
journals tends to lag behind the date of the actual discoveries by several
months. For these reasons, we cannot be certain that we were the first creator
of inventions covered by our pending patent applications or that we were the
first to file patent applications for such inventions. The claims allowed under
any issued patents may not be broad enough to protect our proprietary position
in our technology. Even issued patents may be challenged, invalidated or
circumvented by third parties, and the rights granted may not provide us with
competitive advantage.
We must also avoid both infringing patents issued to our competitors
and breaching the technology licenses upon which our products might be based.
While we are aware of patent applications and patents belonging to competitors,
there is always a possibility that a competitor's patent might require us to
alter our products or processes, pay licensing fees or stop certain activities.
We may not be able to obtain a license to other required technology or, if
obtainable, such technology may not be available at reasonable cost. Such
developments would cause financial harm to us.
Costly litigation may also be necessary to enforce any patents issued
to us or to determine the scope and validity of others' proprietary rights in
court or in administrative proceedings. To determine the priority of inventions,
we may find it necessary to participate in interference proceedings declared by
the U. S. Patent and Trademark Office or in opposition, nullity or other
proceedings before foreign agencies in connection with any of our existing or
future patents or patent applications. We may find it necessary to participate,
at substantial cost, in International Trade Commission proceedings to reduce or
stop importation of goods that would compete unfairly with our products. If
required, any of the proceedings described above will result in substantial cost
to us.
We also rely on trade secrets and proprietary know-how, which we try to
protect, in part, by insisting upon confidentiality agreements with our
corporate partners, collaborators, employees and consultants. However, these
agreements may be breached, and we may not have adequate remedies for any
breach. If this happens, our trade secrets may become known or be independently
discovered by competitors.
ABSENCE OF SALES AND MARKETING CAPABILITIES
We have no experience in sales, marketing or distribution. We currently
do not sell any products directly. Instead, we sell our Vitravene product
through our partner CibaVision which is responsible for all sales and marketing
of that product. To market any of our products directly, we must develop an
expert marketing and sales force capable of supporting product distribution. We
may not be able to build such a sales force at all, or at a reasonable cost, and
if we do, our direct sales and marketing efforts may not be successful. As with
any new product, our products may not achieve market acceptance in place of
existing treatments.
UNCERTAINTIES ASSOCIATED WITH THIRD-PARTY REIMBURSEMENT
Our ability to successfully sell our products depends in part on the
extent to which reimbursement for the cost of such products and related
treatments will be available from government health administration authorities,
private health coverage insurers, HMOs and other organizations. Adequate
third-party coverage may not be available to allow the Company to obtain
satisfactory price levels for third-party payor reimbursements. Government and
other third-party payors are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement for new
therapeutic products. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for uses of our products, the
market acceptance of these products will be more difficult.
DEPENDENCE ON KEY EMPLOYEES
We are dependent on the principal members of our management and
scientific staff. The loss of these employees might slow the achievement of
important development goals. It is also critical to our success to recruit and
retain qualified scientific personnel to perform research and development work.
Although we believe we will be successful in attracting and keeping skilled and
experienced scientific personnel, we may not be able to do so on acceptable
terms, because of stiff competition for experienced scientists among many
pharmaceutical and health care companies, universities and non-profit research
institutions.
7.
<PAGE> 9
PRODUCT LIABILITY AND POTENTIAL LIMITS OF INSURANCE COVERAGE
Drugs used in clinical trials and drugs sold on the market may expose
us to damages claims resulting from the use of such products. Consumers, sellers
or distributors of our products can make these claims. We have obtained limited
product liability insurance coverage. However, such coverage is becoming
increasingly expensive, and we may not be able to afford to buy enough liability
insurance to protect us against all of the product liability losses that could
possibly occur.
USE OF HAZARDOUS MATERIALS
Our research and development activities involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by local, state and federal
regulations, there is still a risk of accidental contamination or injury. If
there was such an accident, we could be held liable for any damages that result,
which could prove costly. Although we believe that we are in compliance with
applicable environmental laws and regulations and currently do not expect to
have to spend significant amounts of money for environmental control facilities,
we may be required to do so to comply with environmental laws and regulations in
the future.
VOLATILITY OF STOCK PRICE
The market price of our common stock, like that of the securities of
many other biopharmaceutical companies, has been and is likely to continue to be
highly volatile. The market price can be affected by many factors, including,
for example, fluctuation in our operating results, announcements of
technological innovations or new drug products being developed by us or our
competitors, governmental regulation, regulatory approval, developments in
patent or other proprietary rights, public concern regarding the safety of our
drugs and general market conditions.
ANTI-TAKEOVER PROVISIONS
Our Certificate of Incorporation provides for classified terms for the
members of the Board of Directors. Our Certificate also includes a provision
(the "Fair Price Provision") that requires at least 66-2/3% of our voting
stockholders to approve a merger or certain other business transactions with, or
proposed by, 15% or more of our voting stockholders, except in cases where
certain directors approve the transaction or certain minimum price criteria and
other procedural requirements are met.
Our Certificate of Incorporation also requires that any action required
or permitted to be taken by our stockholders must be taken at a duly called
annual or special meeting of stockholders and may not be taken by written
consent. In addition, special meetings of our stockholders may be called only by
the Board of Directors, the Chairman of the Board or the President, or by any
holder of 10% or more of our outstanding common stock. The classified board,
Fair Price Provision and other charter provisions protect us in two ways. First,
these provisions may discourage certain types of transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they think may be in their best interests. Second, the Board
of Directors has the authority to fix the rights and preferences of and issue
shares of Preferred Stock, which may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders.
8.
<PAGE> 10
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
4,000,000 shares of Common Stock being offered hereby are estimated to be
$50,900,000 assuming a public offering price of $12.75 per share and after
deducting estimated offering expenses.
Companies in the biopharmaceutical industry generally expend
significant capital resources in product research and development. The Company
anticipates that it will be required to raise substantial additional capital
over a period of several years in order to finance its research and development
programs. Such capital may be raised through additional public or private
financings, as well as collaborative relationships, borrowings and other
available sources.
The Company intends to use the net proceeds of this offering for its
research, drug discovery and development programs and for other general
corporate purposes. Expenses to be funded with the offering proceeds include
costs of preclinical and clinical studies, the production of compounds for such
studies and capital expenditures. The Company has not identified precisely the
amounts it plans to spend on each research, drug discovery and development
program or the timing of such expenditures. The Company, however, currently
plans that approximately 80% of the proceeds will be used for product
development, including clinical trials, preclinical studies, manufacturing
scale-up and facilities and equipment acquisition. The remaining proceeds will
be used to expand selected research activities and for general and
administrative purposes. The amounts actually expended for each purpose may vary
significantly depending upon numerous factors, including the progress of the
Company's research, drug discovery and development programs, the results of
preclinical and clinical studies, the timing of regulatory approvals,
technological advances, determinations as to commercial potential of the
Company's compounds and the status of competitive products. In addition,
expenditures will also depend upon the establishment of collaborative research
arrangements with other companies, the availability of other financing and other
factors.
Other methods of financing its operations, including the acquisition of
tenant improvements and capital equipment, such as mortgage or lease financing,
may be used by the Company if available on attractive terms. In the past, Isis
has made a practice of using lease financing for equipment purchases and intends
to continue to do so in the future to the extent the terms of such financing
remain commercially attractive. To the extent such financing is used, proceeds
of this offering will be reallocated to working capital.
Based upon its current operating plan, the Company believes that its
available cash and existing sources of credit, together with the proceeds of
this offering and interest earned thereon, will be adequate to satisfy its
capital needs until at least the end of 2000.
Proceeds of this offering may also be used to acquire companies or
products that complement the business of Isis. No such transactions are being
planned or negotiated as of the date of this Prospectus.
9.
<PAGE> 11
DILUTION
The net tangible book value of the Company at September 30, 1998 was
$2,211,000 or approximately $.08 per share of Common Stock. Net tangible book
value per share represents the amount of the Company's tangible assets less
total liabilities, divided by 26,879,000 shares of Common Stock.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of the offering. After giving effect
to the sale of 4,000,000 shares of Common Stock in this offering at an assumed
offering price of $12.75 per share and the application of the estimated net
proceeds therefrom (after deducting estimated offering expenses) the pro forma
net tangible book value of the Company as of September 30, 1998 would have been
$53,111,000 or $1.72 per share, an immediate increase in net tangible book value
of $1.64 per share to existing stockholders and an immediate dilution in net
tangible book value of $11.03 per share to purchasers of Common Stock in the
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share $12.75
Net tangible book value per share at September 30, 1998 $ .08
Increase per share attributable to new investors $1.64
-----
Pro forma net tangible book value per share after offering $ 1.72
------
Net tangible book value dilution per share to new investors $11.03
------
</TABLE>
To the extent that outstanding options and warrants are exercised,
there will be further dilution to new investors.
PLAN OF DISTRIBUTION
The Common Stock is being offered to a limited number of investors
directly by the Company. The price of the Common Stock offered hereby will be
determined through negotiations between the Company and the purchasers.
The Company will pay all of the expenses incident to the offering and
sale of the Common Stock to the public. Such expenses are estimated to be
$100,000.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Grantland E. Bryce, Vice President and General
Counsel of the Company. Mr. Bryce does not beneficially own any shares of Common
Stock as of the date of this Prospectus.
EXPERTS
The financial statements of Isis Pharmaceuticals, Inc., appearing in
Isis Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are, and audited financial statements to be
included in subsequently filed documents will be, incorporated herein in
reliance upon the reports of Ernst & Young LLP pertaining to such financial
statements (to the extent covered by consents filed with the Securities and
Exchange Commission) given upon the authority of such firm as experts in
accounting and auditing.
10.
<PAGE> 12
4,000,000 SHARES
ISIS PHARMACEUTICALS, INC.
COMMON STOCK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2
PROSPECTUS SUMMARY 3
THE COMPANY 3
THE OFFERING 3
RISK FACTORS 4
USE OF PROCEEDS 9
DILUTION 10
PLAN OF DISTRIBUTION 10
LEGAL MATTERS 10
EXPERTS 10
</TABLE>
<PAGE> 13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the 4,000,000 shares of Common Stock being
registered. All the amounts shown are estimates except for the registration fee.
<TABLE>
<S> <C> <C>
SEC registration fee ...................... $ 14,734
Legal fees and expenses ................... $ 40,000
Accounting fees and expenses .............. $ 10,000
Nasdaq fees for newly issued shares........ $ 17,500
Miscellaneous ............................. $ 17,766
--------
Total ................................ $ $100,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the
Registrant has broad powers to indemnify its Directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and By-laws include
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify it present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interest of the corporation, and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Directors' duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Directors' duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omission that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to Directors and officers. The provision
also does not affect a Director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such persons reasonably
believed to be in or not opposed to the best interests of the Registrant and,
with respect to any criminal proceeding, has no reasonable cause to believe his
conduct was unlawful. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
II-1
<PAGE> 14
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and
directors of the Registrant with respect to certain liabilities, including
liabilities arising under the Securities act or otherwise.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<S> <C>
4.1 Amended and Restated Certificate of Incorporation. (1)
4.2 By-laws. (1)
5.1 Opinion of Grantland E. Bryce.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Grantland E. Bryce. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
</TABLE>
- ----------
(1) Filed as an exhibit to the Registration Statement on Form S-1 (No. 33-39649)
or amendments thereto and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described in Item 15 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, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) of 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 undertakes that; (1) for purpose of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of the registration
II-2
<PAGE> 15
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective; and (2) for the purpose of determining any
liability under the Securities act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 16
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 Carlsbad, County of San Diego, State of California,
on the 5th day of February, 1999.
ISIS PHARMACEUTICALS, INC.
By: /s/ Stanley T. Crooke
-------------------------------------
Stanley T. Crooke, M.D., Ph.D.
Chairman of the Board and Chief
Executive Officer
(Principal executive officer)
II-4
<PAGE> 17
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints STANLEY T. CROOKE and B. LYNNE PARSHALL, and each
of them, as his or her true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in his or her
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement and to file
the same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange commission, granting unto said
attorneys-in-fact and agents, and each of them, full power of 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 and agents, each acting alone, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Stanley T. Crooke Chairman of the Board and February 5, 1999
- ------------------------------------------- Chief Executive Officer
Stanley T. Crooke, M.D., Ph.D. (Principal executive officer)
/s/ B. Lynne Parshall
- ------------------------------------------- Executive Vice President and February 5, 1999
B. Lynne Parshall Chief Financial Officer
(Principal financial and
accounting officer)
/s/ Alan C. Mendelson
- ------------------------------------------- Director February 5, 1999
Alan C. Mendelson
/s/ Christopher F.O. Gabrieli
- ------------------------------------------- Director February 5, 1999
Christopher F.O. Gabrieli
/s/ William R. Miller
- ------------------------------------------- Director February 5, 1999
William R. Miller
/s/ Mark B. Skaletsky
- ------------------------------------------- Director February 5, 1999
Mark B. Skaletsky
/s/ Larry Soll
- ------------------------------------------- Director February 5, 1999
Larry Soll, Ph.D.
/s/ Joseph H. Wender
- ------------------------------------------- Director February 5, 1999
Joseph H. Wender
- ------------------------------------------- Director February , 1999
Burkhard Blank
</TABLE>
II-5
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
4.1 Amended and Restated Certificate of Incorporation. (1)
4.2 By-laws. (1)
5.1 Opinion of Grantland E. Bryce.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Grantland E. Bryce. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
</TABLE>
(1) Filed as an exhibit to the Registration Statement on Form S-1 (No. 33-39649)
or amendments thereto and incorporated herein by reference.
<PAGE> 1
EXHIBIT 5.1
OPINION OF GRANTLAND E. BRYCE
February 4, 1999
Isis Pharmaceuticals, Inc.
2292 Faraday Avenue
Carlsbad, CA 92008
Ladies and Gentlemen:
You have requested my opinion with respect to certain matters in connection with
the filing by Isis Pharmaceuticals, Inc. (the "Company") of a Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering the offering of 4,000,000 shares
of the Company's Common Stock to be sold by certain stockholders, as described
in the Registration Statement (the "Common Stock").
In connection with this opinion, I have examined and relied upon the
Registration Statement, the Company's Amended and Restated Certificate of
Incorporation and Bylaws and the originals or copies certified to our
satisfaction, of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable me to
render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, I am of the opinion that
the Common Stock, when sold in accordance with the Registration Statement, will
be validly issued, fully paid and nonassessable.
I consent to the reference to me under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Grantland E. Bryce
- -------------------------------
Grantland E. Bryce
Vice President, General Counsel
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3), and related Prospectus of Isis
Pharmaceuticals, Inc. for the registration of its common stock, to be filed with
the Securities and Exchange Commission on February 5, 1999, and to the
incorporation by reference therein of our report dated January 23, 1998,
with respect to the financial statements and schedules of Isis Pharmaceuticals,
Inc. included in its Annual Report on Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Diego, California
February 5, 1999
