<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997
REGISTRATION NO. 333-19955
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALKERMES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
PENNSYLVANIA 23-2472830
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
64 SIDNEY STREET
CAMBRIDGE, MASSACHUSETTS 02139-4234
(617) 494-0171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD F. POPS
CHIEF EXECUTIVE OFFICER
ALKERMES, INC.
64 SIDNEY STREET
CAMBRIDGE, MASSACHUSETTS 02139-4234
(617) 494-0171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
MORRIS CHESTON, JR., ESQ. LESLIE E. DAVIS, ESQ.
MARTHA J. HAYS, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
BALLARD SPAHR ANDREWS & INGERSOLL HIGH STREET TOWER
1735 MARKET STREET 125 HIGH STREET
PHILADELPHIA, PA 19103-7599 BOSTON, MA 02110
(215) 665-8500 (617) 248-7000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following 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, 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 of 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.[ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1997
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[ALKERMES LOGO]
ALKERMES, INC.
2,000,000 SHARES
COMMON STOCK
All of the 2,000,000 shares of Common Stock being offered hereby are being
issued and sold by Alkermes, Inc. ("Alkermes" or the "Company"). On January 15,
1997, the last sale price for the Company's Common Stock, as reported on the
Nasdaq National Market, was $22.125 per share. See "Price Range of Common
Stock." The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "ALKS."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ................................... $ $ $
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Total(2) .................................... $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $320,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
MONTGOMERY SECURITIES
COWEN & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
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"). All such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 90 Devonshire Street, Suite 700, Boston,
Massachusetts 02109; 7 World Trade Center, 13th Floor, New York, New York 10048;
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its public reference
facilities at Boston, Massachusetts, New York, New York and Chicago, Illinois at
prescribed rates. In addition, the aforementioned materials may also be
inspected at the offices of the Nasdaq National Market at 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a World-Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission under the Exchange Act
are hereby incorporated by reference into this Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1996;
2. Quarterly reports on Form 10-Q for the fiscal quarters ended June 30,
September 30 and December 31, 1996;
3. Current Report on Form 8-K dated November 14, 1996; and
4. Item 1 of Registration Statement on Form 8-A dated June 28, 1991, as
amended by Form 8-A/A dated January 17, 1997.
All documents subsequently filed by Alkermes pursuant to Sections 13(a),
13(c), 14 and 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 herein and to be a part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated by reference 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 such statement is
modified or superseded by any other subsequently filed document which is
incorporated or is deemed to be incorporated by reference herein. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Alkermes hereby undertakes to provide without
charge to each person, including any beneficial owner, to whom this Prospectus
has been delivered, on the written or oral request of such person, a copy of any
or all of the documents referred to above which have been or may be incorporated
into this Prospectus and deemed to be part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. These documents are available upon request from Michael J.
Landine, Senior Vice President and Chief Financial Officer, Alkermes, Inc., 64
Sidney Street, Cambridge, Massachusetts 02139, (617) 494-0171.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10b-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO OR FROM ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary............................................................................... 4
Risk Factors.......................................................................... 7
Use of Proceeds....................................................................... 17
Dividend Policy....................................................................... 17
Price Range of Common Stock........................................................... 18
Capitalization........................................................................ 19
Dilution.............................................................................. 20
Selected Consolidated Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 26
Management............................................................................ 44
Principal Shareholders................................................................ 46
Underwriting.......................................................................... 48
Legal Matters......................................................................... 49
Experts............................................................................... 49
Additional Information................................................................ 49
</TABLE>
------------------------
Alkermes(R), the Alkermes logo, ProLease(R) and Medisorb(R) are registered
trademarks of Alkermes, Inc. RMP(TM), RMPs(TM), RMP-7(TM) and Receptor-Mediated
Permeabilizers(TM) are trademarks of Alkermes, Inc.
Intron(R) is a registered trademark of Schering Corporation, a subsidiary
of Schering-Plough Corporation.
3
<PAGE> 5
SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Important Factors Regarding Forward-Looking Statements."
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus or
incorporated by reference herein.
THE COMPANY
Alkermes, Inc. (together with its subsidiaries, "Alkermes" or the
"Company") is applying the tools of biotechnology to the development of
sophisticated proprietary drug delivery systems. The Company is developing
product candidates based on three independent drug delivery technologies:
ProLease, which is designed to enable single injections lasting a few days to
several months to be made of proteins or peptides otherwise given by more
frequent injection; RMP-7, which is designed to enable increased drug delivery
to the brain by transiently opening the blood-brain barrier; and Medisorb, which
extends Alkermes' technology for injectable sustained release and is designed
for more traditional small molecule pharmaceutical compounds.
ProLease is proprietary technology for the stabilization and encapsulation
of fragile proteins and peptides in microspheres made of common medical
polymers. Several ProLease product candidates are being developed in
collaboration with large pharmaceutical companies. With Genentech, Inc.
("Genentech"), Alkermes is developing a ProLease sustained-release formulation
of Genentech's human growth hormone ("hGH"). In November 1996, Alkermes
announced the results of a Phase I clinical trial of ProLease hGH, the
initiation of a multi-center Phase I/II clinical trial in growth hormone
deficient children, and an expansion of the collaboration with Genentech. In
December 1996, following the successful completion of a feasibility agreement,
Alkermes announced a collaboration with Johnson & Johnson for a ProLease
formulation of an undisclosed product for the treatment of hormone-mediated
disorders. Also, in collaboration with Schering-Plough Corporation ("Schering-
Plough"), Alkermes is developing a sustained-release formulation of Intron A,
Schering-Plough's alpha interferon, which is approved for use in several
infectious diseases and certain oncology indications.
RMP-7, Alkermes' second drug delivery system, is a novel pharmaceutical
peptide based on bradykinin, a compound occurring naturally in the body and
known to affect vascular permeability. Following injection, RMP-7 increases
permeability by triggering a brief relaxation of the tight cellular junctions of
the blood-brain barrier. During the time that permeability is increased, drug
molecules in the bloodstream can diffuse into the brain in concentrations
greater than can usually be achieved.
Alkermes is currently completing a series of four multi-center Phase II
clinical trials of RMP-7 administered in combination with the chemotherapeutic
agent carboplatin in a planned total of 250 patients with recurrent malignant
glioma. Three such trials involve the intravenous administration of RMP-7 and
carboplatin, and the fourth involves intra-arterial administration of the drug
combination. In December 1996, Alkermes announced the results of two of the
three intravenous Phase II clinical trials, Studies 01-013 and 01-019, which
were non-controlled, open label clinical trials of RMP-7 and carboplatin
conducted in Europe. Study-013 enrolled recurrent malignant glioma patients who
had relapsed following treatment with surgery and radiation. In this clinical
trial, 61-91% of patients responded to the treatment as measured by three
standardized tests of neurological impairment and patient performance status,
and 79% of patients responded to the treatment as measured by shrinkage or
stabilization of tumor volume as measured with contrast-enhanced magnetic
resonance imaging ("MRI"). Study-019 enrolled patients who had relapsed
following surgery, radiation and chemotherapy. In this clinical trial, 40-59% of
patients responded to the treatment as measured by three standardized tests of
neurological impairment and patient performance status, and 24% of
4
<PAGE> 6
patients responded to the treatment as measured by shrinkage or stabilization of
tumor volume with contrast-enhanced MRI.
The third intravenous Phase II trial is being conducted in the United
States and is a double-blind, placebo-controlled clinical trial comparing
treatment with the combination of RMP-7 and carboplatin to treatment with
carboplatin alone. This clinical trial completed enrollment in May 1996 and
results are expected in the first half of 1997. The fourth Phase II trial is
being conducted in the United States and is a non-controlled, open label
multi-center clinical trial of RMP-7 and carboplatin administered
intra-arterially. Enrollment in this clinical trial was completed in September
1996, and results are expected in the first half of 1997.
There can be no assurance that the results of the European clinical trials
will be sufficient for the Company to obtain approval to market RMP-7 in Europe,
or that the European regulatory bodies will not require additional clinical
trials. In addition, there can be no assurance that the results of the United
States Phase II trials will support the results of the European trials.
To support the extensive clinical development of RMP-7, Alkermes formed and
transferred substantially all of its rights to the receptor-mediated
permeabilizer ("RMP") technology to Alkermes Clinical Partners, L.P. (the
"Partnership"). The Company has the right to reacquire such technology by
purchasing all of the limited partnership interests.
Medisorb, the Company's third drug delivery system, is a proprietary
technology for the stabilization and encapsulation of traditional, small
molecule drugs in microspheres made of common medical polymers. In May 1996,
Alkermes announced a collaboration with Janssen Pharmaceutica International
("Janssen") for the development of a Medisorb formulation of a Janssen
proprietary product. Initial Phase I clinical trials of the Medisorb product
candidate were completed in 1996. In October 1996, Alkermes announced an
expansion of the Janssen collaboration.
Alkermes' business strategy is to acquire and develop drug delivery systems
to address significant new drug delivery opportunities arising in the
pharmaceutical industry. This strategy has four key elements: (i) develop and
acquire broadly applicable drug delivery systems and apply them to multiple
pharmaceutical products; (ii) collaborate to develop and finance product
candidates; (iii) apply drug delivery systems to both approved drugs and drugs
in development; and (iv) establish independent product development capabilities.
The Company was incorporated in Pennsylvania in 1987. The Company's
principal executive offices are located at 64 Sidney Street, Cambridge, MA 02139
and its telephone number is (617) 494-0171.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information presented or referenced herein, the
discussion of risk factors on pages 7 to 16 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock.
5
<PAGE> 7
THE OFFERING
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<S> <C>
Common Stock Offered by the Company......................... 2,000,000 shares
Common Stock Outstanding After the Offering................. 20,543,309 shares(1)
Use of Proceeds............................................. For preclinical testing and
clinical trials and other
research and development
activities, commercial
manufacturing facilities and
equipment, working capital and
other general corporate
purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............................... ALKS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------ ------------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $ 9,460 $ 13,903 $ 15,919 $11,031 $ 14,007
Research and development expenses........... 20,480 18,955 21,586 14,913 21,214
Net loss.................................... $(17,275) $(11,904) $(13,747) $(8,201) $(13,970)
======== ======== ======== ======= ========
Net loss per share.......................... $ (1.29) $ (0.88) $ (0.93) $ (0.57) $ (0.77)
======== ======== ======== ======= ========
Weighted average shares outstanding......... 13,362 13,535 14,775 14,387 18,076
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents and total investments...................... $ 44,046(3) $ 85,431(3)
Total assets.................................................... 57,611 98,996
Long-term debt, less current portion............................ 11,611 11,611
Accumulated deficit............................................. (115,017) (115,017)
Shareholders' equity............................................ 33,490 74,875
</TABLE>
- ---------------
(1) Excludes as of January 9, 1997 outstanding options and awards for 2,021,359
shares of Common Stock at a weighted average exercise price of $5.94 per
share and outstanding warrants to purchase 1,388,308 shares of Common Stock
at a weighted average exercise price of $6.60 per share.
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed offering price of $22.125 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(3) Includes approximately $1.4 million of investments which are restricted.
Except as otherwise specified herein, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Important Factors Regarding Forward-Looking
Statements."
In addition to the other information included or incorporated by reference
in this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing shares of the Common
Stock offered hereby.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of each of
its product candidates under development, Alkermes or its collaborators must
demonstrate through preclinical testing and clinical trials that the product
candidate is safe and efficacious. The results from preclinical testing and
early clinical trials may not be predictive of results obtained in subsequent
clinical trials, and there can be no assurance that the Company's or its
collaborators' clinical trials will demonstrate the safety and efficacy of any
product candidates necessary to obtain regulatory approval. A number of
companies in the biotechnology and pharmaceutical industries have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials. In addition, certain clinical trials are conducted
with patients having the most advanced stages of disease. During the course of
treatment, these patients often die or suffer other adverse medical effects for
reasons that may not be related to the pharmaceutical agent being tested. Such
events can adversely affect the statistical analysis of clinical trial results.
For example, the Company's RMP-7 clinical trial results for patients with brain
tumor may be adversely affected by the severity and advanced state of disease in
participating patients.
The risk and complexity of clinical trials of the Company's product
candidates is increased by the use of other pharmaceuticals in combination with
ProLease, RMP-7, and Medisorb, the Company's drug delivery technologies. Even if
such other pharmaceutical has received approval by the United States Food and
Drug Administration ("FDA") or other regulatory agencies, the outcome of
clinical trials is dependent upon the performance of ProLease, RMP-7, or
Medisorb in combination with the pharmaceutical agent.
Moreover, drugs used with the drug delivery systems may not have been
approved for the indication for which the Company is conducting clinical trials.
For example, Alkermes is currently conducting Phase II clinical trials of RMP-7
administered in combination with the chemotherapeutic agent carboplatin in
patients with recurrent malignant glioma. Carboplatin has not been approved for
the treatment of this indication. No assurance can be given that the FDA will
not require additional clinical trials to demonstrate the safety and efficacy of
carboplatin in the treatment of brain tumor.
The Company recently announced the results of two Phase II non-controlled,
open label clinical trials in Europe. There can be no assurance that the results
of the clinical trials will be sufficient for the Company to obtain approval to
market RMP-7 in Europe, or that the European regulatory authorities will not
require additional clinical trials. Phase II clinical trials are ongoing in the
United States. There can be no assurance that the Company's United States Phase
II clinical trials will be completed on a timely basis, if at all. In addition,
no assurance can be given that the results of the Company's Phase II clinical
trials in the United States or any other trials will support the results of the
European trials or be sufficient for the Company to obtain approval to market
RMP-7 in the United States, or that the FDA will not require additional clinical
trials.
The completion of clinical trials of the Company's product candidates may
be delayed by many factors and there can be no assurance that delays or
terminations will not occur. One such factor is the rate of enrollment of
patients, which generally varies throughout the course of a clinical trial and
which depends on the size of the patient population, the number of clinical
trial sites, the proximity of patients to clinical trial sites, the eligibility
criteria for the trial and the existence of competitive
7
<PAGE> 9
clinical trials. Neither the Company nor its collaborators can control the rate
at which patients present themselves for enrollment, and there can be no
assurance that the rate of patient enrollment will be consistent with the
Company's expectations or be sufficient to enable clinical trials of the
Company's product candidates to be completed in a timely manner. Any significant
delays in, or termination of, clinical trials of the Company's product
candidates would have a material adverse effect on the Company's business,
financial condition and results of operations.
There can be no assurance that Alkermes or its collaborators will be
permitted by regulatory authorities to undertake additional clinical trials for
any of its technologies, or that if such trials are conducted, any of the
Company's product candidates will prove to be safe and efficacious or will
receive regulatory approvals. Any delays in or termination of the Company's or
its collaborator's clinical trial efforts would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Product Candidates in Development."
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
All of the Company's product candidates are in research or development. No
significant revenues have been generated from product sales. In order to achieve
profitability, Alkermes must successfully develop, commercialize, manufacture
and market its products, either alone or in collaboration with others. Any
products resulting from the Company's research and development programs may not
be commercially available for several years, if at all.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that the potential products
will be found ineffective or cause harmful side effects during preclinical
testing or clinical trials, fail to receive necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical, fail to achieve
market acceptance, or be precluded from commercialization by proprietary rights
of third parties.
The Company's product candidates require significant additional research
and development efforts. The Company's principal drug delivery systems,
ProLease, RMP-7, and Medisorb, which have not yet been proven safe and effective
in humans, target unsolved drug delivery problems. No assurance can be given
that any of the Company's development programs will be successfully completed,
that required regulatory approvals will be obtained on a timely basis, if at
all, or that any products for which approval is obtained will be commercially
successful. If any of the Company's development programs is not successfully
completed, required regulatory approvals are not obtained, or products for which
approvals are obtained are not commercially successful, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Business -- Product Candidates in Development."
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
Alkermes will require substantial additional funding in order to continue
its research and product development programs and preclinical testing and
clinical trials of its product candidates, for operating expenses, for the
pursuit of regulatory approvals for its product candidates, and for establishing
manufacturing and marketing capabilities. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the magnitude of these
programs, progress with preclinical testing and clinical trials, the time and
costs involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the establishment of additional collaborative arrangements, the
cost of manufacturing facilities and of commercialization activities and
arrangements, and the cost of product in-licensing and any possible
acquisitions. Although the Company believes that its cash reserves and other
liquid assets, the net proceeds of this offering, funding that may be received
from the Company's collaborators, and interest income earned will be adequate to
satisfy its capital and operating requirements through 1998, there can be no
assurance that these funds will be sufficient.
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Alkermes intends to seek additional funding through arrangements with
corporate collaborators and through public or private sales of the Company's
securities, including equity securities. In addition, the Company has obtained
equipment, bank, and other loans and may continue to pursue opportunities to
obtain additional debt financing in the future. There can be no assurance,
however, that additional equity or debt funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's shareholders. If adequate funds are not available, Alkermes may be
required to curtail significantly one or more of its research and development
programs and/or obtain funds through arrangements with collaborative partners or
others that may require Alkermes to relinquish rights to certain of its
technologies or product candidates.
The Company's research and development of RMP-7 has been funded by the
Partnership pursuant to a Product Development Agreement, dated as of March 6,
1992, between Alkermes and the Partnership (the "Product Development
Agreement"). Such funding, which ended as of June 30, 1996, was not sufficient
to complete clinical trials and obtain regulatory approval of RMP-7. As a
result, Alkermes has used and intends to continue to use its own resources to
develop RMP-7, but may be forced to seek alternative sources of funding,
including additional collaborators. The Company has the option to purchase the
Partnership interests for cash or stock (the "Purchase Option"). This option
will terminate in the event the Company ceases funding the development of RMP-7.
If the Company elects to exercise its option to purchase the Partnership
interests for cash, the Company will be required to make a substantial cash
payment. The Company would be required to seek additional capital for such a
payment and there is no assurance that it would be able to obtain such capital
on attractive terms or at all. If Alkermes does not purchase the partnership
interests of the limited partners it may not recoup any investment made by it in
the development of RMP-7. See "-- Rights to RMP Technology; Effect of Exercise
of the Partnership Purchase Option."
DEPENDENCE ON COLLABORATORS; POTENTIAL CONFLICTS OF INTEREST
The Company's strategy for research, development and commercialization of
its product candidates is to rely, in part, upon various corporate collaborators
and licensors and will in some cases be dependent upon these outside parties to
conduct preclinical testing and clinical trials, and to provide adequate funding
for the Company's development programs. The Company has established several
collaborative arrangements with pharmaceutical companies including Genentech,
Schering-Plough, and Johnson & Johnson with respect to its ProLease technology,
with the Partnership with respect to its RMP-7 technology, and with Janssen with
respect to its Medisorb technology. The collaboration and license agreements may
be terminated in some cases at the discretion of the Company's collaborators
with only limited notice to the Company. See "Business -- Collaborative
Arrangements."
Neither ProLease nor Medisorb is an independently commercializable
technology. Both technologies are dependent on therapeutic products from third
parties, which may require licensing, collaboration or other arrangements. There
can be no assurance that the Company will be able to negotiate acceptable
additional collaborative arrangements that the Company deems necessary to
develop or commercialize its product candidates. Even if the Company is able to
negotiate acceptable new collaborative arrangements, there can be no assurance
that such arrangements or the Company's existing collaborations will be
completed or will be successful or that the Company will realize any revenues
pursuant to such arrangements.
Alkermes is currently conducting clinical trials of RMP-7 with carboplatin
in patients with brain tumor. If RMP-7 continues to proceed satisfactorily in
its development, the Company's strategy is to expand the applications of RMP-7
to different drugs and diseases in part through collaborations with
pharmaceutical companies. There can be no assurance that such collaborations
will be completed or will be successful or that the Company will be able to do
so on favorable terms or realize any revenues resulting from them. The Company's
failure to enter into such collaborations could have a material adverse effect
on the development of RMP-7.
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The amount and timing of resources which the parties to collaborative
arrangements with the Company devote to these activities is not within the
control of the Company. If any of the Company's collaborators breaches or
terminates its agreement with the Company or otherwise fails to conduct its
collaborative activities in a timely manner, the development or
commercialization of the product candidate or research program under such
collaborative agreement may be delayed, and the Company may be required to
devote unforeseen additional resources to such development or commercialization,
or terminate such programs. The termination of collaborative arrangements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that disputes will not
arise in the future with respect to the ownership of rights to any technology
developed with third parties. These and other possible disagreements between
collaborators and the Company could lead to delays in the collaborative
research, development or commercialization of certain product candidates, or
could require or result in litigation or arbitration, which would be time
consuming and expensive and would have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, Alkermes' collaborators may develop, either alone or with
others, products that compete with the development and marketing of the
Company's product candidates. Competing products, either developed by the
Company's collaborators or to which the collaborators have rights, may result in
the Company's collaborators withdrawing research, development or marketing
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Alkermes has had net operating losses since its inception in 1987. At
December 31, 1996, the Company's accumulated deficit was approximately $115.0
million. The Company's losses have resulted principally from costs incurred in
research and development, including clinical trials, the purchase of in-process
research and development, and from general and administrative costs associated
with the Company's operations. These costs have exceeded the Company's revenues,
which to date have been generated almost entirely from the Partnership,
collaboration and development agreements, research grants, and interest income.
Alkermes expects to incur substantial additional and increasing operating
expenses over the next several years as its research and development and
clinical trial activities accelerate and as manufacturing scale-up occurs. To
the extent that the Company is unable to obtain third-party funding for such
expenses, the Company expects that such increased expenses will result in
increased losses from operations. Alkermes does not expect to generate
significant revenues from the sale of products, if any, for several years. The
Company's future profitability depends in part on the Company and its
collaborators obtaining regulatory approval for products, entering into
agreements for product development and commercialization and developing the
capacity, or entering into agreements, for the manufacture, and marketing of any
products. There can be no assurance that Alkermes or its collaborators will
obtain required regulatory approvals, or successfully develop, commercialize,
manufacture, and market product candidates or that the Company will ever achieve
significant product revenues or profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
LIMITED MANUFACTURING EXPERIENCE; RELIANCE ON THIRD-PARTY MANUFACTURING
Alkermes has completed construction of an in-house pilot production
facility which has been validated by the Company for manufacturing in accordance
with Good Manufacturing Practices ("GMP") regulations promulgated by the FDA.
The facility is being used to manufacture product candidates incorporating its
ProLease sustained-release delivery system for clinical trials. This facility is
not capable of manufacturing products on a commercial scale. In connection with
its March 1996 acquisition of certain Medisorb assets and technology, Alkermes
acquired a 14,000 square foot manufacturing facility in Wilmington, Ohio at
which it is manufacturing a Medisorb product candidate for Janssen for clinical
trials. Alkermes has no other experience, however, in manufacturing or in
conducting the testing programs required to obtain regulatory approvals. The
manufacture of ProLease
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and Medisorb products on a commercial scale would require significant start-up
expenses and expansion of facilities and personnel, and no assurance can be
given that Alkermes can develop such manufacturing capability on a timely basis,
if at all.
The manufacture of the Company's products for clinical trials and
commercial purposes is subject to GMP and other federal regulations. The Company
has never operated an FDA-approved manufacturing facility, and there can be no
assurance that it will obtain necessary approvals for commercial manufacturing.
Alkermes relies on a third party to manufacture RMP-7 for use in clinical
trials and expects to rely on such third party for commercial sales, if any.
There can be no assurance that this manufacturer will continue to meet the
Company's requirements for quality, quantity and timeliness, or that Alkermes
would be able to find alternative manufacturers, if necessary.
If Alkermes is not able to develop manufacturing capacity and experience or
to continue to contract for manufacturing capabilities on acceptable terms, its
ability to conduct preclinical testing and clinical trials will be compromised,
and delays in obtaining regulatory approvals may result, as well as commercial
sales if approvals are obtained. Such delays would materially adversely affect
the Company's competitive position and its business, financial condition, and
results of operations. See "Business -- Manufacturing."
RIGHTS TO RMP TECHNOLOGY; EFFECT OF EXERCISE OF THE PARTNERSHIP PURCHASE OPTION
Alkermes has transferred to the Partnership substantially all of its
technology and commercial rights relating to RMP technology. Under the Product
Development Agreement with the Partnership, Alkermes performs research and
development with respect to such technology on behalf of the Partnership. There
can be no assurance that disputes will not arise with the Partnership over the
ownership of rights to any technology that may be developed by Alkermes pursuant
to such agreement. In addition, there can be no assurance that conflicts of
interest between the Company and the Partnership will not arise in relation to
rights to ownership of the technology or termination of research or marketing
programs.
The Purchase Option will terminate in the event the Company ceases funding
the development of RMP-7. There can be no assurance that the Purchase Option
will not terminate because the Company fails to exercise the Purchase Option or
otherwise. If the Purchase Option terminates, the Company will have no rights to
the RMP technology or products developed on behalf of the Partnership in the
United States and Canada.
If the Company exercises the Purchase Option, it will be required to make a
substantial cash payment or to issue shares of Common Stock. A payment in cash
could have a material adverse effect on the Company's capital resources. A
payment in shares of Common Stock could result in a substantial decrease in the
percentage ownership of the Company by its then-existing shareholders and could
negatively affect the market price of the Common Stock. The exercise of the
Purchase Option may require Alkermes to record a significant charge to earnings
for the purchase of in-process research and development. If Alkermes acquires
rights to RMPs pursuant to the Purchase Option, the Company will have continuing
obligations to pay royalties pursuant to the Product Development Agreement. See
"Business -- Collaborative Arrangements -- Alkermes Clinical Partners, L.P."
TECHNOLOGICAL CHANGE AND COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid and
substantial technological change. Alkermes will continue to face intense
competition in the development and marketing of its product candidates from
academic institutions, government agencies, research institutions, biotechnology
and pharmaceutical companies, including its collaborators, and drug delivery
companies. Competition may arise from other drug delivery technologies, methods
of preventing or reducing the incidence of disease, including vaccines, and new
small-molecule or other classes of therapeutic agents that do not require the
assistance of a drug delivery system. There can be no assurance that
developments by others will not render the Company's product candidates or
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technologies obsolete or noncompetitive or that the Company's collaborators will
not choose to use competing drug delivery methods. In addition, if Alkermes
receives regulatory approvals for products, manufacturing efficiency and
marketing capabilities are likely to be significant competitive factors. At the
present time, Alkermes has no sales force or marketing or commercial
manufacturing experience. In addition, many of the Company's competitors and
potential competitors have substantially greater capital resources,
manufacturing and marketing experience, research and development resources, and
production facilities than does Alkermes. Many of these competitors also have
significantly greater experience than does Alkermes in undertaking preclinical
testing and clinical trials of new pharmaceutical products and obtaining FDA and
other regulatory approvals. See "Business -- Collaborative Arrangements" and
"-- Competition."
With respect to RMP-7, the Company believes that there are currently no
products approved by the FDA or other regulatory authorities for increasing the
permeability of the blood-brain barrier. There are however many novel
experimental therapies being tested in the United States and Europe. With
respect to ProLease and Medisorb, the Company is aware that there are other
companies developing sustained-release delivery systems for pharmaceutical
products. In addition, other companies are developing new chemical entities
which, if developed successfully, could compete against sustained-release
formulations of products of the Company's collaborators. These chemical entities
are being designed to have different mechanisms of action or improved safety and
efficacy. In addition, Alkermes' collaborators may develop, either alone or with
others, products that compete with the development and marketing of the
Company's product candidates.
There can be no assurance that the Company will be able to compete
successfully with such companies. The existence of products developed by the
Company's competitors, or other products or treatments of which the Company is
not aware, or products or treatments that may be developed in the future, may
adversely affect the marketability of products developed by the Company.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will be dependent, in part, on obtaining patent
protection for its product candidates and those of its collaborators,
maintaining trade secret protection and operating without infringing upon the
proprietary rights of others.
The Company is aware of several United States patents issued to third
parties containing claims which could be construed to cover some of the
Company's product candidates utilizing its ProLease, RMP-7 and Medisorb delivery
systems. In one case, the Company has received a letter from the owner of a
patent asking the Company to compare the Company's Medisorb technology disclosed
in a published international patent application with such owner's patented
technology. The Company believes, based on opinions obtained from its patent
counsel, that the manufacture, use, offer for sale or sale of its ProLease,
RMP-7 or Medisorb product candidates would not infringe any valid claim of any
of the issued United States patents. However, there can be no assurance that the
claims of the issued United States patents are not infringed by the proposed
manufacture, use, offer for sale, or sale of these products by the Company or
its collaborators. There can be no assurance that a third party will not file an
infringement action, or that the Company would prevail in any such action. There
can be no assurance that the cost of defending an infringement action would not
be substantial and would not have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is also
aware of patent applications filed by third parties in the United States and in
various foreign countries which may cover some of the Company's product
candidates utilizing its ProLease, RMP-7 or Medisorb delivery systems. Patents
may issue from these applications which could preclude the Company from
manufacturing, using, offering for sale or selling some of its ProLease, RMP-7
or Medisorb product candidates. Furthermore, there can be no assurance that any
licenses under such patents would be made available on commercially viable
terms, if at all. Failure to obtain any required license could prevent the
Company from commercializing one or more of its products.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
firms, including Alkermes, are generally uncertain and involve complex legal and
factual questions. In addition, there
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can be no assurance that the Company's or its licensors' current patent
applications will be allowed or that the claims of any patents issued to
Alkermes or its licensors (in connection with either the Company's product
candidates or the Partnership's product candidate, or both) will be sufficiently
broad to protect the Company's or the Partnership's technology or to provide
Alkermes or the Partnership with any competitive advantages. Moreover, no
assurance can be given that patents issued to Alkermes (in connection with
either the Company's product candidates or the Partnership's product candidate,
or both), or its respective licensors, if any, will not be contested, narrowed,
invalidated or circumvented. In addition, if Alkermes or the Partnership is
required to bring or defend against a charge of patent infringement or to
protect its own proprietary rights against third parties, substantial costs
could be incurred.
In the future, Alkermes may be required to obtain additional licenses to
patents or other proprietary rights of third parties. There can be no assurance
that any such licenses will be available on acceptable terms, if at all, and
failure to obtain such licenses could result in delays in marketing the
Company's products or the inability to proceed with the development, manufacture
or sale of product candidates requiring such licenses.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors. See "Business -- Patents and Proprietary Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's research and preclinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product candidate developed by Alkermes or its
collaborators must undergo an extensive regulatory approval process, which
includes preclinical testing and clinical trials of such product candidate to
demonstrate safety and efficacy. This regulatory process can require many years
and the expenditure of substantial resources. Data obtained from preclinical
testing and clinical trials are subject to varying interpretations, which can
delay, limit or prevent FDA approval. In addition, changes in FDA approval
policies or requirements may occur or new regulations may be promulgated which
may result in delay or failure to receive FDA approval. Similar delays or
failures may be encountered in foreign countries. Delays and costs in obtaining
regulatory approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.
There can be no assurance that RMP-7 used in conjunction with any
pharmaceuticals, ProLease or Medisorb formulations or any other product
candidate developed by Alkermes or its collaborators will receive manufacturing
and marketing approval in the United States or any foreign country on a timely
basis, if at all. In the case of RMP-7, the Company must obtain FDA approval for
RMP-7 for use in conjunction with a pharmaceutical agent. The Company is in
clinical trials with RMP-7 for use in conjunction with carboplatin in the
treatment of brain tumor. Carboplatin has not been approved for this specific
use and there can be no assurance that it or any other pharmaceutical agent to
be used with RMP-7 will receive regulatory approval. In the case of ProLease and
Medisorb, the Company or its collaborators must obtain FDA approval for each
formulation even if the pharmaceutical included in the formulation has received
FDA approval as a standalone product. There can be no assurance that any such
formulation will receive FDA approval. If any product were approved, there can
be no assurance that any such product would be capable of being produced in
commercial quantities at reasonable costs and successfully marketed. In
addition, if regulatory approval of any product is granted, it may entail
limitations on the uses for which the product may be marketed. Even if
regulatory approval is obtained, any marketed drug and its manufacturer are
subject to continual
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review and any discovery of previously unrecognized problems with a product or
manufacturer could result in restrictions on the product, including withdrawal
of the product from the market. See "Business -- Government Regulation."
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business may be materially adversely affected by the
continuing efforts of government and third-party payors to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has and will continue to put pressure on
pharmaceutical pricing. Such initiatives and proposals, if adopted, could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or initiatives have a material adverse effect on other
pharmaceutical companies that are collaborators or prospective collaborators for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be adversely affected.
The Company's ability to commercialize pharmaceutical products may 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 third-party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any products
developed by the Company. 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, and by refusing, in
some cases, to provide coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for the Company's products, the market acceptance of these products would
be adversely affected.
NO MARKETING OR SALES EXPERIENCE
Alkermes currently has no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any product candidate
approved by the FDA, Alkermes must either develop a marketing and sales force or
enter into arrangements with third parties to market and sell its products.
There can be no assurance that Alkermes will successfully develop such
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well funded marketing and sales operations. To
the extent that the Company enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by
Alkermes will be dependent on the efforts of others and there can be no
assurance that such efforts will be successful.
PRODUCT LIABILITY EXPOSURE
The use of the Company's product candidates in clinical trials and the sale
of any resulting products may expose Alkermes to liability claims resulting from
the use of such product candidates or products. These claims might be made
directly by consumers or by pharmaceutical companies or others selling such
products. While Alkermes has obtained product liability insurance which it deems
appropriate for its current stage of development, there can be no assurance that
such insurance will be sufficient to satisfy any liabilities that may arise. The
Company's existing coverage will not be adequate as the Company's product
development activities progress. There can be no assurance that adequate
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insurance coverage will be available in the future at an acceptable cost, if at
all. An inability to obtain sufficient insurance coverage at an acceptable cost
or to otherwise protect against potential product liability claims could prevent
or limit the commercialization of any products by the Company. In addition,
there can be no assurance that any product liability claims will not have a
material adverse effect on the business, financial condition and results of
operations of Alkermes.
RESTRICTIVE LOAN COVENANTS
The Company's loan agreements contain certain restrictive financial
covenants that require the Company to maintain minimum levels of working
capital, net worth and liquid assets. Under the terms of one loan agreement, the
Company is required to maintain an unencumbered balance of cash and permitted
investments of at least $12.5 million and a ratio of unencumbered cash and
permitted investments to indebtedness of 2.0 to 1.0. The second loan agreement
requires the Company to maintain a net worth of not less than $20.0 million, a
maximum ratio of total liabilities to net worth of 0.5 to 1.0, a minimum current
ratio of 2.0 to 1.0 and a minimum unencumbered balance of cash and permitted
investments equal to the greater of (i) $20.0 million, (ii) the Company's
projected cash loss over the next 14 months and (iii) an amount equal to the
Company's cash loss for the previous six months multiplied by 2.33. Upon the
breach of any of these financial covenants or the occurrence of any other event
of default under this second loan agreement, the Company will be required to
deposit an amount equal to the then outstanding principal balance of the loan
plus three months interest into a restricted account at the bank. In addition,
the bank will have the right to liquidate such account and apply the proceeds to
repayment of the loan if the Company's unencumbered cash and investment balance
falls below $5.0 million. Upon the breach of any of these covenants or the
occurrence of any other event of default under the loan agreements, the
Company's business, financial condition and results of operations could be
materially adversely affected.
FUTURE SALES OF COMMON STOCK BY CERTAIN SHAREHOLDERS; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE OF COMMON STOCK
As of January 9, 1997, 2,021,359 shares of Common Stock were issuable upon
the exercise of outstanding stock options and vesting of outstanding restricted
stock awards and 1,388,308 shares of Common Stock were issuable upon the
exercise of outstanding warrants. The issuance of Common Stock upon exercise of
such stock options and warrants and the vesting of awards, as well as future
sales of such Common Stock or of shares of Common Stock by existing
shareholders, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. The foregoing shares will be freely
tradeable upon issuance.
Alkermes has issued to Genentech a Convertible Promissory Note, dated
January 31, 1995, in the principal amount of $3.5 million. The Note provides
that Alkermes has the option to convert the outstanding balance of the Note,
together with accrued and unpaid interest thereon, into shares of Common Stock.
Under certain circumstances, Genentech also has the right to convert the Note
into shares of Common Stock and to demand that the Common Stock be registered.
The Company's issuance of Common Stock, whether or not registered, upon exercise
by Alkermes or Genentech of its conversion rights, the perception that such
conversion could occur, the sale of such shares by Genentech, or the perception
that such sale could occur, could adversely affect the market price of the
Common Stock. See "Business -- Collaborative Arrangements -- Genentech, Inc."
In addition, in July 1995, Alkermes received certain prepaid royalties from
Schering-Plough pursuant to their amended Development and License Agreement.
Schering-Plough is entitled to terminate such Agreement under certain
circumstances, in which event Alkermes will be required to repay the prepaid
royalties with interest, either in cash or in Common Stock, at the Company's
election. Any Common Stock issued to Schering-Plough must be freely resalable.
The Company's issuance of Common Stock to Schering-Plough in repayment of the
prepaid royalties, the perception that it may do so, the sale of such shares by
Schering-Plough, or the perception that such sale could occur could adversely
affect the market price of the Common Stock. See "Business -- Collaborative
Arrangements -- Schering-Plough Corporation."
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The officers and directors of the Company and a trust of which a director
is a beneficiary, who together own or have the right to acquire an aggregate of
2,072,898 shares of Common Stock, have agreed not to sell or otherwise dispose
of any shares of Common Stock owned by them prior to 90 days from the date of
this Prospectus without the prior written consent of Robertson, Stephens &
Company.
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of biotechnology and pharmaceutical
companies, including Alkermes, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing shareholders and general market conditions can have an adverse effect
on the market price of the Common Stock. In particular, the realization of any
of the risks described in these "Risk Factors" could have a dramatic and adverse
impact on such market price. See "Price Range of Common Stock."
ANTI-TAKEOVER PROVISIONS
The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
contains certain provisions which could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contests
involving the Company, even if such transaction would be beneficial to the
interests of the shareholders, or could discourage a third party from attempting
to acquire control of the Company. For example, the Board of Directors may, in
considering the best interests of the corporation or the effects of any action,
consider the interests of shareholders, employees, customers, creditors and the
community where the corporation is located, as well as long-term and short-term
interests of the corporation. Moreover, when a shareholder's voting power
reaches certain thresholds, among other consequences, its voting power is
removed, its ability to enter into certain business transactions with the
Company is limited, it may be required to pay fair value to certain existing
shareholders, and it will be required to disgorge any profits in the sale, if
any, of the Company's securities within certain time periods.
The Company's Second Amended and Restated Articles of Incorporation, as
amended, also contain certain provisions which could have a similar effect. For
example, the Company has authorized 5,000,000 shares of Capital Stock, which the
Company could issue without further shareholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors may determine. The Company has no current plans to issue any Capital
Stock.
DILUTION; NO DIVIDENDS
Upon purchase of Common Stock, investors will experience substantial
dilution in the net tangible book value of the Common Stock they acquire. See
"Dividend Policy." Based on the net tangible book value of the Common Stock at
December 31, 1996, such dilution in net tangible book value would be $18.50 per
share. See "Dilution."
Alkermes has not paid cash dividends on the Common Stock and does not
expect to do so in the foreseeable future.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, assuming the sale of all 2,000,000 shares offered hereby, are estimated
to be approximately $41.4 million ($47.6 million if the Underwriters'
over-allotment option is exercised in full), based on the assumed public
offering price of $22.125, after underwriting discounts, commissions and
estimated offering expenses.
The Company anticipates that it will use the net proceeds of this offering
for the funding of preclinical testing and clinical trials and for other
research and development activities, manufacturing facilities and equipment,
working capital, and other general corporate purposes. The Company may also use
a portion of its available funds for acquisitions although no such acquisitions
are currently contemplated. Pending such uses, the Company intends to invest the
net proceeds of this offering in short-term, interest-bearing, investment-grade
securities. Although the Company believes that its cash reserves and other
liquid assets, the net proceeds of this offering, funding that may be received
from the Company's collaborators, and interest income earned will be adequate to
satisfy its capital and operating requirements through 1998, there can be no
assurance that these funds will be sufficient. Companies in the biotechnology
industry generally expend significant capital resources on product research and
development and clinical trials. The Company will require substantial additional
funds to conduct its operations in the future.
The amounts and timing of the Company's actual expenditures for the
purposes described above will depend upon a number of factors, including the
progress of the Company's research and development, the scope and results of
preclinical testing and clinical trials, the cost, timing and outcomes of
regulatory reviews, the rate of technological advances, determinations as to the
commercial potential of the Company's products under development, administrative
and legal expenses, the status of competitive products, the establishment of
manufacturing capacity or third-party manufacturing arrangements, the
establishment of sales and marketing capabilities, the establishment of
collaborative arrangements with other companies, and the availability of other
financing.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and does not
anticipate paying any dividends in the foreseeable future.
17
<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ALKS." The following table sets forth, for the calendar periods
indicated, the range of high and low sale prices for the Company's Common Stock
on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
First Quarter..................................................... $ 9 3/4 $ 6 7/8
Second Quarter.................................................... 7 3/8 3 3/4
Third Quarter..................................................... 4 5/8 2 7/8
Fourth Quarter.................................................... 3 3/4 1 7/8
1995
First Quarter..................................................... 3 3/8 1 15/16
Second Quarter.................................................... 4 1/2 2 5/8
Third Quarter..................................................... 9 1/4 3 5/8
Fourth Quarter.................................................... 8 5/8 5 3/4
1996
First Quarter..................................................... 11 1/4 7 1/8
Second Quarter.................................................... 17 8 1/2
Third Quarter..................................................... 16 1/8 8 1/2
Fourth Quarter.................................................... 25 1/2 11 7/8
1997
First Quarter (through January 15, 1997).......................... 28 3/8 21 1/4
</TABLE>
As of January 9, 1997, there were 608 holders of record of the Common
Stock. On January 15, 1997, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $22.125 per share.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996, and as adjusted to reflect the sale of 2,000,000 shares of
Common Stock offered hereby and the application of the estimated net proceeds
therefrom:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
(in thousands)
<S> <C> <C>
Current portion of long-term debt................................... $ 3,839 $ 3,839
========= =========
Long-term debt, less current portion................................ $ 11,611 $ 11,611
--------- ---------
Shareholders' equity:
Capital Stock, $0.01 par value, 5,000,000 shares authorized; none
issued or issued, as adjusted.................................. -- --
Common Stock, $0.01 par value, 40,000,000 shares authorized;
18,517,394 shares issued; 20,517,394 shares issued, as
adjusted(1).................................................... 185 205
Additional paid-in capital........................................ 148,273 189,638
Receivable for warrants and deferred compensation................. (153) (153)
Cumulative foreign currency translation adjustments............... 9 9
Unrealized gain on marketable securities.......................... 193 193
Accumulated deficit............................................... (115,017) (115,017)
--------- ---------
Total shareholders' equity................................ 33,490 74,875
--------- ---------
Total capitalization.................................... $ 45,101 $ 86,486
========= =========
</TABLE>
- ---------------
(1) Excludes as of January 9, 1997 outstanding options and awards for 2,021,359
shares of Common Stock at a weighted average exercise price of $5.94 per
share and outstanding warrants for 1,388,308 shares of Common Stock at a
weighted average exercise price of $6.60 per share.
19
<PAGE> 21
DILUTION
The net tangible book value of the Common Stock at December 31, 1996 was
$33,173,607 or $1.79 per share. After giving effect to the sale by the Company
of the 2,000,000 shares of Common Stock offered hereby at an assumed public
offering price of $22.125 per share and the receipt of the net proceeds
therefrom, the pro forma net tangible book value of Alkermes as of December 31,
1996 would have been $74,558,607 or $3.63 per share. This represents an
immediate increase in net tangible book value of $1.84 per share to existing
shareholders and an immediate dilution in net tangible book value of $18.50 per
share to investors purchasing shares at the assumed public offering price. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price(1)............................ $22.13
Net tangible book value before offering(2)................ $1.79
Increase attributable to new investors.................... 1.84
-----
Pro forma net tangible book value after offering............ 3.63
------
Dilution to new investors................................... $18.50
======
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities divided by the number of shares of Common
Stock outstanding.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for
Alkermes, Inc. and subsidiaries. The selected financial data for each of the
years ended March 31, 1992, 1993, 1994, 1995 and 1996 have been derived from the
Company's Consolidated Financial Statements. The selected data for each of the
nine month periods ended December 31, 1995 and 1996 have been derived from the
Company's unaudited Consolidated Financial Statements, which reflect in the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for such periods.
The results for the nine month period ended December 31, 1996 are not
necessarily indicative of results for the full year. The selected financial data
should be read in conjunction with the Company's Consolidated Financial
Statements incorporated herein by reference and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." See "Incorporation
of Certain Information by Reference."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- -------- -------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Research and development
revenue under collaborative
arrangements................ $ 220 $ 388 $ 361 $ 3,049 $ 2,849 $ 1,773 $ 10,828
Research and development
revenue under collaborative
arrangement with related
party....................... -- 9,109 7,450 9,277 11,183 7,898 1,415
Interest income............... 1,436 2,309 1,649 1,577 1,887 1,360 1,764
------- -------- -------- -------- -------- ------- --------
Total revenues................ 1,656 11,806 9,460 13,903 15,919 11,031 14,007
Research and development
expenses.................... 7,005 16,709 20,480 18,955 21,586 14,913 21,214
Net loss...................... $(8,052) $(40,147)(1) $(17,275) $(11,904) $(13,747) $(8,201) $(13,970)
======= ======== ======== ======== ======== ======= ========
Net loss per share............ $ (0.98) $ (3.77)(1) $ (1.29) $ (0.88) $ (0.93) $ (0.57) $ (0.77)
======= ======== ======== ======== ======== ======= ========
Weighted average shares
outstanding................. 8,193 10,653 13,362 13,535 14,775 14,387 18,076
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------- -------- -------- -------- -------- ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments...... $ 45,679 $ 32,859 $ 27,948 $ 21,351 $ 32,374 $ 42,675
Total assets.................. 55,706 54,025 46,322 36,708 45,752 57,611
Long-term debt, less current
portion..................... 244 2,149 6,598 8,376 9,876 11,611
Accumulated deficit........... (17,974) (58,120) (75,395) (87,300) (101,047) (115,017)
Shareholders' equity.......... 54,187 47,731 31,874 21,163 23,513 33,490
</TABLE>
- ---------------
(1) Includes a one-time non-cash charge of $31,281,595 for the purchase of
in-process research and development as a result of the Company's acquisition
of the ProLease technology.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
Alkermes is applying the tools of biotechnology to the development of
sophisticated proprietary drug delivery systems. The Company is developing
product candidates based on three independent drug delivery technologies:
ProLease, which is designed to enable single injections lasting from a few days
to several months to be made of proteins or peptides otherwise given by more
frequent injection; RMP-7, which is designed to enable increased drug delivery
to the brain by transiently opening the blood-brain barrier; and Medisorb, which
extends Alkermes' technology for injectable sustained release and is designed
for more traditional pharmaceutical compounds.
Since its inception in 1987, the Company has devoted substantially all of
its resources to its research and development programs. Alkermes has not
received any revenue from the sales of products. The Company has been
unprofitable since inception and expects to incur substantial additional
operating losses over the next several years. At December 31, 1996, the Company
had an accumulated deficit of approximately $115.0 million.
The Company has funded its operations primarily through public offerings
and private placements of equity securities, bank loans and payments under
research and development agreements with collaborators, including the
Partnership, a research and development limited partnership whose operations
commenced in April 1992. Funding from the Partnership ended as of June 30, 1996.
The Company intends to develop its product candidates in collaboration with
others on whom the Company will rely for funding, development, manufacturing
and/or marketing.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Some of the information presented in this Prospectus constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results of the Company's development activities and its results of operations
will not differ materially from its expectations. Factors which could cause
actual results to differ from expectations include, among others (i) the Company
and its collaborators could not be permitted by regulatory authorities to
undertake additional clinical trials for ProLease, RMP-7 or Medisorb or clinical
trials could be delayed; (ii) product candidates could be ineffective or unsafe
during clinical trials; (iii) the Company's collaborators could elect to
terminate or delay development programs; (iv) the Company could incur
difficulties or set-backs in obtaining the substantial additional funding
required to continue research and development programs and clinical trials; and
(v) even if product candidates appear promising at an early stage of
development, product candidates could fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale, be uneconomical, fail
to achieve market acceptance, be precluded from commercialization by proprietary
rights of third parties or experience substantial competition in the
marketplace.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenues
The Company's research and development revenue under collaborative
arrangement with related party for the three and nine months ended December 31,
1996 was zero and $1,415,313 compared to
22
<PAGE> 24
$2,679,595 and $7,898,348 for the corresponding periods of the prior year. This
revenue was received from the Partnership under a product development agreement
for RMP-7 entered into in March 1992. The decrease in such revenue for the three
and nine months ended December 31, 1996 as compared to the corresponding periods
of the prior year was a result of the completion of the funding pursuant to the
product development agreement during the quarter ended June 30, 1996. Since the
completion of funding from the Partnership, Alkermes has used its own resources,
and intends to continue to use its own resources, to develop RMP-7. The
Company's research and development revenue under collaborative arrangements for
the three and nine months ended December 31, 1996 was $4,913,099 and $10,827,964
compared to $374,525 and $1,772,624 for the corresponding periods of the prior
year. The increase in such revenue for the three and nine months ended December
31, 1996 as compared to the corresponding periods of the prior year was mainly a
result of the funding and milestones earned under new or expanded collaborative
agreements related to the Company's ProLease and Medisorb technologies.
Operating Expenses
The Company's total operating expenses were $9,741,735 and $27,977,248 for
the three and nine months ended December 31, 1996 as compared to $6,442,203 and
$19,232,404 for the three and nine months ended December 31, 1995. Research and
development expenses for the three and nine months ended December 31, 1996 were
$7,657,829 and $21,213,773 compared to $4,873,939 and $14,913,361 for the
corresponding periods of the prior year. The increase in research and
development expenses for the three and nine months ended December 31, 1996 as
compared to the three and nine months ended December 31, 1995 was mainly the
result of salary and related benefits and other operating costs associated with
the acquisition of the Medisorb technology and certain related assets in March
1996. During the three and nine months ended December 31, 1996, there was also
an increase in purchases of lab supplies and clinical expenses related primarily
to the Company's ProLease, RMP-7, and Medisorb programs, partially offset by a
reduction in the preclinical costs of the Company's RMP-7 program which were
completed during the prior year.
General and administrative expenses for the three and nine months ended
December 31, 1996 were $1,683,749 and $5,753,367 compared to $1,305,913 and
$3,601,825 for the corresponding periods of the prior year. The increase in the
three and nine months ended December 31, 1996 as compared to the three and nine
months ended December 31, 1995 was mainly the result of salary and related
benefits and other operating costs associated with the acquisition of the
Medisorb technology and certain related assets in March 1996 as well as an
increase in patent legal costs. In addition, there were non-cash charges related
to the write-down of the Company's investment in the Partnership in the three
months ended June 30, 1996.
The Company does not believe that inflation and changing prices have had a
material impact on its results of operations.
Interest Income
Interest income for the three and nine months ended December 31, 1996
was $591,945 and $1,763,905 compared to $616,268 and $1,360,283 for the
corresponding periods of the prior year. The decrease in the revenue for the
three months ended December 31, 1996 as compared to the corresponding period of
the prior year was mainly a result of a decrease in interest rates during the
past quarter as compared to the same quarter last year. The increase in such
revenue for the nine months ended December 31, 1996 as compared to the
corresponding period of the prior year was primarily a result of the investment
of the net proceeds of approximately $22,935,000 received upon the consummation
of a public offering of the Company's Common Stock in May 1996.
23
<PAGE> 25
FISCAL YEARS ENDED MARCH 31, 1996, 1995 AND 1994
Revenues
The Company's research and development revenue under collaborative
arrangement with related party was $11,182,741, $9,277,371 and $7,449,700 for
the fiscal years ended in 1996, 1995 and 1994, respectively. This revenue was
received from the Partnership under a product development agreement entered into
in March 1992. The increase in such revenue for fiscal 1996 as compared to
fiscal 1995 and for fiscal 1995 as compared to fiscal 1994 was a result of
increased reimbursable costs incurred by the Company pursuant to such product
development agreement. The Company's research and development revenue under
collaborative arrangements was $2,848,510, $3,049,106 and $361,920 for the
fiscal years ended in 1996, 1995 and 1994, respectively. The decrease in such
revenue for fiscal 1996 as compared to fiscal 1995 was primarily a result of the
completion of the feasibility phase of a collaborative agreement with Boehringer
Mannheim GmbH, partially offset by an expanded collaboration with
Schering-Plough. The increase in such revenue for fiscal 1995 as compared to
fiscal 1994 was primarily a result of research and development performed under
such agreement with Boehringer Mannheim GmbH.
Operating Expenses
The Company's total operating expenses were $29,665,610 for the fiscal year
ended in 1996 as compared to $25,807,424 and $26,735,558 for the fiscal years
ended in 1995 and 1994, respectively. The Company recorded a $750,000
nonrecurring charge in March 1996 for Medisorb technology purchased but not yet
commercially viable. The Company's research and development expenses were
$21,586,316 for the fiscal year ended in 1996 compared to $18,955,347 and
$20,479,682 for the fiscal years ended in 1995 and 1994, respectively. The
increase for fiscal 1996 as compared to fiscal 1995 was mainly the result of an
increase in the purchase of lab supplies and preclinical and clinical expenses
related primarily to the Company's RMP-7 and ProLease programs. The decrease for
fiscal 1995 as compared to fiscal 1994 was mainly the result of the Company's
decision in September 1994 to focus on its two principal technologies, RMP-7 and
ProLease, as well as the completion of certain preclinical and clinical studies
and a bulk product purchase of RMP-7 during fiscal year 1994. Included in fiscal
1994 is a payment of $550,000 related to the Company's now terminated
collaboration with Cortex Pharmaceuticals, Inc.
General and administrative expenses were $6,285,700, $5,104,062 and
$5,921,572 for the fiscal years ended in 1996, 1995 and 1994, respectively. The
increase for fiscal 1996 as compared to fiscal 1995 was primarily the result of
non-cash charges related to the write-down of the Company's investments in the
Partnership and an increase in patent legal costs and other legal costs
associated with financing and other transactions. The decrease for fiscal 1995
as compared to fiscal 1994 was primarily the result of a reduction of non-cash
compensation charges relating to the grant of certain stock options and awards
made, which was partially offset by now accounting for the Company's investment
in the Partnership under the equity method of accounting.
The Company does not believe that inflation and changing prices has had a
material impact on its consolidated results of operations.
Interest Income
Interest income was $1,887,275, $1,576,794 and $1,648,833 for the fiscal
years ended in 1996, 1995 and 1994, respectively. The increase in such revenue
for fiscal 1996 as compared to fiscal 1995 was primarily a result of the
investment of the net proceeds of approximately $14,800,000 received upon the
consummation of the public offering of the Company's Common Stock in September
and October 1995, as well as funds received from other financing arrangements
completed during fiscal 1996. The decrease in fiscal 1995 as compared to fiscal
1994 was mainly a result of decreased cash, cash equivalents and investments due
to negative cash flow resulting from continued research and development and
other expenditures. Such decrease was partially offset by an increase in
interest rates during fiscal 1995.
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had current assets totaling $46,937,592,
primarily consisting of $210,783 in cash and cash equivalents and $42,464,335 in
government obligations having a maturity of less than one year, and current
liabilities of $6,207,188. The Company's short-term investment objectives are,
first, to assure conservation of principal, and second, to obtain investment
income. As a result, the Company invests primarily in high grade government or
government-backed securities.
During the three months ended December 31, 1996, the Company announced
three new or expanded collaborative agreements. Development funding and
milestone payments to Alkermes for these phases of the collaborations could
exceed $60 million, assuming the development of the product candidates proceed
as planned.
In September 1996, the Company amended its loan with an existing bank and
increased the principal amount of the loan by $5,000,000, securing the existing
and the additional principal amounts with a building and the real property
pursuant to a mortgage and certain of the Company's equipment pursuant to a
security agreement.
In May 1996, the Company completed a public offering of 2,300,000 shares of
its Common Stock at $10 per share. Net proceeds to the Company were
approximately $22,935,000.
The Company's research and development costs to date have been financed
primarily by sales of equity securities and research and development
collaborative arrangements. The Company expects to incur significant research
and development and other costs, including costs related to preclinical studies,
clinical trials and facilities expansion. The research and development revenue
from the Partnership ended during the quarter ended June 30, 1996. Such funding
was not sufficient to complete clinical trials and seek regulatory approval of
RMP-7. Since the completion of funding from the Partnership, Alkermes has used
its own resources, and intends to continue to use its own resources, to develop
RMP-7, but may be forced to seek alternative sources of funding, including
additional collaborators. The Company is required to fund the development of
RMP-7 to maintain its Purchase Option with the Partnership.
The Company expects that its research and development and other costs will
exceed revenues significantly for the next several years, which will result in
continuing losses from operations. The Company's capital expenditures for
equipment, facilities and building improvements have been financed to date
primarily with proceeds from bank loans and the sales of equity securities. The
Company will continue to pursue opportunities to obtain additional financing in
the future. Such financing may be sought through various sources, including
equity offerings, bank borrowings, lease arrangements relating to fixed assets
or other financing methods. The source, timing, and availability of any
financings will depend on market conditions, interest rates, and other factors.
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of these programs, progress with preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing facilities and of
commercialization activities and arrangements, and the cost of product
in-licensing and any possible acquisitions.
The Company will need to raise substantial additional funds for longer-term
product development, regulatory approvals, and manufacturing or marketing
activities that it might undertake in the future. There can be no assurance that
additional funds will be available on favorable terms, if at all. If adequate
funds are not available, the Company may be required to curtail significantly
one or more of its research and development programs and/or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates, or
future products.
25
<PAGE> 27
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Important Factors Regarding
Forward-Looking Statements."
GENERAL
Alkermes is applying the tools of biotechnology to the development of
sophisticated proprietary drug delivery systems. The Company is developing
product candidates based on three independent drug delivery technologies:
ProLease, which is designed to enable single injections lasting a few days to
several months to be made of proteins or peptides otherwise given by more
frequent injection; RMP-7, which is designed to enable increased drug delivery
to the brain by transiently opening the blood-brain barrier; and Medisorb, which
extends Alkermes' technology for injectable sustained release and is designed
for more traditional small molecule pharmaceutical compounds. Utilizing these
drug delivery systems, the Company is currently in various stages of preclinical
and clinical development of five product candidates.
OVERVIEW OF DRUG DELIVERY
Drug delivery companies apply proprietary technologies to create new
pharmaceutical products based on drugs developed by others. These products are
generally novel, cost-effective dosage forms that provide any of several
benefits including control of drug concentration in the blood, improved safety
and efficacy, improved patient compliance and ease of use, and expanded
indications. Drug delivery technologies can provide pharmaceutical companies
with a means of developing new products as well as expanding existing drug
franchises.
The drug delivery industry emerged to address the opportunities for
advanced delivery of traditional pharmaceutical compounds. These compounds are
generally stable, small molecules manufactured by conventional synthetic
methods, for which oral or transdermal (through the skin) delivery could be
enabled or enhanced by drug delivery technologies. Technologies such as passive
transdermal systems (patches) and advanced tablets and capsules have been
developed and successfully applied to a range of pharmaceutical products. In
addition, certain traditional small molecule pharmaceuticals are delivered by
means of encapsulation in polymeric microspheres.
With the advent of biotechnology, new opportunities in drug delivery have
arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. At the same time, the scientific tools of biotechnology have enabled new
approaches to drug delivery based on exploiting particular biological phenomena,
for example utilizing natural properties of the blood-brain barrier to
facilitate drug delivery to the central nervous system.
Proteins and peptides present drug delivery challenges because they are
often large molecules which degrade rapidly in the bloodstream, have limited
ability to cross cell membranes, and generally cannot be delivered orally. As a
result, many proteins and peptides must be administered by injection, often
multiple times per day or per week. Consequently, the methods of administration
of proteins and peptides can limit their clinical applications to certain
disease states that warrant the expense and inconvenience of frequent injection.
Drug delivery to the central nervous system is complicated by the existence
of the blood-brain barrier, the layer of tightly joined endothelial cells which
comprise the walls of the capillaries of the brain and limit the free flow of
many blood constituents into the brain. Many drugs cannot easily cross the
blood-brain barrier and therefore must be administered in relatively high doses
that may result in systemic toxicity or high cost. Drugs with limited ability to
cross the blood-brain barrier include many
26
<PAGE> 28
water soluble chemotherapeutic and anti-infective agents that are frequently
used in the treatment of diseases outside of the central nervous system.
BUSINESS STRATEGY
Alkermes' business strategy is to acquire and develop drug delivery systems
to address significant new drug delivery opportunities arising in the
pharmaceutical industry. There are four key elements to the Company's strategy.
Develop and Acquire Broadly Applicable Drug Delivery Systems and Apply Them
to Multiple Pharmaceutical Products. The Company develops or acquires drug
delivery systems that have the potential to be applied to multiple proteins,
peptides, and small molecule pharmaceutical compounds to create new product
opportunities. For example, the Company developed the RMP-7 technology
independently and acquired the ProLease and Medisorb technologies. Alkermes
currently has five product candidates utilizing these technologies in
development.
Collaborate to Develop and Finance Product Candidates. In addition to
conducting product development activities on its own, the Company has entered
into collaborations with pharmaceutical and biotechnology companies and others
to develop product candidates incorporating the Company's technologies, provide
capital for product development and share development risk. Currently, the
Company is collaborating with major pharmaceutical companies, including
Genentech, Schering-Plough, Johnson & Johnson, and Janssen.
Apply Drug Delivery Systems to Both Approved Drugs and Drugs in
Development. Alkermes is applying its drug delivery technologies to novel
applications and formulations of pharmaceutical products that have already been
approved by the FDA or other regulatory authorities. In such cases, the Company
and its partners can develop a novel dosage form or application with the
knowledge of a drug's safety and efficacy profile and a body of clinical
experience from which to draw information for the design of clinical trials and
for regulatory submissions. Alkermes is also applying its technologies to new
pharmaceuticals that require a sustained-release delivery system for successful
development.
Establish Independent Product Development Capabilities. Alkermes has
assembled its own product development organization to enable the Company to
develop product candidates for itself and its collaborators based on its drug
delivery technologies. This capability gives Alkermes flexibility in structuring
development programs, and the ability to conduct both feasibility studies and
clinical development programs for its collaborators. For example, the Company
has developed RMP-7 independently and is currently conducting clinical trials of
ProLease hGH for Genentech.
DRUG DELIVERY TECHNOLOGY
The Company's current focus is on the development of broadly applicable
drug delivery technologies addressing two important drug delivery opportunities:
injectable sustained release of proteins, peptides, and small molecule
pharmaceutical compounds, and drug delivery to the brain across the blood-brain
barrier. The Company is developing product candidates based on three independent
drug delivery technologies.
ProLease: injectable sustained release of fragile proteins and peptides
ProLease is Alkermes' proprietary technology for the stabilization and
encapsulation of fragile proteins and peptides in microspheres made of common
medical polymers. The Company's proprietary expertise in this field lies in its
ability to preserve the biological activity of fragile drugs over an extended
period of time and to manufacture these formulations using components and
processes believed to be suitable for human pharmaceutical use. ProLease is
designed to enable novel formulations of proteins and peptides by replacing
frequent injections with controlled, sustained release over time. The Company
believes ProLease formulations have the potential to improve patient compliance
and ease of use by reducing the need for frequent injection, to lower costs by
reducing
27
<PAGE> 29
the need for frequent office visits, and to improve safety and efficacy by
reducing both the variability in drug levels inherent in frequent injections and
the aggregate amount of drug given over the course of therapy. In addition,
ProLease may provide access to important new markets currently inaccessible to
drugs that require frequent injections or are administered orally.
The ProLease formulation process has been designed to assure stability of
fragile compounds during the manufacturing process, during storage, and
throughout the release phase in the body. The formulation and manufacturing
process consists of two basic steps. First, the drug is formulated with
stabilizing agents and dried to create a fine powder. Second, the powder is
microencapsulated at very low temperatures. Incorporation of the drug substance
as a stabilized solid under very low temperatures is critical to protecting
fragile molecules from degradation during the manufacturing process and is a key
element of the ProLease technology. The microspheres are suspended in a small
volume of liquid prior to administration to a patient by injection under the
skin or into a muscle. The Company believes drug release from the ProLease drug
delivery system can be controlled to last from a few days to several months.
Drug release from the microsphere is controlled by diffusion of the drug
through the microsphere and by biodegradation of the polymer. These processes
can be modulated through a number of formulation and fabrication variables,
including drug substance and microsphere particle sizing and choice of polymers
and excipients.
The Company's experience with the application of ProLease to a wide range
of proteins and peptides has shown that high incorporation efficiencies and high
drug loads can be achieved. Proteins and peptides incorporated into ProLease
microspheres have maintained their integrity, stability, and biological activity
for up to 30 days in in vitro experiments conducted on formulations manufactured
at the preclinical and clinical trials scale.
The results of animal studies with several different ProLease formulations
have shown that ProLease can release targeted levels of drugs over extended
periods of time and that the pharmacodynamic response with ProLease formulations
can match that of continuous drug infusion. Suitable in vivo delivery patterns
in rodents and primates have been achieved with different therapeutic proteins.
In July 1996, Alkermes' scientists and their collaborators published results of
primate studies of ProLease hGH in Nature Medicine, a peer-reviewed scientific
journal. These results showed that single injections of ProLease hGH could
provide sustained release and biological effect of hGH in primates for several
weeks.
RMP-7: drug delivery across the blood-brain barrier
RMP-7 is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability. RMP-7
is a proprietary, synthetic analog of bradykinin developed by Alkermes to
increase transiently the permeability of the blood-brain barrier. Following
injection, RMP-7 increases permeability by triggering a brief relaxation of the
tight cellular junctions of the blood-brain barrier. During the time the tight
junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without RMP-7. Preclinical and clinical data also suggest
that RMP-7 increases the uptake of pharmaceuticals in the region of brain tumor
and other pathology.
RMP-7 exerts a pharmacologic effect on the vasculature of the brain and
does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. In the clinical setting, RMP-7 is administered in
conjunction with the therapeutic or diagnostic agent. Timing of RMP-7
administration relative to that of the therapeutic or diagnostic agent is
determined on a drug-by-drug basis to optimize barrier permeability during the
time of peak drug plasma concentrations.
RMP-7 is intended to be marketed as an independent agent to increase the
utility of other therapeutic and diagnostic compounds given with it. The Company
believes RMP-7 may be administered along with cancer chemotherapeutic and
anti-infective agents not currently used in the
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treatment of central nervous system disorders because of their limited ability
to penetrate the blood-brain barrier.
Medisorb: injectable sustained release of traditional small molecule
pharmaceuticals
Medisorb is a proprietary technology for encapsulating traditional small
molecule pharmaceuticals in microspheres made of common medical polymers. Like
ProLease, Medisorb is designed to enable novel formulations of pharmaceuticals
by providing controlled, sustained release over time. The Company believes
Medisorb is suitable for encapsulating stable, water soluble, small molecule
pharmaceuticals at a large scale. The Company believes that Medisorb
formulations may have superior features of safety, efficacy, compliance, and
ease of use for drugs currently administered by frequent injection or are
administered orally. Drug release from the microsphere is controlled by
diffusion of the pharmaceutical through the microsphere and by biodegradation of
the polymer. These processes can be modulated through a number of formulation
and fabrication variables, including drug substance and microsphere particle
sizing and choice of polymers and excipients.
The Medisorb drug delivery system uses manufacturing processes different
from the ProLease manufacturing process. The formulation and manufacturing
process consists of three basic steps. First, the drug is combined with a
polymer solution. Second, the drug/polymer solution is mixed in water to form
liquid microspheres (an emulsion). Third, the liquid microspheres are dried to
produce finished product. The microspheres are suspended in a small volume of
liquid prior to administration to a patient by injection under the skin or into
a muscle. Drug release from the Medisorb drug delivery system can be controlled
to last from a few days to several weeks.
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PRODUCT CANDIDATES IN DEVELOPMENT
The following table summarizes the primary indications, delivery route,
development status and collaborative partner for each of the Company's product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRODUCT DELIVERY COLLABORATIVE
CANDIDATE INDICATION ROUTE STATUS(1) PARTNER
- ------------- ---------------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
ProLease
hGH Short Stature SR Injection(2) Phase I/II Genentech
Intron A Infectious Disease, SR Injection Preclinical Schering-Plough
Cancer
Undisclosed Hormone-Mediated SR Injection Preclinical Johnson & Johnson
Disorders
RMP-7
RMP-7 and Recurrent Malignant Intravenous Phase II complete Alkermes Clinical
Carboplatin Glioma (Europe) Partners, L.P.
Recurrent Malignant Intravenous Phase II Alkermes Clinical
Glioma (U.S.) Partners, L.P.
Recurrent Malignant Intra-arterial Phase II Alkermes Clinical
Glioma Partners, L.P.
Metastatic Brain Tumor Intravenous Phase I/II Alkermes Clinical
Partners, L.P.
Metastatic Brain Tumor Intra-arterial Phase I/II Alkermes Clinical
Partners, L.P.
Pediatric Brain Tumor Intravenous Phase I/II(3) Alkermes Clinical
Partners, L.P.
Medisorb
Undisclosed Undisclosed SR Injection Initial Phase I Janssen
complete
</TABLE>
- ---------------
(1) "Phase II" clinical trials indicates that the compound is being tested in
humans for safety, optimal dosage, and efficacy for the targeted indication.
"Phase I/II" clinical trials indicates that the compound is being tested in
humans for safety and preliminary indications of biological activity in a
limited patient population. "Phase I" clinical trials indicates that the
compound is being tested in humans for preliminary safety and pharmacologic
profile in a volunteer population. "Preclinical" indicates that Alkermes is
conducting efficacy, pharmacology, and/or toxicology testing of a lead
compound in animal models or biochemical or cell culture assays.
(2) Sustained Release Injection.
(3) This clinical trial is being sponsored and conducted by the Pediatric Branch
of the National Cancer Institute.
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PROLEASE
The Company's strategy is to generate multiple product opportunities by
applying ProLease technology to the development of superior formulations of
proteins and peptides that the Company believes address significant market
opportunities. The Company believes these formulations have the potential to
expand the utilization of these products and improve the competitive advantage
of its collaborators in major markets.
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, the Company, either on its own or
pursuant to a collaboration, conducts initial feasibility work to test various
ProLease formulations for a particular drug in vitro and in vivo. Following the
successful completion of the feasibility stage, preclinical development and
manufacturing scale-up activities directed toward the initiation of clinical
trials of the ProLease formulation would be conducted in collaboration with a
partner. See "-- Collaborative Arrangements."
ProLease Human Growth Hormone
Alkermes is developing a ProLease formulation of Genentech's hGH in
collaboration with Genentech. Growth hormone deficiency results in short stature
and potentially other developmental defects. Genentech is the leading supplier
of hGH in the United States. hGH is approved for use in the treatment of
children with growth hormone deficiency, Turner's syndrome, chronic renal
insufficiency, and other indications and is being tested in additional
indications in adults. hGH is currently administered frequently, often daily, by
subcutaneous injection.
In February 1996, Alkermes commenced a Phase I clinical trial of ProLease
hGH in 13 growth hormone deficient adults. The study was completed in August
1996. In November 1996, Alkermes commenced a multi-center Phase I/II clinical
trial of ProLease hGH in growth hormone deficient children. The trial is being
conducted in up to 10 medical centers in the United States and is expected to
enroll up to 36 patients.
ProLease Alpha Interferon
Alkermes is developing a ProLease formulation of Schering-Plough's Intron A
(interferon alpha-2b) product in collaboration with Schering-Plough.
Schering-Plough is a leading supplier of alpha interferon worldwide. Intron A is
approved for use in several infectious diseases and certain oncology
indications. Intron A is currently administered by frequent injection.
Schering-Plough is conducting preclinical studies and will be responsible for
clinical development.
ProLease Product for Hormone-Mediated Disorders
Alkermes is developing a ProLease formulation of a product for the
treatment of hormone-mediated disorders with Johnson & Johnson. The product
development program was announced in November 1996 following the successful
completion by Alkermes of a feasibility study initiated in early 1996. Johnson &
Johnson is conducting preclinical studies and will be responsible for clinical
development.
Additional ProLease Formulations
Alkermes continues to develop ProLease formulations of other unspecified
compounds pursuant to feasibility agreements with several pharmaceutical and
biotechnology companies.
RMP-7
The Company's strategy to date has been to advance RMP-7 through clinical
trials while establishing its safety, permeability effects in humans, and
efficacy when used in combination with other drugs. In 1992, Alkermes formed the
Partnership and transferred to it substantially all rights to
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RMP technology. Alkermes has the option to purchase all of the limited
partnership interests in the Partnership. See "-- Collaborative
Arrangements -- Alkermes Clinical Partners, L.P."
RMP-7 has the potential to be used in combination with a variety of agents
in various disease settings. The Company's goal is to expand the applications of
RMP-7 through its own development activities and, when appropriate,
collaborations with pharmaceutical companies. Alkermes may collaborate with
companies having drugs whose uses could be expanded to include central nervous
system indications. In such cases, Alkermes and its partner could collaborate in
the clinical development of the combination without any exchange of product
rights. Alkermes may also collaborate with development and marketing partners
for RMP-7 in various business areas and geographic territories. In such cases,
Alkermes could license rights to RMP-7 to its partner, subject to the rights of
the Partnership. See "-- Collaborative Arrangements -- Alkermes Clinical
Partners, L.P."
Brain Tumor
RMP-7 is being tested initially for the treatment of recurrent malignant
glioma, an aggressive form of primary brain tumor. Alkermes believes that RMP-7
may have applicability to the treatment and diagnosis of other types of brain
tumors. In that regard, the Company initiated in February 1996 a Phase I/II
clinical trial of RMP-7 in patients with metastatic brain tumor. The Company, in
collaboration with the National Cancer Institute ("NCI"), also initiated a Phase
I/II clinical trial in July 1996 in pediatric patients with brain tumor.
Brain tumors can be classified into two major groups: primary brain tumors,
which originate and recur in the brain, and metastatic brain tumors, which are
tumors that have spread to the brain from other parts of the body. Each year in
the United States and Europe a total of 40,000 patients are diagnosed with
primary brain tumors, of which approximately 60%-70% are malignant glioma, and
150,000 patients are diagnosed with metastatic brain tumors.
Current treatment for brain tumor is limited and inadequate. Standard
treatment typically involves surgery to remove cancerous tissue, followed by
radiation therapy. After initial treatment with surgery and/or radiotherapy,
brain tumors often recur. Upon recurrence, tumors typically progress rapidly,
neurological function and quality of life deteriorate and patients die within
months. Chemotherapy has played only a limited role in treatment, in part due to
the limited access of many chemotherapeutic agents to the brain because of the
normally restrictive blood-brain barrier. Carboplatin is a chemotherapeutic
agent approved for use by the FDA and other regulatory authorities worldwide for
use in the treatment of various tumor types outside of the brain, but is limited
in its ability to penetrate into the brain. RMP-7 is designed to enable more
effective use of chemotherapeutic agents like carboplatin in the treatment of
brain tumors by transiently increasing the permeability of the blood-brain
barrier.
Alkermes is pursuing two alternative treatment strategies for RMP-7 and
carboplatin in patients with malignant brain tumor: intravenous and
intra-arterial administration. The Company believes that pursuing both treatment
methods strengthens the scientific foundation of the clinical trials program and
increases the likelihood of observing a treatment effect in patients. If the
results of the Company's current Phase II clinical trials are favorable, the
Company intends to test the combination of RMP-7 and carboplatin or other
chemotherapeutic agents earlier in the treatment of primary malignant glioma,
prior to recurrence.
Recurrent Malignant Glioma Clinical Trials
The Company's clinical strategy for RMP-7 has been to establish a
foundation of safety and pharmacologic effect of increasing blood-brain barrier
permeability prior to entering Phase II efficacy clinical trials of RMP-7
administered in combination with carboplatin. To date, over 500 human subjects
have received RMP-7 in a series of clinical trials in all indications studied.
Through the Phase I and Phase I/II clinical trials, RMP-7 was shown to have a
good safety profile in volunteers and patients. Transient flushing was the most
consistent adverse event noted and nausea and vomiting were
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determined to be the dose limiting toxicity. There was no evidence of increased
toxicity associated with the combination of RMP-7 and carboplatin, and the drug
combination was generally well tolerated by patients.
Based on the successful completion of Phase I and Phase I/II clinical
trials, Alkermes initiated multiple Phase II clinical trials both of intravenous
and intra-arterial RMP-7 and carboplatin in patients with recurrent malignant
glioma. Three multi-center Phase II clinical trials of intravenous RMP-7 and
carboplatin and one multi-center Phase II clinical trial of intra-arterial RMP-7
and carboplatin were designed and initiated.
European Intravenous Phase II Clinical Trials: ALK01-013 and ALK01-019
In Europe, two separate non-controlled, open label Phase II clinical trials
of intravenous RMP-7 and carboplatin in patients with recurrent malignant glioma
commenced in the first quarter of 1995. Patient enrollment was completed in May
1996, and preliminary results from the two clinical trials were announced in
December 1996.
The two clinical trials enrolled differing patient populations. ALK01-013
("Study-013") enrolled patients whose brain tumors had recurred following
previous treatment with surgery and radiotherapy. Such patients had not
previously been treated with chemotherapy. ALK01-019 ("Study-019") enrolled
patients whose brain tumors had recurred following previous treatment with
surgery, radiotherapy, and chemotherapy.
In both clinical trials, patients received treatment cycles of RMP-7 and
carboplatin approximately once every four weeks. Each cycle consisted of a
15-minute intravenous infusion of carboplatin and a concurrent 10-minute
intravenous infusion of RMP-7. The prospectively defined endpoints of the
clinical trials included response rates over the first four cycles of treatment
as determined by stabilization or improvement for a minimum of two cycles of
treatment as measured by three standardized tests of neurological impairment and
patient performance status, and stabilization or reduction in tumor volume for a
minimum of two cycles as measured with contrast-enhanced MRI.
In Study-013, 45 patients were treated at nine medical centers in the
United Kingdom. The combination of RMP-7 and carboplatin was generally well
tolerated. Of the patients treated, 61% to 91% responded to treatment as
measured by three tests of neurological impairment and performance status. In
addition, 79% of patients responded to the treatment as measured by the size of
their tumor as measured with contrast-enhanced MRI.
An independent analysis conducted by a statistician from the Medical
Research Council ("MRC"), Cambridge, England, compared the effect on survival of
treatment with RMP-7 and carboplatin versus a group of historical control
patients matched on important prognostic factors. All comparisons favored the
group treated with RMP-7 and carboplatin versus the control group. This finding
was statistically significant (hazard ratio 1.9-2.2, p<=0.02), after accounting
for the effects of prognostic factors.
In Study-019, 42 patients were treated at 11 medical centers in the United
Kingdom, France and Sweden. Treatment with the combination of RMP-7 and
carboplatin was generally well tolerated. Of the patients treated, 40% to 59%
responded to treatment as measured by three tests of neurological impairment and
performance status. In addition, 24% of patients responded to the treatment as
measured by the size of their tumor with contrast-enhanced MRI. The MRC did not
perform a comparison of patients in Study-019 to historical controls due to the
lack of a database of comparable patients who had failed surgery, radiotherapy
and chemotherapy.
There can be no assurance that the results of the European clinical trials
will be sufficient for the Company to obtain approval to market RMP-7 in Europe,
or that the European regulatory bodies will not require additional clinical
trials. In addition, there can be no assurance that the results of the United
States Phase II trials will support the results of the European trials.
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United States Intravenous Phase II Clinical Trial: ALK01-017
In the United States, a Phase II clinical trial of intravenous RMP-7 and
carboplatin commenced in March 1995 and is being conducted at 10 medical
centers. Enrollment of 120 patients was completed in May 1996. Preliminary
results from this clinical trial are expected in the first half of 1997.
The clinical trial is designed as a double-blind, placebo-controlled study
comparing treatment with intravenous RMP-7 and carboplatin to treatment with
carboplatin alone in patients with recurrent malignant glioma. Patients receive
treatment cycles of RMP-7 and carboplatin once approximately every four weeks.
Each cycle consists of an approximately 45-minute intravenous infusion of
carboplatin and a 10-minute intravenous infusion of RMP-7. The prospectively
defined endpoints include time to tumor progression as measured by an increase
of tumor volume measured with contrast-enhanced MRI of greater than 50%, and
three separate measurements of patients' functional capacity, neurological
impairment, and quality of life. No assurance can be given that such trial will
be completed in a timely manner, if at all, or that any results obtained will
support those from the European studies.
United States Intra-arterial Phase II Clinical Trial: ALK01-031
Alkermes initiated a multi-center Phase II clinical trial in the United
States of intra-arterial RMP-7 and carboplatin in March 1996. Enrollment of 51
patients was completed in September 1996 at nine medical centers. Preliminary
results from the study are expected in the first half of 1997.
The clinical trial is designed as a non-controlled open label study of the
treatment with RMP-7 and carboplatin administered intra-arterially in patients
with recurrent malignant glioma. Patients receive treatment cycles of RMP-7 and
carboplatin once approximately every four weeks. Each cycle consists of an
approximately 45-minute intra-arterial infusion of carboplatin and a 10-minute
intra-arterial infusion of RMP-7. The prospectively defined endpoints include
time to tumor progression as measured by an increase of tumor volume measured
with contrast-enhanced MRI of greater than 50%, and three separate measurements
of patients' functional capacity, neurological impairment, and quality of life.
Metastatic Brain Tumor Clinical Trial
Alkermes initiated a multi-center Phase I/II non-controlled, open label
clinical trial in Europe of intravenous RMP-7 and carboplatin in patients with
metastatic brain tumor in February 1996. The study is being conducted at two
medical centers and is expected to enroll approximately 14 patients.
Alkermes also initiated a Phase I/II non-controlled, open label clinical
trial in the United States of intra-arterial RMP-7 and carboplatin in patients
with metastatic brain tumor in October 1995. The study is being conducted at one
medical center and is expected to enroll approximately 18 patients.
Pediatric Brain Tumor Clinical Trial
In July 1996, Alkermes, in collaboration with the NCI, initiated a
non-controlled, open label Phase I/II clinical trial of intravenous RMP-7 and
carboplatin in pediatric brain tumor patients who had failed other therapies.
The study is being sponsored and conducted by the Pediatric Branch of the NCI
and is expected to enroll approximately 24 patients.
MEDISORB
The Company's strategy is to generate multiple product opportunities by
applying Medisorb technology to the development of superior formulations of
small molecule pharmaceutical products. The Company believes these formulations
have the potential to expand the utilization of these products and improve the
competitive advantage of its collaborators in major markets.
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, the Company, either on its own or
pursuant to a collaboration, conducts initial
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feasibility work to test various Medisorb formulations for a particular drug in
vitro and in vivo. Following the successful completion of the feasibility stage,
preclinical development and manufacturing scale-up activities directed toward
the initiation of clinical trials of the Medisorb formulation would be conducted
in collaboration with a partner. See "-- Collaborative Arrangements."
Undisclosed Medisorb Product Candidate
Alkermes is developing and manufacturing a Medisorb product candidate in
collaboration with Janssen. In 1996, Janssen completed initial Phase I clinical
trials of the Medisorb product candidate. Janssen is responsible for conducting
all clinical trials.
COLLABORATIVE ARRANGEMENTS
The Company's business strategy includes forming collaborations to provide
technological, financial, marketing, manufacturing and other resources. The
Company has entered into several collaborations.
Genentech, Inc.
In November 1996, Alkermes announced the completion of a Phase I clinical
trial of a ProLease hGH formulation in adults. Based in part on the successful
completion of the Phase I trial, Genentech exercised its option to enter into a
license agreement, and obtained from Alkermes a license coexclusive in the
United States and exclusive in the rest of the world for a ProLease formulation
of hGH. Under the terms of the agreement, Genentech could provide an estimated
$20.0 million in development funding for scale up activities, clinical trials
materials, manufacturing, and clinical trial expenses over the development
period. In addition, Alkermes could receive milestone payments of approximately
$10.0 million, if the ProLease hGH formulation is successfully developed and is
approved by regulatory authorities. Alkermes will be responsible for conducting
Phase I/II clinical trials and manufacturing the ProLease hGH formulation and is
to receive manufacturing revenues and royalties on sales. Alkermes also granted
Genentech an extension until November 1997 of its option to license ProLease for
another Genentech undisclosed protein.
Genentech has the right to terminate the agreement for any reason upon 30
days' written notice or, if the Company has begun manufacturing the ProLease
product for commercial sale, upon six months' written notice. In addition,
either party may terminate the agreement upon the other party's material default
which is not cured within 90 days of written notice, or upon the other party's
insolvency or bankruptcy.
To fund the Company's activities during the first stage of its
collaboration with Genentech, Genentech loaned the Company $3.5 million pursuant
to a convertible promissory note dated January 31, 1995 (the "Note"). The
outstanding principal amount of the Note accrues interest at the prime rate of
interest as reported by the Bank of American NT & SA from time to time. The
outstanding principal amount of the Note and accrued but unpaid interest thereon
becomes due and payable on January 31, 2000.
Under the terms of the Note, the Company has the option to convert, at any
time, all outstanding principal and accrued but unpaid interest thereon (as such
amount may exist from time to time, the "Conversion Amount") into shares of
Common Stock at the 20-day average closing price immediately preceding the
conversion date (the "Conversion Price"). In addition, Genentech shall have the
right to convert the Conversion Amount into shares of Common Stock at the
Conversion Price if at any time the total cash, cash equivalents and marketable
debt instruments of the Company shall be less than the sum of (i) all
indebtedness which ranks senior to the indebtedness evidenced by the Note, and
(ii) the Conversion Amount. Genentech also has the right to demand that the
Common Stock be registered under certain circumstances.
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Schering-Plough Corporation
Under an amended development and license agreement with Schering-Plough,
the Company has agreed to develop an injectable delivery system which
incorporates Intron A as an active ingredient utilizing the Company's ProLease
delivery system and has granted to Schering-Plough an exclusive worldwide
royalty bearing license to manufacture, use and sell any such system that may be
developed pursuant to the amended agreement. Under the amended agreement,
Schering-Plough will also be responsible for conducting clinical trials and
securing regulatory approvals. The amended agreement provides for development
funding to the Company and provides for certain payments to be made by
Schering-Plough to the Company for its achievement of certain milestones. The
Company and Schering-Plough entered into a prepaid royalty agreement pursuant to
which Schering-Plough has prepaid certain royalties. Payments to the Company
were approximately $7.0 million through December 31, 1996, and future milestone
payments could exceed an additional $5.0 million, not including royalties.
Schering-Plough has the right to terminate the amended agreement upon 60
days' written notice upon the occurrence of certain events, including if the
Company fails to meet product specifications or an agreed upon delivery
schedule, the results of a safety and pharmacokinetics study provide Schering-
Plough with reasonable justification not to proceed to a Phase II clinical
trial, the use of the product results in adverse effects that justify
termination of clinical trials, Schering-Plough is unable to manufacture the
product on a commercial scale, or upon completion or permanent discontinuation
of the clinical trials. Either party may terminate the amended agreement upon
the insolvency or bankruptcy of the other party or upon a breach by the other
party which has not been cured after 60 days' notice. Schering-Plough also has
the right to terminate the amended agreement upon 90 days' written notice or
continue the development project on its own in the event Alkermes fails by an
agreed upon date to deliver batches of a ProLease formulation of Intron A that
meet agreed upon specifications. In the event Schering-Plough elects to continue
the development project after termination, it will remain obligated to pay
Alkermes milestone payments and royalties upon commercial sale. In the event
Schering-Plough terminates the amended agreement for any reason, Alkermes must
repay the prepaid royalties received from Schering-Plough with interest. Such
repayment obligation would be evidenced by an interest-bearing note and would be
payable in full on the third anniversary of the date of the note. Alkermes will
have the right, subject to the satisfaction of certain conditions, to satisfy
its repayment obligation through the issuance of shares of its Common Stock. The
number of shares that may be issued would be based upon the average closing
price of Alkermes Common Stock on the Nasdaq National Market for the 30 business
days immediately preceding the date on which the shares are delivered. Any
Common Stock issued to Schering-Plough must be freely resalable.
Johnson & Johnson
In November 1996, the Company entered into a development and license
agreement with Ortho Pharmaceutical Corporation, an affiliate of Johnson &
Johnson, for the development of a ProLease formulation of a Johnson & Johnson
proprietary compound (the "J&J Product Candidate"). The Company is developing a
sustained release formulation of this compound to treat hormone-mediated
disorders.
Pursuant to the development agreement, Johnson & Johnson obtained an
exclusive, worldwide, royalty bearing license to make, use and sell products
resulting from such agreement. In exchange, Johnson & Johnson is to provide the
Company with research and development funding, milestone payments and royalty
payments based on sales, if any, of the J&J Product Candidate. Development
funding and milestone payments could aggregate approximately $20 million,
assuming the development of the J&J Product Candidate proceeds in accordance
with its development plan. Johnson & Johnson is to be responsible for conducting
clinical trials and securing regulatory approvals and, together with its
affiliates, is to be responsible for the marketing of any products that result
from the collaboration. The Company expects to manufacture any such products for
commercial sales.
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Johnson & Johnson may terminate the development agreement for any reason,
upon 90 days' written notice if such termination notice occurs prior to filing a
New Drug Application ("NDA") with the FDA, or upon six months' written notice if
such notice occurs subsequent to such a filing. In addition, either party may
terminate the development agreement and the related manufacturing agreement upon
a material default or breach by the other party of such agreement which is not
cured within 60 days' notice, or upon the other party's insolvency or
bankruptcy.
Janssen Pharmaceutica International
Pursuant to a development agreement, the Company is collaborating with
Janssen in the development of sustained release formulations, utilizing the
Medisorb technology, of an undisclosed Janssen product candidate. Under the
development agreement, the Company is responsible for production of the Janssen
product candidate for clinical trials. Janssen is responsible for conducting
clinical trials of the Janssen product candidate and securing all necessary
regulatory approvals.
In October 1996, the Company announced the expansion of the development
agreement. Janssen has agreed to provide development funding of approximately
$20 million over a two-year period, assuming the product continues in clinical
development. The funding will be used for manufacturing clinical trials material
and scale up for commercial sale.
Under related license agreements, Janssen and an affiliate have exclusive
worldwide licenses from the Company to manufacture, use and sell the Janssen
product candidate. If Janssen decides to employ third-party suppliers of the
commercialized Janssen product developed under the development agreement, the
Company has a right of first refusal for the manufacture and supply of such
product, and component bio-absorbable polymers thereof. Under the license
agreements, Janssen is required to pay Alkermes certain royalties with respect
to all Medisorb formulations of the Janssen product sold to customers. Janssen
can terminate the development agreement or the license agreements upon 30 days'
prior written notice.
Alkermes Clinical Partners, L.P.
In April 1992, Units consisting of limited partnership interests in the
Partnership and warrants to purchase the Company's Common Stock were sold to
investors in a private placement (the "Private Placement"). The proceeds of the
$46 million Private Placement have been used to fund the further development and
clinical testing of RMPs for human pharmaceutical use in the United States,
Canada and Europe. Such funding was not sufficient to complete clinical trials
and seek regulatory approval of RMP-7. Since the completion of funding from the
Partnership, which ended at June 30, 1996, Alkermes has used its own resources,
and intends to continue to use its own resources, to develop RMP-7, but may be
forced to seek alternative sources of funding, including additional
collaborators. The Company is required to fund the development of RMP-7 to
maintain its Purchase Option with the Partnership.
Pursuant to a product development agreement, dated March 6, 1992, Alkermes
transferred substantially all of its rights to the RMP technology to the
Partnership. Alkermes has an option to purchase all of the limited partnership
interests in the Partnership and thereby reacquire the transferred technology.
The Partnership may terminate the research program for any or all products
upon the affirmative vote of 75% of the directors of the general partner of the
Partnership, Alkermes Development Corporation II ("ADC II"), a wholly owned
subsidiary of Alkermes, that such research is not feasible or is uneconomic. The
Partnership may terminate the marketing program for any or all products upon the
affirmative vote of 75% of the directors of ADC II based on the directors' good
faith business judgment. The Partnership may also terminate the research or
marketing program if Alkermes has materially breached the agreement and not
cured such breach within 30 days' written notice. Both parties may terminate the
research or marketing program upon mutual consent to terminate or upon the
insolvency or bankruptcy of the other party.
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<PAGE> 39
The Partnership has granted Alkermes an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United States
and Canada. Upon the first marketing approval of an RMP product by the FDA,
Alkermes is obligated to make a payment to the Partnership equal to 20% of the
aggregate capital contributions of all limited partners. Additionally, Alkermes
will pay royalty payments equal to 12% of United States and Canadian revenues
and, in certain circumstances, 10% of European revenues from any sales of RMPs
by Alkermes. The interim license will terminate if Alkermes does not exercise
its option to acquire all of the limited partners' interests in the Partnership.
Alkermes can exercise its technology purchase option by making a payment to the
partnership equal to 80% of the aggregate capital contributions of all limited
partners in addition to royalty payments in the same percentages as provided for
under the interim license agreement.
The general partner of the Partnership is ADC II. Fifty percent of the
members of the board of directors of ADC II are persons not affiliated with
Alkermes. Such non-affiliated persons were nominated by the sales agent for the
Private Placement. The sales agent will continue to have the right to nominate
at least half of the members of ADC II's board of directors unless certain
events occur.
MANUFACTURING
Each of the Company's three drug delivery systems utilizes a distinct
manufacturing process.
ProLease
ProLease manufacturing involves microencapsulation of drug substances
provided to Alkermes by its collaborators in small polymeric microspheres using
extremely cold processing conditions suitable for fragile molecules. The
ProLease manufacturing process consists of two basic steps. First, the drug is
formulated with stabilizing agents and dried to create a fine powder. Second,
the powder is microencapsulated at very low temperatures.
Alkermes has completed construction of an in-house pilot production
facility that has been validated by the Company for manufacturing in accordance
with GMP. The facility is being used to manufacture product candidates
incorporating its ProLease sustained-release delivery system for use in clinical
trials. This facility is not capable of manufacturing products on a commercial
scale. Pursuant to agreements with certain of its collaborators, Alkermes has
the right to manufacture ProLease products for commercial sale. Alkermes has
initiated the design of a commercial scale ProLease manufacturing facility of
approximately 20,000 square feet.
RMP-7
RMP-7 is a small peptide manufactured using standard synthetic techniques.
Alkermes relies on an independent European pharmaceutical company for the
manufacture and supply of RMP-7. Scale up of RMP-7 manufacturing process to
support international clinical trials and commercial launch has been completed.
Alkermes believes that, if necessary, there are other companies which could
manufacture and supply its requirements for RMP-7.
Medisorb
The Medisorb manufacturing process is significantly different from the
ProLease process and is based on a method of encapsulating small molecule drugs,
provided by the Company's collaborator, in polymers using a large-scale
emulsification. The Medisorb manufacturing process consists of three basic
steps. First, the drug is combined with a polymer solution. Second, the
drug/polymer solution is mixed in water to form liquid microspheres (an
emulsion). Third, the liquid microspheres are dried to produce finished product.
Alkermes owns a 14,000 square foot GMP sterile manufacturing facility in
Wilmington, Ohio. Alkermes is manufacturing a product candidate incorporating
its Medisorb sustained-release delivery system for use by Janssen in clinical
trials at this facility. It does not manufacture such product
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<PAGE> 40
candidates on a commercial scale. Alkermes has initiated the design of an
addition to and modification of its current manufacturing facility for
commercial scale Medisorb manufacturing.
The manufacture of the Company's products for clinical trials and
commercial purposes is subject to current GMP and other federal regulations. The
Company has never operated an FDA-approved manufacturing facility, and there can
be no assurance that it will obtain necessary approvals for commercial
manufacturing.
If Alkermes is not able to develop manufacturing capacity and experience or
to continue to contract for manufacturing capabilities on acceptable terms, its
ability to conduct preclinical testing and clinical trials will be compromised,
and delays in obtaining regulatory approvals might result, as well as commercial
sales if approvals are obtained. Such delays could materially adversely affect
the Company's competitive position and its business, financial condition and
results of operations.
MARKETING
Alkermes plans to market and sell RMP-7, if successfully developed and
approved, either directly or through co-promotion or other licensing
arrangements with third parties. Such arrangements may be exclusive or
nonexclusive and may provide for marketing rights worldwide or in a specific
market.
Alkermes intends to market any ProLease and Medisorb products through its
corporate partners. Alkermes has entered into development agreements, including
sales and marketing, for ProLease product candidates with Genentech,
Schering-Plough and Johnson & Johnson, and for a Medisorb product candidate with
Janssen. See "-- Collaborative Arrangements."
Alkermes currently has no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any product candidate
approved by the FDA, Alkermes must either develop a marketing and sales force or
enter into arrangements with third parties to market and sell its products.
There can be no assurance that Alkermes will successfully develop such
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations. To
the extent that the Company enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by
Alkermes will be dependent on the efforts of others and there can be no
assurance that such efforts will be successful.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid and
substantial technological change. Alkermes will continue to face intense
competition in the development, manufacturing, marketing, and commercialization
of its product candidates from academic institutions, government agencies,
research institutions, biotechnology and pharmaceutical companies, including its
collaborators, and drug delivery companies. There can be no assurance that
developments by others will not render the Company's product candidates or
technologies obsolete or noncompetitive, or that the Company's collaborators
will not choose to use competing drug delivery methods. At the present time,
Alkermes has no sales force, or marketing or commercial manufacturing
experience. In addition, many of the Company's competitors and potential
competitors have substantially greater capital resources, manufacturing and
marketing experience, research and development resources, and production
facilities than does Alkermes. Many of these competitors also have significantly
greater experience than Alkermes in undertaking preclinical testing and clinical
trials of new pharmaceutical products and obtaining FDA and other regulatory
approvals.
With respect to RMP-7, the Company believes that there are currently no
products approved by the FDA for increasing the permeability of the blood-brain
barrier. There are, however, many novel experimental therapies for the treatment
of brain tumor and central nervous system infections being tested in the United
States and Europe.
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<PAGE> 41
With respect to ProLease and Medisorb, the Company is aware that there are
other companies developing sustained-release delivery systems for pharmaceutical
products. In addition, other companies are developing new chemical entities
which, if developed successfully, could compete against sustained-release
formulations of products of the Company's collaborators. These chemical entities
are being designed to have different mechanisms of action or improved safety and
efficacy. In addition, the Company's collaborators may develop, either alone or
with others, products that compete with the development and marketing of the
Company's product candidates.
There can be no assurance that the Company will be able to compete
successfully with such companies. The existence of products developed by the
Company's competitors, or other products or treatments of which the Company is
not aware, or products or treatments that may be developed in the future, may
adversely affect the marketability of products developed by the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will be dependent, in part, on its ability on
obtaining patent protection for its product candidates and those of its
collaborators, maintaining trade secret protection and operating without
infringing upon the proprietary rights of others.
The Company has a proprietary portfolio of patent rights and exclusive
licenses to patents and patent applications. The Company has filed numerous
United States and international patent applications directed to composition of
matter as well as processes of preparation and methods of use, including
applications relating to: permeabilizers, certain rights to which have been
licensed to the Partnership, of which one United States patent was issued in
each of May 1992, December 1993, April 1996 and December 1996; carriers for
enabling passage into the brain of therapeutic compounds, of which one United
States patent was issued in each of October 1992, January 1993 and June 1996; a
ProLease microencapsulation process, of which one United States patent was
issued in May 1991; the formulation of a ProLease composition of which one
United States patent was issued in May 1995; a Medisorb microencapsulation
process of which one United States patent was issued in June 1983; and 11
additional United States patents related to Medisorb methods and compositions
that were issued between July 1985 and June 1995. In the future, the Company
plans to file further United States and foreign patent applications directed to
new or improved products and processes. The United States patents issued to the
Company will expire between 2000 and 2014. Alkermes intends to file additional
patent applications when appropriate and intends to defend its patent position
aggressively.
Alkermes has exclusive rights through licensing agreements with several
institutions to nine issued United States patents, a number of United States
patent applications and to corresponding foreign patents and patent applications
in many countries, subject in certain instances to the rights of the United
States government to use the technology covered by such patents and patent
applications. The United States patents that have been licensed to the Company
will expire between the years 2003 and 2013. Under certain licensing agreements,
the Company currently pays license maintenance fees and/or minimum annual
royalties. During the fiscal year ended March 31, 1996, such fees were
approximately $127,000. In addition, under all licensing agreements, Alkermes is
obligated to pay royalties on future sales of products, if any, covered by the
licensed patents.
The Company is aware of several United States patents issued to third
parties containing claims which could be construed to cover some of the
Company's product candidates utilizing its ProLease, RMP-7, and Medisorb
delivery systems. In one case, the Company has received a letter from the owner
of a patent asking the Company to compare the Company's Medisorb technology
disclosed in a published international patent application with such owner's
patented technology. The Company believes, based on opinions obtained from its
patent counsel, that the manufacture, use, offer for sale or sale of its
ProLease, RMP-7 or Medisorb product candidates would not infringe any valid
claim of any of the issued United States patents. However, there can be no
assurance that the claims of the issued United States patents are not infringed
by the proposed manufacture, use, offer for sale, or sale of these products by
the Company or its collaborators. There can be no assurance that a third party
40
<PAGE> 42
will not file an infringement action, or that the Company would prevail in any
such action. There can be no assurance that the cost of defending an
infringement action would not be substantial, and would not have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is also aware of patent applications filed by third
parties in the United States and in various foreign countries which may cover
some of the Company's product candidates utilizing its ProLease, RMP-7 or
Medisorb delivery systems. Patents may issue from these applications which could
preclude the Company from manufacturing, using, offering for sale, or selling
some of its ProLease, RMP-7 or Medisorb product candidates. Furthermore, there
can be no assurance that any licenses under such patents would be made available
on commercially viable terms, if at all. Failure to obtain any required license
could prevent the Company from commercializing one or more of its products.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
firms, including Alkermes, are generally uncertain and involve complex legal and
factual questions. In addition, there can be no assurance that the Company's or
its licensors' current patent applications will be allowed or that the claims of
any patents issued to Alkermes or its licensors (in connection with either or
both the Company's product candidates or the Partnership's product candidate)
will be sufficiently broad to protect the Company's or the Partnership's
technology or to provide Alkermes or the Partnership with any competitive
advantages. Moreover, no assurance can be given that patents issued to Alkermes
(in connection with either or both the Company's product candidates or the
Partnership's product candidate), or its respective licensors, if any, will not
be contested, invalidated or circumvented. In addition, if Alkermes or the
Partnership is required to bring or defend against a narrowed charge of patent
infringement or to protect its own proprietary rights against third parties,
substantial costs could be incurred.
In the future, Alkermes may be required to obtain additional licenses to
patents or other proprietary rights of third parties. There can be no assurance
that any such licenses will be available on acceptable terms, if at all, and
failure to obtain such licenses could result in delays in marketing the
Company's products or the inability to proceed with the development, manufacture
or sale of product candidates requiring such licenses.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
The Company's practice is to require its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with the Company. The agreements provide
that all confidential information developed or made known to an individual
during the course of the employment or consulting relationship shall be kept
confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual while employed by the Company shall be
the exclusive property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets in the event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, manufacture
41
<PAGE> 43
and marketing of pharmaceutical products. Pharmaceutical manufacturing
facilities are also regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application, which
must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of an NDA, or
for a biological product in the form of a Product License Application ("PLA"),
for approval to commence commercial sales. Preparing such applications involves
considerable data collection, verification, analysis and expense. In responding
to an NDA or PLA, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does
not satisfy its regulatory approval criteria.
Prior to marketing, any product developed by Alkermes or its collaborators
must undergo an extensive regulatory approval process, which includes
preclinical testing and clinical trials of such product candidate to demonstrate
safety and efficacy. This regulatory process can require many years and the
expenditure of substantial resources. Data obtained from preclinical testing and
clinical trials are subject to varying interpretations, which can delay, limit
or prevent FDA approval. In addition, changes in FDA approval policies or
requirements may occur or new regulations may be promulgated which may result in
delay or failure to receive FDA approval. Similar delays or failures may be
encountered in foreign countries. Delays and costs in obtaining regulatory
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
on an ongoing basis with GMP. Before approval of an NDA or PLA, the FDA will
perform a prelicensing inspection of the facility to determine its compliance
with GMP and other rules and regulations. In complying with GMP, manufacturers
must continue to expend time, money and effort in the area of production and
quality control to ensure full technical compliance. After the establishment is
licensed, it is subject to periodic inspections by the FDA.
The requirements which the Company must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its products in such countries can be as rigorous and costly as those
described above.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's research. Compliance with laws and
regulations relating to the protection of the environment has not had a material
effect on capital expenditures, earnings or the competitive position of the
Company. However, the extent of government regulation which might result from
any legislative or administrative action cannot be accurately predicted.
EMPLOYEES
As of December 31, 1996, the Company had 177 full-time employees. A
significant number of the Company's management and professional employees have
had prior experience with pharmaceutical, biotechnology or medical products
companies. Alkermes believes that it has been highly successful in
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<PAGE> 44
attracting skilled and experienced scientific personnel; however, competition
for such personnel is intense. None of the Company's employees is covered by a
collective bargaining agreement.
FACILITIES
Alkermes leases and occupies approximately 90,000 square feet of laboratory
and office space in Cambridge, Massachusetts. These facilities also include a
GMP pilot suite for the manufacture of ProLease product candidates for clinical
trials.
Alkermes owns and occupies approximately 14,000 square feet of
manufacturing, office and laboratory space in Wilmington, Ohio. This facility
contains a GMP sterile production facility for the production of Medisorb
product candidates for clinical trials. The Company also leases and occupies
approximately 25,000 square feet of laboratory and office space in Blue Ash,
Ohio.
Alkermes Europe Ltd., a wholly owned subsidiary of the Company, leases and
occupies approximately 1,500 square feet of office space in Cambridge, England.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of January 9, 1997
with respect to the executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Michael A. Wall........................... 68 Chairman of the Board of Directors
Richard F. Pops........................... 34 Chief Executive Officer and Director
Robert A. Breyer.......................... 53 President, Chief Operating Officer and
Director
Raymond T. Bartus......................... 49 Senior Vice President, Preclinical
Research and Development
Michael J. Landine........................ 43 Senior Vice President, Chief Financial
Officer and Treasurer
Don G. Burstyn............................ 42 Vice President, Regulatory Affairs
J. Duncan Higgons......................... 41 Vice President, Business Development
Scott D. Putney........................... 43 Vice President, Protein and Molecular
Biology
Cornelis H. Wortel........................ 40 Vice President, Medical Affairs
James L. Wright........................... 49 Vice President, Pharmaceutical Development
Dennis Meka............................... 44 Vice President, Operations
Floyd E. Bloom............................ 60 Director
John K. Clarke............................ 43 Director
Robert S. Langer.......................... 48 Director
Alexander Rich............................ 72 Director
Paul Schimmel............................. 56 Director
</TABLE>
- ---------------
Mr. Wall is a founder of Alkermes and has been Chairman of the Board of
Alkermes since 1987. From April 1992 until June 30, 1993, he was a director and
Chairman of the Executive Committee of Centocor, Inc. ("Centocor"), a
biopharmaceutical company. From November 1987 to June 30, 1993, he was Chairman
Emeritus of Centocor. Mr. Wall is a director of Kopin Corporation, a
manufacturer of high definition imaging products, and Sugen, Inc., a
biopharmaceutical company.
Mr. Pops has been Chief Executive Officer and a Director of the Company
since February 1991. From February 1991 to June 1994, Mr. Pops was also
President of the Company. Mr. Pops currently serves on the Board of Directors of
the Biotechnology Industry Organization (BIO) and The Brain Tumor Society (a
non-profit organization).
Mr. Breyer has been President and Chief Operating Officer and a Director of
the Company since July 1994. From August 1991 to December 1993, Mr. Breyer was
President and General Manager of Eli Lilly Italy, a subsidiary of Eli Lilly &
Co.
Dr. Bartus has served as Senior Vice President, Preclinical Research and
Development of the Company since December 1996. From November 1992 to December
1996, he served as Senior Vice President, Neurobiology of the Company. From June
1988 to November 1992, Dr. Bartus held various positions with Cortex
Pharmaceuticals, Inc., most recently as Executive Vice President and Chief
Operating Officer.
Mr. Landine has been the Chief Financial Officer of the Company since March
1988. He has been a Senior Vice President since December 1994 and Treasurer of
the Company since 1991. From March 1988 to December 1994, he also served as a
Vice President of the Company. He is currently an advisor to Walker Magnetics
Group, an international manufacturer of industrial equipment.
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<PAGE> 46
Dr. Burstyn became Vice President, Regulatory Affairs in October 1993. From
1987 to 1993, Dr. Burstyn was employed in various capacities at Biogen, Inc.,
most recently as Director, Development Operations.
Mr. Higgons became Vice President, Business Development in December 1994.
From 1986 to 1994, he was employed in various capacities at IVAC Corporation,
most recently as Senior Director of Sales, Western Area.
Dr. Putney has been Vice President, Protein and Molecular Biology since
December 1996. From October 1991 to December 1996, he was Vice President,
Molecular Biology of the Company.
Dr. Wortel became Vice President, Medical Affairs in July 1996. From 1995
to 1996, he was employed by Procept; from 1993 to 1995, he was employed by
Repligen, Inc.; and from 1991 to 1993, he was employed by Centocor, Inc.
Dr. Wright became Vice President, Pharmaceutical Development in December
1994. From 1989 to 1994, he was employed at Boehringer Ingelheim
Pharmaceuticals, Inc., most recently as a Director.
Mr. Meka became Vice President, Operations of the Company in January 1997.
From 1991 to December 1996, he was employed by Dupont Merck Pharmaceuticals as
Vice President, Corporate Services.
Dr. Bloom is a founder of Alkermes and has been a director of Alkermes
since 1987. Dr. Bloom has been active in neuropharmacology for more than 30
years, holding positions at Yale University, the National Institute of Mental
Health and The Salk Institute. Since 1983, he has been at The Scripps Research
Institute where he is currently Chairman, Department of Neuropharmacology. Dr.
Bloom serves as Editor-in-Chief of Science.
Mr. Clarke has served as a director of Alkermes since 1987. He is a general
partner of DSV Partners III and DSV Management, the general partner of DSV
Partners IV. DSV Partners III and DSV Partners IV are venture capital investment
partnerships. Mr. Clarke has been associated with DSV since 1982. Mr. Clarke is
also a director of DNX Corporation, Inc., a biopharmaceutical company, and a
number of private healthcare companies.
Professor Langer has served as a director of the Company since 1993. He is
the Kenneth J. Germeshausen Professor of Chemical and Biomedical Engineering at
the Massachusetts Institute of Technology and has been a member of the
Massachusetts Institute of Technology faculty since July 1977. In 1989,
Professor Langer was elected to the Institute of Medicine of the National
Academy of Sciences and in 1992 was elected to both the National Academy of
Engineering and the National Academy of Sciences.
Dr. Rich is a founder of Alkermes and has been a director of Alkermes since
1987. Dr. Rich has been a professor at the Massachusetts Institute of Technology
since 1958, and is the William Thompson Sedgwick Professor of Biophysics and
Biochemistry. Dr. Rich is Co-Chairman of the Board of Directors of Repligen
Corporation, a biopharmaceutical company.
Dr. Schimmel is a founder of Alkermes and has been a director of Alkermes
since 1987. Dr. Schimmel is the John D. and Catherine T. MacArthur Professor of
Biophysics and Biochemistry at the Massachusetts Institute of Technology, where
he has been employed since 1967. Dr. Schimmel is Co-Chairman of the Board of
Directors of Repligen Corporation and is a director of Cubist Pharmaceuticals,
Inc.
Directors are elected annually and hold office until their successors are
duly elected and qualified, or until their earlier removal or resignation.
Executive officers are elected to serve at the pleasure of the Board of
Directors. There are no family relationships among any of the directors and
executive officers of the Company.
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<PAGE> 47
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's outstanding Common Stock as of January 9,
1997, and as adjusted to reflect the sale of the Common Stock offered hereby, by
(i) each person who is known by the Company to beneficially own more than 5% of
the Company's Common Stock, (ii) each director of the Company, (iii) the Chief
Executive Officer, (iv) each of the other three most highly compensated
executive officers, and (v) all the directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED(1)
SHARES ---------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Amerindo Investment Advisors Inc.(2)....................... 2,715,000 14.6% 13.2%
One Embarcadero, Suite 2300
San Francisco, CA 94111
Chancellor Capital Management, Inc. and.................... 1,066,578 5.8% 5.2%
Chancellor Trust Company(3)
1166 Avenue of the Americas
New York, New York 10036
Floyd E. Bloom(4).......................................... 166,000 * *
Robert A. Breyer(5)........................................ 116,250 * *
John K. Clarke(6).......................................... 26,968 * *
Robert S. Langer(7)........................................ 181,189 1.0% *
Richard F. Pops(8)......................................... 293,216 1.6% 1.4%
Alexander Rich(9).......................................... 184,200 1.0% *
Paul Schimmel(9)........................................... 303,200 1.6% 1.5%
Michael A. Wall(10)........................................ 488,750 2.6% 2.4%
Raymond T. Bartus(11)...................................... 59,125 * *
Michael J. Landine(12)..................................... 129,525 * *
Scott D. Putney(13)........................................ 58,525 * *
All directors and executive officers as a group (16
persons)(14)............................................. 2,072,898 10.8% 9.8%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) As of January 9, 1997, there were 18,543,409 shares of the Company's Common
Stock outstanding. The number of shares of Common Stock deemed outstanding
after this offering includes the 2,000,000 shares of Common Stock which are
being offered for sale by the Company in this offering. Except as otherwise
indicated, each owner has sole voting and investment power of the shares
owned.
(2) Amerindo Investment Advisors Inc. holds these shares in its capacity as
investment advisor for various fiduciary accounts.
(3) Chancellor Capital Management, Inc. and Chancellor Trust Company hold these
shares in their capacities as investment advisor for various fiduciary
accounts.
(4) Includes 163,500 shares of Common Stock held by The Floyd Bloom/Corey Bloom
Family Trust, of which Dr. Bloom is a Trustee. Also includes 2,500 shares
of Common Stock subject to options which will become exercisable within 60
days of January 9, 1997.
(5) Consists of 116,250 shares of Common Stock subject to options which are
exercisable or will become exercisable within 60 days of January 9, 1997.
(6) Includes 12,500 shares of Common Stock subject to options which will become
exercisable within 60 days of January 9, 1997. Also includes 850 shares of
Common Stock issuable upon exercise of warrants which are exercisable.
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<PAGE> 48
(7) Includes 177,857 shares of Common Stock held by The Wetmann Trust (the
"Trust"). Professor Langer is a beneficiary of the Trust, but has no voting
or investment power with respect to the shares held by the Trust. Also
includes 832 shares of Common Stock held by a trust, of which Professor
Langer's wife is trustee, for the benefit of his children. Also includes
2,500 shares of Common Stock subject to options which will become
exercisable within 60 days of January 9, 1997.
(8) Includes 280,625 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of January 9,
1997.
(9) Includes 2,500 shares of Common Stock subject to options which will become
exercisable within 60 days of January 9, 1997. Also includes 1,700 shares
of Common Stock issuable upon exercise of warrants which are exercisable.
(10) Includes 2,500 shares of Common Stock subject to options which will become
exercisable within 60 days of January 9, 1997.
(11) Includes 53,125 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of January 9,
1997.
(12) Includes 74,625 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of January 9,
1997.
(13) Includes 53,125 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of January 9,
1997.
(14) Includes 670,750 shares of Common Stock subject to options or issuable upon
exercise of warrants which are exercisable or which will become exercisable
within 60 days of January 9, 1997. Also includes 342,189 shares of Common
Stock held in trust.
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<PAGE> 49
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Montgomery Securities and Cowen & Company
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all such shares if
any are purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Robertson, Stephens & Company LLC............................
Montgomery Securities........................................
Cowen & Company..............................................
---------
Total.............................................. 2,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 2,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
2,000,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 2,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
Each executive officer and director of the Company and a trust of which a
director is a beneficiary have agreed with the Representatives for a period of
90 days from the date of this Prospectus (the "Lock-Up Period") not to sell,
offer, contract to sell, loan, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for, or any rights to purchase or acquire directly, Common Stock
now owned or hereafter acquired by such holders or with respect to which they
have or hereafter acquire the power of disposition, without the prior written
consent of Robertson, Stephens & Company LLC which may, in its sole discretion
and at any time or from time to time, without notice, release all or any portion
of the shares subject to the lock-up agreements. In addition, the Company has
agreed that, during the Lock-Up Period, the Company will not, without the prior
written consent of Robertson, Stephens & Company LLC, issue, sell, contract to
sell or otherwise dispose of any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
issuance of Common Stock upon the exercise of outstanding options and warrants
and under the existing employee stock award plan and the Company's grant of
options under existing employee stock option plans.
48
<PAGE> 50
The offering price for the Common Stock has been determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted an exemption from these rules
that permits passive market making under certain conditions. These rules permit
an Underwriter or other member of the selling group to continue to make a market
in the Company's Common Stock subject to the conditions, among others, that its
bid not exceed the highest bid by a market maker not connected with the offering
and that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Company's Common
Stock during such period.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania. Morris Cheston, Jr., Secretary of Alkermes and of Alkermes
Controlled Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II, and ADC
II, all of which are wholly owned subsidiaries of Alkermes, and Martha J. Hays,
Secretary of Alkermes Investments, Inc., a wholly owned subsidiary of Alkermes,
are partners in the law firm of Ballard Spahr Andrews & Ingersoll.
Certain legal matters relating to the Company's intellectual property will
be passed upon by Hamilton, Brook, Smith & Reynolds, P.C., Lexington,
Massachusetts and Sterne, Kessler, Goldstein & Fox P.L.L.C., Washington, D.C.
Certain legal matters relating to the offering for the Underwriters will be
passed upon by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, with respect to the shares of Common Stock offered
hereby (the "Registration Statement"). This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete. For further information pertaining to the Company and the
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules thereto, which may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
which may be obtained from the Commission at prescribed rates. Statements
contained in this Prospectus as to the contents of any contract or other
document filed, or incorporated by reference, as an exhibit to the Registration
Statement are qualified in all respects by such reference.
49
<PAGE> 51
[ALKERMES,INC. LOGO]
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following statement sets forth the amounts of expenses in connection
with the offering of the Common Stock pursuant to this Registration Statement,
all of which shall be borne by the Company.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 16,421
NASD Fee.......................................................... 5,920
Nasdaq Listing Fee................................................ 17,500
Blue Sky Fees and Expenses........................................ 5,000
Printing and Engraving Expenses................................... 85,000
Accounting Fees and Expenses...................................... 35,000
Legal Fees and Expenses........................................... 100,000
Transfer Agent and Registrar Fees................................. 5,000
Miscellaneous Expenses............................................ 50,159
</TABLE>
All of the expenses listed above, except the SEC Registration Fee and NASD
Fee, represent estimates only.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Pennsylvania Business Corporation law of 1988 authorizes the Company to
grant indemnities to directors and officers in terms sufficiently broad to
permit indemnification of such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933. In addition, the Company has also obtained Directors'
and Officers' Liability Insurance in the amount of $3,000,000 which insures its
officers and directors against certain liabilities such persons may incur in
their capacities as officers or directors of the Company.
Article 5 of the Company's Amended and Restated By-Laws provides as
follows:
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
5.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The
Corporation shall indemnify any director, officer, employee or agent of the
Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purpose of this
Article, a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, partner, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) and who was or is a "party" (which shall include for
purposes of this Article the giving of testimony or similar involvement) or is
threatened to be made a party to any "proceeding" (which shall mean for purposes
of this Article any threatened, pending or completed action, suit, appeal or
other proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the Corporation, its shareholders or otherwise) by reason of the fact
that such person was or is an authorized representative of the Corporation to
the fullest extent permitted by law, including without limitation
indemnification against expenses (which shall include for purposes of this
Article attorneys' fees and disbursements), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding unless the
act or failure to act giving rise to the claim is finally determined by a court
to have constituted willful misconduct or recklessness. If an authorized
representative is not entitled to indemnification in respect of a portion of any
liabilities to which such person may be subject, the Corporation shall
nonetheless indemnify such person to the maximum extent for the remaining
portion of the liabilities.
II-1
<PAGE> 53
5.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably incurred
in defending a proceeding on behalf of any person entitled to indemnification
under Section 5.1 in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article and may pay such
expenses in advance on behalf of any employee or agent on receipt of a similar
undertaking. The financial ability of such authorized representative to make
such repayment shall not be prerequisite to the making of an advance.
5.3 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the Corporation
shall be deemed to have requested an officer, director, employee or agent to
serve as fiduciary with respect to an employee benefit plan where the
performance by such person of duties to the Corporation also imposes duties on,
or otherwise involves services by, such person as a fiduciary with respect to
the plan; excise taxes assessed on an authorized representative with respect to
any transaction with an employee benefit plan shall be deemed "fines"; and
action taken or omitted by such person with respect to an employee benefit plan
in the performance of duties for a purpose reasonably believed to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Corporation.
5.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect, satisfy or
secure the indemnification obligations provided herein or otherwise, the
Corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the Corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the Board of Directors shall deem
appropriate.
5.5 RELIANCE UPON PROVISIONS. Each person who shall act as an authorized
representative of the Corporation shall be deemed to be doing so in reliance
upon the rights of indemnification provided by this Article.
5.6 AMENDMENT OR REPEAL. All rights of indemnification under this Article
shall be deemed a contract between the Corporation and the person entitled to
indemnification under this Article pursuant to which the Corporation and each
such person intend to be legally bound. Any repeal, amendment or modification
hereof shall be prospective only and shall not limit, but may expand, any rights
or obligations in respect of any proceeding whether commenced prior to or after
such change to the extent such proceeding pertains to actions or failures to act
occurring prior to such change.
5.7 SCOPE OF ARTICLE. The indemnification, as authorized by this Article,
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in any other capacity while
holding such office. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article shall continue as to a person who has
ceased to be an officer, director, employee or agent in respect of matters
arising prior to such time, and shall inure to the benefit of the heirs,
executors and administrators of such person.
II-2
<PAGE> 54
ITEM 16. EXHIBITS.
This Registration Statement includes the following exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
1* Form of Underwriting Agreement, as amended.
4.1 Specimen of Stock Certificate of Alkermes, Inc. (Incorporated by reference to
Exhibit 4 to the Registrant's Registration Statement on Form S-1 as amended
(File No. 33-40250)).
4.2 Second Amended and Restated Articles of Incorporation of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit 4.1(a) to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1991).
4.3 Amendment to Second Amended and Restated Articles of Incorporation, as filed
with the Pennsylvania Secretary of State on November 1, 1991. (Incorporated by
reference to Exhibit 4.1(c) to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991).
4.4 Amendment to the Second Amended and Restated Articles of Incorporation, as
amended, as filed with the Pennsylvania Secretary of State on February 12,
1993. (Incorporated by reference to Exhibit 4.1(d) to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1992).
5** Opinion of Ballard Spahr Andrews & Ingersoll as to the legality of the
securities registered hereunder.
23.1** Consent of Ballard Spahr Andrews & Ingersoll (included as part of Exhibit 5).
23.2** Consent of Hamilton, Brook, Smith & Reynolds, P.C.
23.3** Consent of Sterne, Kessler, Goldstein & Fox P.L.L.C.
23.4** Consent of Deloitte & Touche LLP.
- ---------------
<FN>
* Filed herewith.
** Previously filed.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a 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 this registration
statement as of the time it was declared effective.
(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.
(3) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this 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.
II-3
<PAGE> 55
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, 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 Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 56
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 Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cambridge, Commonwealth of
Massachusetts, on February 7, 1997.
ALKERMES, INC.
By /s/ RICHARD F. POPS
------------------------------------
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director and Chairman of the
- ------------------------------------------ Board
Michael A. Wall
/s/ RICHARD F. POPS Director and Chief Executive February 7, 1997
- ------------------------------------------ Officer (Principal Executive
Richard F. Pops Officer)
/s/ ROBERT A. BREYER Director, President and Chief February 7, 1997
- ------------------------------------------ Operating Officer
Robert A. Breyer
/s/ MICHAEL J. LANDINE Senior Vice President, Chief February 7, 1997
- ------------------------------------------ Financial Officer and Treasurer
Michael J. Landine (Principal Financial Officer
and Principal Accounting
Officer)
* Director
- ------------------------------------------
Robert S. Langer
Director
- ------------------------------------------
Alexander Rich
* Director
- ------------------------------------------
Paul Schimmel
* Director
- ------------------------------------------
Floyd Bloom
* Director
- ------------------------------------------
John K. Clarke
<FN>
*By: /s/ MICHAEL J. LANDINE February 7, 1997
------------------------------
Michael J. Landine
pursuant to a power of
attorney previously filed
</TABLE>
II-5
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ---------------------------------------------------------------
<S> <C> <C>
1* Form of Underwriting Agreement, as amended.
4.1 Specimen of Stock Certificate of Alkermes, Inc. (Incorporated
by reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-1 as amended (File No. 33-40250)).
4.2 Second Amended and Restated Articles of Incorporation of
Alkermes, Inc. effective July 23, 1991. (Incorporated by
reference to Exhibit 4.1(a) to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1991).
4.3 Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on November 1, 1991. (Incorporated by reference to
Exhibit 4.1(c) to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991).
4.4 Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1992).
5** Opinion of Ballard Spahr Andrews & Ingersoll as to the legality
of the securities registered hereunder.
23.1** Consent of Ballard Spahr Andrews & Ingersoll (included as part
of Exhibit 5).
23.2** Consent of Hamilton, Brook, Smith & Reynolds, P.C.
23.3** Consent of Sterne, Kessler, Goldstein & Fox P.L.L.C.
23.4** Consent of Deloitte & Touche LLP.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT I
2,000,000 SHARES(1)
ALKERMES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
February ___, 1997
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
COWEN & COMPANY
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Alkermes, Inc., a Pennsylvania corporation (the "Company"), addresses
you as the Representatives of each of the persons, firms and corporations listed
in Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,000,000 shares of its authorized and unissued Common Stock, par value $.01 per
share (the "Firm Shares"), to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 300,000
additional shares of the Company's Common Stock, par value $.01 per share (the
"Option Shares"), as provided in Section 7 hereof. As used in this Agreement,
the term "Shares" shall include the Firm Shares and the Option Shares. All
shares of Common Stock, par value $.01 per share, of the Company to be
outstanding after giving effect to the sales contemplated hereby, including the
Shares, are hereinafter referred to as "Common Stock."
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-3 (File No.
333-19955) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the
- -----------------
(1) Plus an option to purchase up to 300,000 additional shares from the Company
to cover over-allotments.
<PAGE> 2
- 2 -
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the applicable rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Act and has been filed with the Commission; such amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file such
additional amendments to such registration statement, such amended prospectuses
subject to completion and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments of
each related prospectus subject to completion (the "Preliminary Prospectuses"),
including all documents incorporated by reference therein, and of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations, have been delivered to you and, to the extent applicable, were
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to the Commission's Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T.
The Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-3 under the Act.
If the registration statement relating to the Shares
has been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations. The
term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
<PAGE> 3
- 3 -
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations), provided, however, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement. Any reference to
the Registration Statement or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Act, as of the date of the Registration Statement or the
Prospectus, as the case may be, and any reference to any amendment or supplement
to the Registration Statement or the Prospectus shall be deemed to refer to and
include any documents filed after such date under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
in this Agreement, the term "Incorporated Documents" means the documents which
at the time are incorporated by reference in the Registration Statement, the
Prospectus or any amendment or supplement thereto. For purposes of this
Agreement, all references to the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement to any of the
foregoing shall be deemed to include the respective copies thereof filed with
the Commission pursuant to EDGAR.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and
<PAGE> 4
- 4 -
any amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, (ii) the Registration Statement, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
The Incorporated Documents heretofore filed, when
they were filed (or, if any amendment with respect to any such document was
filed, when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder; any further Incorporated Documents so filed will, when
they are filed, conform in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder; no such
document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
no such further amendment will contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation, and, except for
Alkermes Europe, Ltd., is a corporation in good standing under the laws of the
jurisdiction of its incorporation with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; the Company owns all of the outstanding capital
stock of its subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance in all material
respects with all authorizations, licenses, approvals, certificates, consents,
orders and permits (collectively, "Permits") from state, federal and other
regulatory authorities including, without limitation, the United States Food and
Drug
<PAGE> 5
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Administration (the "FDA"), which are material to the conduct of the business of
the Company and its subsidiaries, taken as one enterprise, all of which are
valid and in full force and effect; there is no FDA enforcement action pending
or threatened against the Company or any of its subsidiaries or Alkermes
Clinical Partners, L.P., a Delaware limited partnership (the "Partnership"); the
Company and its subsidiaries are conducting their business in compliance with
all of the laws, rules and regulations of the jurisdictions in which they
conduct business, including, without limitation, the FDA, except where failure
to be in compliance would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise; neither the
Company nor any of its subsidiaries is in violation of its respective charter or
bylaws or in material default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries nor the
Partnership is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than those subsidiaries listed in Exhibit 21
to the Company's Annual Report on Form 10-K filed with the Commission and
incorporated by reference into the Registration Statement and the Partnership.
Alkermes Development Corporation II, a Delaware corporation, a wholly-owned
subsidiary of the Company, is the sole general partner of the Partnership. The
Partnership has been duly organized and is validly existing as a limited
partnership under the laws of Delaware with full power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus.
(d) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a material default under, (i) any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of
its subsidiaries or their respective properties may be bound, (ii) the charter
or bylaws of the Company or any of its subsidiaries, or (iii) any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective properties. No
consent, approval, authorization or order of
<PAGE> 6
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or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties, is required for the execution
and delivery of this Agreement and the consummation by the Company or any of its
subsidiaries of the transactions herein contemplated, except such as may be
required under the Act, the Exchange Act (if applicable), or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or the Partnership or any of their respective
officers or any of their respective properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective officers or properties or otherwise which (i) could result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise or might materially and adversely affect their
properties, assets or rights, (ii) could prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company or any of its
subsidiaries of a character required to be described or referred to in the
Registration Statement or Prospectus or any Incorporated Document or to be filed
as an exhibit to the Registration Statement or any Incorporated Document by the
Act or the Rules and Regulations or by the Exchange Act or the rules and
regulations of the Commission thereunder which have not been accurately
described in all material respects in the Registration Statement or Prospectus
or any Incorporated Document or filed as exhibits to the Registration Statement
or any Incorporated Document.
(f) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal securities laws
and, in all material respects, with all state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus and any Incorporated
Document (and such statements correctly state the substance of the instruments
defining the capitalization of the Company); the Firm Shares and the Option
Shares have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and nonassessable, and will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of shareholders exists with respect to any
of the Firm Shares or Option Shares to be purchased from the Company hereunder
or the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
the consummation of the transactions contemplated on the Closing Date. No
further approval or authorization of any shareholder, the Board of Directors of
the
<PAGE> 7
- 7 -
Company or others is required for the issuance and sale or transfer of the
Shares except as may be required under the Act, the Exchange Act or under state
or other securities or Blue Sky laws. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and, except for Alkermes Europe, Ltd.,
nonassessable, and were not issued in violation of or subject to any preemptive
right, or other rights to subscribe for or purchase shares and are owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included or incorporated by reference in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Deloitte & Touche LLP, which has examined the
consolidated financial statements of the Company, together with the related
notes, as of March 31, 1996 and for each of the three years in the period ended
March 31, 1996 filed with the Commission as a part of or incorporated by
reference into the Registration Statement, which are included or incorporated by
reference in the Prospectus, are independent accountants within the meaning of
the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related notes, and the unaudited
consolidated financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates and for
the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related notes, and the
unaudited consolidated financial information, filed with the Commission as part
of or incorporated by reference into the Registration Statement, have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data included
or incorporated by reference in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements or
schedules are required to be included or incorporated by reference in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the
<PAGE> 8
- 8 -
capital stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries considered as
one enterprise, (v) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or any of its subsidiaries, or (vi) any
loss or damage (whether or not insured) to the property of the Company or any of
its subsidiaries which has been sustained or will have been sustained which has
a material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement
and Prospectus and any Incorporated Document, (i) each of the Company and its
subsidiaries has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus and any Incorporated
Document as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any of
its subsidiaries is a party described in the Registration Statement and
Prospectus and any Incorporated Document are valid agreements, enforceable by
the Company and its subsidiaries (as applicable), except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) each of the
Company and its subsidiaries has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus and any Incorporated
Document as leased by it, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
(j) The Company and its subsidiaries have timely
filed all required federal, state and foreign income and franchise tax returns
and have paid all taxes shown thereon as due, and there is no tax deficiency
that has been or, to the best of the Company's knowledge, might be asserted
against the Company that could have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise; and all tax
liabilities are adequately provided for on the books of the Company and its
subsidiaries.
(k) The Company and its subsidiaries maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; neither the Company
nor any such subsidiary has been
<PAGE> 9
- 9 -
refused any insurance coverage sought or applied for; and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries or the
Partnership exists or is imminent; and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its principal suppliers
or subcontractors that might be expected to result in a material adverse change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise. No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's knowledge, no such agreement is
imminent.
(m) Each of the Company and its subsidiaries owns or
possesses adequate rights to use all patents, patent rights, patent
applications, inventions, trade secrets, know-how, trademarks, service marks,
trademark applications, servicemark applications, trade names, copyrights and
other information (collectively, "Intellectual Property") which are necessary to
conduct its businesses as now or as proposed to be conducted by it as described
in the Registration Statement and Prospectus and any Incorporated Document; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any Intellectual Property; and the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise. To the knowledge of the
Company, none of the patents owned or licensed by the Company, any of its
subsidiaries or the Partnership is unenforceable or invalid. The Company has
duly and properly filed or caused to be filed with the United States Patent and
Trademark Office (the "PTO") and applicable foreign and international patent
authorities all patent applications described or referred to in the Prospectus,
and believes it has complied with the PTO's duty of candor and disclosure for
each of such United States patent and patent applications described or referred
to in the Prospectus; the Company is unaware of any facts which would preclude
the grant of a patent from each of the patent applications described or referred
to in the Prospectus; the Company has no knowledge of any facts which would
preclude it from having clear title to its patent applications referenced in the
Prospectus; and the Company has not terminated or breached and is not in
violation of any agreement covering its Intellectual Property rights. The
Company is not aware of the granting of any patents to third parties or the
filing of patent applications by third parties or any other rights of third
parties to any of the Company's Intellectual Property.
(n) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market,
and the Company has taken no
<PAGE> 10
- 10 -
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from The Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(q) Neither the Company nor any of its subsidiaries
has at any time during the last five (5) years (i) made any unlawful
contribution to any candidate for foreign office or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(s) Each executive officer and director of the
Company, and a trust of which a director is a beneficiary, has agreed in writing
(the "Lock-Up Agreement") that such person will not, directly or indirectly,
without the prior written consent of Robertson, Stephens & Company LLC, sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of (collectively, a "Disposition") any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock held by such person, acquired by such person after the
date of the Lock-Up Agreement or which may be deemed to be beneficially owned by
such person pursuant to the Rules and Regulations promulgated under the
Securities Act of 1933, as amended (the "Lock-Up Shares"), for a period
commencing on the date of the Lock-Up Agreement and ending 90 days after the
effective date of the Registration Statement (the "Lock-Up period"), otherwise
than (i) as a bona fide gift or gifts or (ii) as a distribution to limited
partners or shareholders of such person, provided, however, that in any such
case it shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding the Lock-Up
Shares subject to the provisions of the Lock-Up Agreement. The foregoing
restriction is expressly agreed to preclude
<PAGE> 11
- 11 -
the holder of Lock-Up Shares from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Lock-Up Shares during the Lock-up Period, even if such Lock-Up
Shares would be disposed of by someone other than such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Lock-Up Shares or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Lock-Up Shares. Furthermore, such person will also agree and
consent to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of any Lock-Up Shares held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its executive officers and directors,
and a trust of which a director is a beneficiary, have agreed to such or similar
restrictions (the "Lock-up Agreements") presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
executive officers and directors, and the trust of which a director is a
beneficiary, from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement
and Prospectus and any Incorporated Document, (i) the Company is in compliance
in all material respects with all rules, laws and regulations relating to the
use, treatment, storage and disposal of toxic substances and protection of
health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus and any Incorporated Document, (iii) the Company will not be required
to make future material capital expenditures to comply with Environmental Laws
and (iv) no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(u) The Company and each of its subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the
<PAGE> 12
- 12 -
members of the families of any of them, except as disclosed in the Registration
Statement and the Prospectus and any Incorporated Document.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company, and, in the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach), at the offices
of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts (or
at such other place as may be agreed upon among the Representatives and the
Company), at 10:00 A.M., Boston time; (a) on the third (3rd) full business day
following the first day that Shares are traded, (b) if this Agreement is
executed and delivered after 4:30 P.M., Boston time, the fourth (4th) full
business day following the day that this Agreement is executed and delivered or
(c) at such other time and date not later than seven (7) full business days
following the first day that Shares are traded as the Representatives and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date of
payment and delivery being herein called the "Closing Date"; provided, however,
that if the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later than two
(2) full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
<PAGE> 13
- 13 -
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $___ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), under the last two
paragraphs on page 2 concerning stabilization, over-allotment and passive market
making by the Underwriters, and under the second, seventh and eighth paragraphs
under the caption "Underwriting" in any Preliminary Prospectus and in the final
form of Prospectus filed pursuant to Rule 424(b) constitutes the only
information furnished by the Underwriters to the Company for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration Statement or any
Incorporated Document, and you, on behalf of the respective Underwriters,
represent and warrant to the Company that the statements made therein do not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the
<PAGE> 14
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time period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus or the Incorporated Documents, or, prior to
the end of the period of time in which a prospectus relating to the Shares is
required to be delivered under the Act, file any document which upon filing
becomes an Incorporated Document, which shall not previously have been submitted
to you a reasonable time prior to the proposed filing thereof or to which you
shall reasonably object in writing, subject, however, to compliance with the Act
and the Rules and Regulations, the Exchange Act and the rules and regulations of
the Commission thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it
shall receive notice or obtain knowledge, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it shall
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify
the Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so long
as may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction in which it is not otherwise required to
be so qualified or to so execute a general consent to service of process. In
each jurisdiction in which the Shares shall have been qualified as above
provided, the Company will make and file such statements and reports in each
year as are or may be reasonably required by the laws of such jurisdiction.
<PAGE> 15
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(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, and the Incorporated Documents (three of which will
include all exhibits,) all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request. To the extent applicable, such documents shall be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement. To the extent applicable, such reports or documents
shall be identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) fiscal quarters in the form furnished to the Company's shareholders,
(ii) concurrently with furnishing to its shareholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity, and of cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to shareholders, (iv) as soon
as they are available, copies of all reports and financial statements furnished
to or filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD"), (v) every material press
release and every material news item or article in respect of the Company or its
affairs which was generally released to shareholders or prepared by the Company
or any of its subsidiaries, and (vi) any additional information of a public
nature concerning the Company or its subsidiaries, or its business which you may
reasonably request. During such five (5) year period, if the Company shall have
active subsidiaries, the foregoing
<PAGE> 16
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financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and,
if necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 11(b)(i),
the Company will reimburse the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred by
the Underwriters in investigating or preparing to market or marketing the
Shares.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-Up Period, the Company will not,
without the prior written consent of Robertson Stephens & Company LLC, effect
the Disposition of, directly or indirectly, any Lock-Up Shares other than the
sale of the Firm Shares and the Option Shares hereunder and the Company's
issuance of (i) Common Stock pursuant to the exercise of warrants originally
issued in connection with the formation of the Partnership or issued in exchange
therefor, (ii) options or Common Stock under the Company's presently authorized
Amended and Restated 1989 Non-Qualified Stock Option Plan, Amended and Restated
1990 Omnibus Stock Option Plan, as amended, 1992 Non-Qualified Stock Option Plan
and Stock Option Plan for Non-Employee Directors (collectively, the "Option
Plans") and (iii) Common Stock issuable under the Company's 1991 Restricted
Common Stock Award Plan.
(l) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Option Plans or any other
employee benefit plan.
<PAGE> 17
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5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and the Incorporated Documents and
any amendments or supplements thereto; the printing of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the Preliminary
Blue Sky Survey and any Supplemental Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any, the cost of all certificates
representing the Shares and transfer agents' and registrars' fees; the fees and
disbursements of counsel for the Company; all fees and other charges of the
Company's independent certified public accountants; the cost of furnishing to
the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus and the
Incorporated Documents, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company in connection with the performance of their obligations hereunder.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(b) In addition to their other obligations under Section 8(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses
<PAGE> 18
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incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or any Incorporated Document or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration,
<PAGE> 19
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authorization, issue, sale and delivery of the Shares, shall have been
reasonably satisfactory to Underwriters' Counsel, and such counsel shall have
been furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, the
following opinion of counsel for the Company dated the Closing Date or such
later date on which Option Shares are purchased addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company and each Significant Subsidiary (as
defined within the meaning of Item 3-01 of Regulation S-X) has
been duly incorporated and is validly existing as a
corporation, and, except for Alkermes Europe, Ltd., is a
corporation in good standing under the laws of the
jurisdiction of its incorporation and the Partnership has been
duly organized and is validly existing as a limited
partnership in good standing under the laws of Delaware;
(ii) The Company and each Significant Subsidiary has
the corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as
a foreign corporation and is in good standing in Massachusetts
and Ohio, which the Company has informed such counsel are the
only two jurisdictions in which it owns or leases real
property or otherwise conducts business; Alkermes Controlled
Therapeutics, Inc. and Alkermes Development Corporation II are
duly qualified to do business in Massachusetts, which the
Company has informed such counsel is the only jurisdiction in
which such subsidiaries own or lease real property or
otherwise conduct business; and Alkermes Controlled
Therapeutics Inc. II is qualified to do business in Ohio,
which the Company has informed such counsel is the only
jurisdiction in which such subsidiary owns or leases real
property or otherwise conducts business. To such counsel's
knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other
than Alkermes Controlled Therapeutics, Inc., a Pennsylvania
corporation, Alkermes Controlled Therapeutics Inc. II, a
Pennsylvania corporation, Alkermes Development Corporation II,
a Delaware corporation,
<PAGE> 20
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Alkermes Europe, Ltd., a United Kingdom corporation, Alkermes
Investments, Inc., a Delaware corporation and the Partnership;
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of the date stated therein;
the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, have not
been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first
refusal or other similar right;
(v) All issued and outstanding shares of capital
stock of each Significant Subsidiary of the Company have been
duly authorized and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been
issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or
other similar right and, to such counsel's knowledge, are
owned by the Company free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms
of this Agreement have been duly authorized and, upon issuance
and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid
and nonassessable, and will not have been issued in violation
of or subject to any statutory or similar preemptive right,
co-sale right, registration right, right of first refusal or
other similar right of shareholders arising under the laws of
the Commonwealth of Pennsylvania or pursuant to the Company's
charter or by-laws, or, to such counsel's knowledge, any
preemptive right, co-sale right, registration right, right of
first refusal or other similar right of shareholders provided
for in any contract or other agreement attached as an exhibit
to the Registration Statement, incorporated by reference
therein or otherwise known to such counsel;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold
by it hereunder;
(viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming
due authorization, execution and delivery by you, is a valid
and binding agreement of the Company, and, assuming that
Pennsylvania law governs this Agreement, is enforceable in
accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
<PAGE> 21
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(ix) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(x) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the
financial statements and financial data derived therefrom
included therein as to which such counsel need express no
opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and
Regulations; and each of the Incorporated Documents (other
than the financial statements and the financial data derived
therefrom included therein as to which such counsel need
express no opinion) complied when filed pursuant to the
Exchange Act as to form in all material respects with the
requirements of the Act and the Rules and Regulations and the
Exchange Act and the applicable rules and regulations of the
Commission thereunder;
(xi) The terms and provisions of the capital stock of
the Company conform in all material respects to the
description thereof contained in the Registration Statement
and the Prospectus and the Incorporated Documents, and the
statements in the Prospectus under the caption
"Capitalization," to the extent that they constitute summaries
of matters of law or legal conclusions, have been reviewed by
such counsel and are correct, and the form of certificate
evidencing the Common Stock complies with Pennsylvania law;
(xii) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company
and of statutes are accurate and fairly present the
information required to be presented by the Act and the
applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no
statutes, regulations, agreements, contracts, leases or
documents to which the Company is a party of a character
required to be described or referred to in the Registration
Statement or Prospectus or any Incorporated Document or to be
filed as an exhibit to the Registration Statement or any
Incorporated Document which are not described or referred to
therein or filed as required;
(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other
than performance of the Company's indemnification obligations
hereunder, concerning which no opinion need be expressed) will
not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and
provisions of, or constitute a material default under, any
material bond, debenture, note or other evidence of
indebtedness, or under any material
<PAGE> 22
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lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument
known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute,
rule or regulation known to such counsel or any order, writ or
decree known to such counsel of any court, government or
governmental agency or body having jurisdiction over the
Company or any of its Significant Subsidiaries, or over any of
their properties or operations; provided, however, that no
opinion need be rendered concerning state securities or Blue
Sky laws;
(xv) No consent, approval, authorization or order of
or qualification with any United States, or, to such counsel's
knowledge, foreign, court, government or governmental agency
or body having jurisdiction over the Company or any of its
Significant Subsidiaries, or over any of their properties or
operations is necessary in connection with the consummation by
the Company of the transactions herein contemplated, except
such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the
Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the
Company or any of its subsidiaries or the Partnership of a
character required to be disclosed in the Registration
Statement or the Prospectus or any Incorporated Document by
the Act or the Rules and Regulations or by the Exchange Act or
the applicable rules and regulations of the Commission
thereunder, other than those described therein;
(xvii) To such counsel's knowledge, neither the
Company nor any of its Significant Subsidiaries is presently
(a) in material violation of its respective charter or bylaws,
or (b) in breach of any applicable Pennsylvania statute, rule
or regulation known to such counsel or any order, writ or
decree known to such counsel of any United States court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their
properties or operations, which could have a material adverse
effect on the Company; and
(xviii) To such counsel's knowledge, no holders of
Common Stock or other securities of the Company have
registration rights with respect to securities of the Company.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the
<PAGE> 23
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attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement thereto
and any Incorporated Document, when such documents became effective or were
filed with the Commission (other than the financial statements and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto and any Incorporated Document (except as aforesaid) contained
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Such counsel shall also state that
the conditions for the use of Form S-3 set forth in the General Instructions
thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the Commonwealth
of Pennsylvania upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Testa, Hurwitz & Thibeault, LLP, in form and substance satisfactory
to you, with respect to the sufficiency of all such corporate proceedings and
other legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Deloitte & Touche LLP addressed to the Company and the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements
<PAGE> 24
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and conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements, data
or information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. The Original Letter from Deloitte & Touche LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of March 31, 1996 and related
consolidated statements of operations, shareholders' equity, and cash flows for
the twelve (12) months ended March 31, 1996, (iii) state that Deloitte & Touche
LLP has performed the procedures set out in Statement on Auditing Standards No.
71 ("SAS 71") for a review of interim financial information and providing the
report of Deloitte & Touche LLP as described in SAS 71 on the financial
statements for each of the quarters ended June 30, 1996, September 30, 1996 and
December 31, 1996 and (iv) address other matters agreed upon by Deloitte &
Touche LLP and you.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or
threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement and
the Prospectus, and any amendments or supplements thereto and
the Incorporated Documents, when such documents became
effective or were filed with the Commission, contained all
material information required to be included therein by the
Act and the Rules and Regulations or the Exchange Act and the
applicable rules and regulations of the Commission thereunder,
as the case may be, and in all material respects conformed to
the requirements of the Act and the Rules and Regulations (or
the Exchange Act and the applicable rules and regulations of
the Commission thereunder, as the case
<PAGE> 25
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may be, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations (or the
Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be), the Registration
Statement, and any amendment or supplement thereto, did not
and does not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading,
the Prospectus, and any amendment or supplement thereto, and
any Incorporated Document did not and does not include any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change
in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and
its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the
Company and its subsidiaries considered as one enterprise,
incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d)
any change in the capital stock or outstanding indebtedness of
the Company or any of its subsidiaries that is material to the
Company and its subsidiaries considered as one enterprise, (e)
any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not
insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries
considered as one enterprise.
(h) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, the
following opinions of each of (i) Hamilton, Brook, Smith & Reynolds, P.C.,
patent counsel to the Company and (ii) Sterne, Kessler, Goldstein & Fox
P.L.L.C., patent counsel to the Company, dated the Closing Date or such later
date on which Option Shares are purchased, addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that they serve as patent counsel to the Company (i)
in the case of Hamilton, Brook, Smith & Reynolds, P.C., with respect to the
Company's Intellectual Property relating to the ProLease and RMP-7 technologies,
and (ii) in the case of Sterne, Kessler, Goldstein & Fox P.L.L.C., with respect
to the Company's Intellectual Property relating to the Medisorb technology,
including those patents and patent applications referred to or described in the
Prospectus, which in some cases are licensed to the Company from various
licensors (individually, a "Licensor"), and that:
<PAGE> 26
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(i) to the best of such counsel's knowledge, there are no
facts which would preclude the Company from having clear title to the
Company's patents and patent applications referred to or described in
the Prospectus. To the best of such counsel's knowledge, the Company
has complied with the Patent and Trademark Office duty of candor and
disclosure for each of such United States patents and patent
applications. Such counsel has no knowledge that the Company lacks any
rights or licenses to use all patents and know-how necessary to conduct
the business now conducted or proposed to be conducted by the Company
as described in the Prospectus, except as described in the Prospectus.
Such counsel has no knowledge of any U.S. or foreign patent application
which, if issued, would limit or prohibit the business now conducted or
proposed to be conducted by the Company as described in the Prospectus,
except as described therein. Such counsel has no knowledge of any facts
which would form a basis for a finding that any of the patent rights
owned or licensed by the Company is unenforceable or invalid. Except as
described in the Prospectus, such counsel is not aware of any valid
patents of others which are or would be infringed by specific products
or processes referred to in the Prospectus in such manner as to
materially and adversely affect the Company. Such counsel knows of no
pending or threatened action, suit, proceeding or claim by others that
the Company is infringing any patent which could result in any material
adverse effect on the Company, except as described in the Registration
Statement and the Prospectus and the Incorporated Documents;
(ii) to the best of such counsel's knowledge, there are no
legal or governmental proceedings pending relating to Patent Rights,
other than patent office review of pending applications for patents,
including appeal proceedings, and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or others; and
(iii) to the best of such counsel's knowledge, there are no
contracts or other documents material to the Company's patents or
proprietary information other than those described in the Registration
Statement and the Prospectus.
In addition, such counsel shall state that although they have
not verified the accuracy or completeness of the statements contained in the
Prospectus, nothing has come to the attention of such counsel that caused them
to believe that, at the time the Registration Statement became effective, or at
the Closing Date or at any later date on which Option Shares are purchased, as
the case may be, the Prospectus and the Incorporated Documents contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(i) The Company shall have obtained and delivered to you an
agreement from each executive officer and director of the Company, and from the
trust of which a director is a beneficiary, in writing prior to the date hereof
that such person will not, during the Lock-up Period, effect the Disposition of
any Lock-Up Shares now owned or hereafter acquired directly by such person or
with respect to which such person has or hereafter acquires the power of
<PAGE> 27
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disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee
or donees thereof agree in writing to be bound by this restriction, (ii) as a
distribution to limited partners or shareholders of such person, provided that
the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC. The foregoing restriction is expressly agreed to preclude the
holder of the LockUp Shares from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Lock-Up Shares during the Lock-up Period, even if such Lock-Up
Shares would be disposed of by someone other than such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Lock-Up Shares or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Lock-Up Shares. Furthermore, such person will have also agreed
and consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Lock-Up Shares held by such person
except in compliance with this restriction.
(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request, including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with such
number of conformed copies of such opinions, certificates, letters and documents
as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
300,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
<PAGE> 28
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Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment shall
take place at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street,
Boston, Massachusetts or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the Company
or the compliance with any of the conditions herein contained.
<PAGE> 29
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8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including any Incorporated Document, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
by such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement provided
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or
<PAGE> 30
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liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including without limitation any Incorporated
Document, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company for any legal or other expenses reasonably incurred by the Company
in connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being
<PAGE> 31
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understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under Section 8(a) or 8(b) hereof who are parties to such action), (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying party be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have consented to the terms of such settlement;
provided that such consent shall not be unreasonably withheld. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the public offering
price, and the Company is responsible for the remaining portion, provided,
however, that (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter in excess of the amount of damages which such Underwriter is
otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
<PAGE> 32
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9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours (including
non-business hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this Section
10, (i) the Company shall have the right to postpone the time of delivery for a
period of not more than seven (7) full business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as
<PAGE> 33
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aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company shall be liable
to any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse, or (ii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake,
<PAGE> 34
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accident or other calamity of such character as to interfere materially with the
conduct of the business and operations of the Company regardless of whether or
not such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares, or
(v) if there shall have been an outbreak or escalation of hostilities or of any
other insurrection or armed conflict or the declaration by the United States of
a national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination pursuant
to subparagraph (i) above, the Company shall remain obligated to pay costs and
expenses pursuant to Sections 4(i), 5 and 8 hereof. Any termination pursuant to
any of subparagraphs (ii) through (v) above shall be without liability of any
party to any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except
as herein otherwise specifically provided, shall be in writing and if sent to
you shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to you c/o Robertson, Stephens & Company
LLC, 555 California Street, Suite 2600, San Francisco, California 94104,
telecopier number (415) 781-0278, Attention: General Counsel; if sent to the
Company, such notice shall be mailed, delivered telegraphed (and confirmed by
letter) or telecopied (and confirmed by letter) to Alkermes, Inc., 64 Sidney
Street, Cambridge, Massachusetts 02139-4234, telecopier number (617) 494-9255,
Attention Richard F. Pops, Chief Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement,
<PAGE> 35
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request, notice or agreement made or given by you jointly or by Robertson,
Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
[Signature page to follow]
<PAGE> 36
- 36 -
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
ALKERMES, INC.
By:______________________________________
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
COWEN & COMPANY
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:________________________________________
Authorized Signatory
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ---------
<S> <C>
Robertson, Stephens & Company LLC...............................
Montgomery Securities...........................................
Cowen & Company.................................................
[NAMES OF OTHER UNDERWRITERS]
---------
Total..................................................
</TABLE>
