<PAGE> 1
As filed with the Securities and Exchange Commission on April 2, 1999
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2472830
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
------------------------------
64 Sidney Street
Cambridge, Massachusetts 02139
(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
(617) 494-0171
(Name, address, including zip code, and telephone
number, including area code,
of agent for service)
------------------------------
Copies to:
Morris Cheston, Jr., Esq.
Jennifer L. Miller, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
(215) 665-8500
------------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
------------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
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: [ ] ____________________
<PAGE> 2
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Proposed maximum aggregate Amount of
securities to be registered Amount to be registered offering price(1) registration fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $.01 per share 3,680,508 shares $100,293,843 $27,882
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(i).
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.
<PAGE> 3
PROSPECTUS
Alkermes, Inc.
3,680,508 Shares
Common Stock
The selling shareholders are offering to sell 3,680,508 shares of our
common stock with this prospectus. We will not receive any of the proceeds from
sales of these shares by the selling shareholders.
Our common stock is traded on the Nasdaq National Market under the
symbol "ALKS." On March 31, 1999 the last sale price of the common stock, as
reported on the Nasdaq National Market, was $27.25 per share.
The selling shareholders may sell their shares from time to time on the
Nasdaq National Market or otherwise. They may sell the shares at prevailing
market prices or at prices negotiated with purchasers. The selling shareholders
will be responsible for any commissions or discounts due to brokers or dealers.
The amount of those commissions or discounts cannot be known now because they
will be negotiated at the time of the sales. We will pay all other offering
expenses.
THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 2, 1999
<PAGE> 4
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information that is different
from that contained in this prospectus. The selling shareholders are offering to
sell, and seeking offers to buy, the shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of the common stock. In
this prospectus, references to "we," "us" and "our" refer to Alkermes, Inc. and
its subsidiaries.
Alkermes(R), ProLease(R), Medisorb(R) and the Alkermes logo are
registered trademarks of Alkermes, Inc. RMP(TM), RMPs(TM), RMP-7(TM), Cereport
(TM) and Receptor-Mediated Permeabilizers(TM) are trademarks of Alkermes, Inc.
-----------
TABLE OF CONTENTS
Where You Can Find More Information........................... 2
Incorporation of Information We File with the SEC............. 3
Summary....................................................... 4
The Offering.................................................. 7
Risk Factors.................................................. 9
Use of Proceeds............................................... 25
Dividend Policy............................................... 25
Selling Shareholders.......................................... 26
Plan of Distribution.......................................... 29
Legal Matters................................................. 30
Experts....................................................... 30
-----------
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The SEC maintains an internet site at http://www.sec.gov that
contains reports, proxy and information statements, and other information,
regarding issuers, including us, that file documents with the SEC
electronically. You can also inspect our SEC filings at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington DC 20006.
2
<PAGE> 5
This prospectus is a part of a registration statement on Form S-3 that
we filed with the SEC with respect to the common stock offered by this
prospectus. This prospectus does not contain all the information that is in the
registration statement. We omitted certain parts of the registration statement
as allowed by the SEC. We refer you to the registration statement and its
exhibits for further information about us and the common stock offered by the
selling shareholders.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and the information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until this offering is completed:
- Annual Report on Form 10-K for the year ended March 31, 1998;
- Quarterly Reports on Form 10-Q for the quarters ended June 30, 1998,
September 30, 1998, and December 31, 1998;
- Current Report on Form 8-K dated April 15, 1998 and Current Report on
Form 8-K dated February 1, 1999, as amended by Form 8-K/A filed on
April ____, 1999;
- Item 1 of Registration Statement on Form 8-A dated June 28, 1991, as
amended by Form 8-A/A dated January 17, 1997, including any amendments
or reports filed for the purpose of updating the information in Item
1.
You may request a copy of these filings, at no cost, by writing to or
telephoning us at the address below. However, we will not provide copies of the
exhibits to these filings unless we specifically incorporated by reference the
exhibits in this prospectus.
Alkermes, Inc.
Attention: James M. Frates, Vice President and
Chief Financial Officer
64 Sidney Street
Cambridge, MA 02139
(617) 494-0171
3
<PAGE> 6
SUMMARY
ALKERMES, INC.
We are a company using the tools of biotechnology to develop
proprietary drug delivery systems. We currently focus on the following drug
delivery opportunities:
- Sustained release injection of proteins and other complex
macromolecules;
- Sustained release injection of small molecule drugs;
- Delivery of drugs into the brain past the blood-brain barrier;
- Pulmonary delivery of drugs; and
- Oral delivery of drugs.
We are developing product candidates that combine our drug delivery systems with
drugs that are currently being sold or developed by others. A delivery system
and a drug are combined--generally as a single product but sometimes as separate
products to be used together--to treat a specific condition. We are developing
product candidates that, in all but one case, combine our drug delivery systems
with drugs into a single product. We use the term "product candidate" to refer
to each of these combinations that we have developed but which has not been
approved by the United States Food and Drug Administration, which we refer to as
the FDA. We also refer to our Cereport drug delivery system, which is
administered separately from the drug it is intended to deliver, as a product
candidate. We must receive FDA approval for each product candidate before we can
market it in the United States. Approvals are also required in many foreign
countries. We do not yet have a product on the market but, in collaboration with
several pharmaceutical companies, are developing various product candidates
based on our drug delivery systems.
INJECTABLE SUSTAINED-RELEASE SYSTEMS
PROLEASE
ProLease is a drug delivery system through which proteins and peptides,
which are large, fragile molecules, are stabilized and encapsulated in
microspheres made of common medical polymers. We are developing several ProLease
product candidates in collaboration with large pharmaceutical companies. With
Genentech, Inc., we are developing a ProLease product candidate using
Genentech's human growth hormone. We, along with Genentech, intend to submit a
new drug application for this product candidate, called Nutropin Depot, with the
FDA . We are also working with Johnson & Johnson on a ProLease formulation of
erythropoietin, which is commonly referred to as EPO. Finally, we are working on
several feasibility studies with undisclosed pharmaceutical companies on various
drugs.
4
<PAGE> 7
MEDISORB
Medisorb is a drug delivery system through which traditional, small
molecule drugs are stabilized and encapsulated in microspheres made of common
medical polymers. The Medisorb system employs a different manufacturing process
from the ProLease process. We are working with Janssen Pharmaceutica
International on the development of a Medisorb formulation of one of Janssen's
drugs, the name of which we have not yet disclosed.
DRUG DELIVERY TO THE BRAIN
CEREPORT
This drug delivery system is designed to help deliver drugs to the
brain by briefly increasing the permeability of the blood-brain barrier.
Cereport is based on a compound occurring naturally in the body and known to
affect vascular permeability. Following injection, Cereport increases
permeability by triggering a brief relaxation of the tight cellular junctions of
capillaries in the brain that make up 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. We are
working with ALZA Corporation and Alkermes Clinical Partners, L.P. on this
product candidate, which is currently in late stage clinical trials. To raise
funds to pay for Cereport's development, we transferred most of our rights to
Cereport and its related technology to Alkermes Clinical Partners and are
developing it under an agreement with Alkermes Clinical Partners. We can regain
these rights by exercising our option to purchase the interests of that limited
partnership, subject to certain conditions. We also granted to ALZA an option to
acquire rights to commercialize Cereport.
PULMONARY DRUG DELIVERY
THE ADVANCED INHALATION RESEARCH, OR AIR, SYSTEM
This drug delivery system is designed to deliver both small molecules
to the lung for the treatment of diseases of the lung and to deliver complex
macromolecules to the bloodstream, through the lung, for the treatment of
systemic diseases. With the AIR system, we can form drugs into comparatively
large, porous particles which can be inhaled into the deep lung. These particles
have distinct physical characteristics with several potential formulation and
economic advantages over competitive inhalation delivery systems. The AIR
system:
- Uses a small, convenient delivery device;
- Can deliver a wide range of doses of both small molecules and
large, complex macromolecules; and
- Has the potential to provide sustained release of drugs, locally
or throughout the body.
5
<PAGE> 8
We are currently working on feasibility studies with large
pharmaceutical companies on compounds that we have not yet disclosed.
ORAL DRUG DELIVERY SYSTEMS
We are developing two oral drug delivery systems that we exclusively
licensed from ALZA. Neither of these systems has yet been tested in human
clinical trials.
DOSE SIPPING TECHNOLOGY
This drug delivery system provides a convenient, simple way to
administer medication to patients who have difficulty swallowing tablets or
capsules, such as children and the elderly. This system works by putting a
granulated form of a drug in a specially designed straw. As the patient draws
fluid through the straw, the drug mixes with the fluid and the patient receives
a precise dose of the drug.
RINGCAP
This drug delivery system is designed to reduce the number of times per
day that oral drugs must be given. Our RingCap system is unlike currently
available sustained release tablets, which release decreasing amounts of a drug
over time. Instead, RingCap is designed to deliver the total dose evenly over an
extended period. The system works by imprinting the tablet with a series of
insoluble rings made of polymers, which then control the erosion rate of a drug
tablet in the gastrointestinal tract.
BUSINESS STRATEGY
Our business strategy is to develop and acquire drug delivery systems
to address new important pharmaceutical markets. This strategy has four key
elements:
1. Develop and acquire broadly applicable drug delivery systems and
apply them to multiple drugs;
2. Collaborate with pharmaceutical companies to develop and finance
product candidates;
3. Apply drug delivery systems to both approved drugs and drugs in
development; and
4. Begin to develop product candidates on our own.
Alkermes, Inc. was incorporated in Pennsylvania in 1987. Our principal
executive offices are located at 64 Sidney Street, Cambridge, Massachusetts. Our
telephone number is (617) 494-0171.
6
<PAGE> 9
THE OFFERING
<TABLE>
<CAPTION>
THE COMMON STOCK
<S> <C>
Common stock offered by the selling shareholders....... All of the 3,680,508 shares
offered by this prospectus
may be sold by the selling
shareholders, who acquired
these shares in a merger
transaction with Advanced
Inhalation Research, Inc. on
February 1, 1999.
Common stock outstanding as of March 24, 1999.......... 24,959,723 shares
Use of proceeds........................................ We will not receive any of
the proceeds from the sale of
common stock under this
prospectus.
Nasdaq National Market symbol.......................... ALKS
</TABLE>
In addition to the 24,959,723 shares of common stock outstanding as of
March 24, 1999, on the same date, we had:
- outstanding options and awards for 3,346,625 shares of common
stock at a weighted average exercise price of $10.20 per share;
- outstanding warrants for 934,581 shares of common stock at a
weighted average exercise price of $7.23 per share.
- outstanding shares of $3.25 Convertible Exchangeable Preferred
Stock that are currently convertible into 3,881,940 shares of
common stock.
7
<PAGE> 10
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, which address, among other
things, the development and testing of our product candidates, our need for and
ability to get additional funding, our collaborative arrangements, the FDA
approval process, patent protection, and competition. These statements may be
found in the sections of this prospectus entitled, "Summary" and "Risk Factors,"
and in this prospectus generally. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including all the risks discussed in "Risk Factors" and
elsewhere in this prospectus.
This summary highlights some information from this prospectus and does
not contain all the information that is important to you.
8
<PAGE> 11
RISK FACTORS
An investment in our common stock offering is very risky. You should
carefully consider the following risk factors in addition to the remainder of
this prospectus before purchasing the common stock.
OUR DELIVERY TECHNOLOGIES MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS
We do not yet have a product that we can sell commercially and we
cannot guarantee that we will have one in the future. All of our product
candidates, except Nutropin Depot, need significant additional research and
development. To be profitable, we must develop, manufacture and market our
products, either alone or by collaborating with others. This could take several
years and we may never be successful in bringing our product candidates to the
market. A new drug may appear promising at an early stage of development or
after clinical trials and never reach the market, or it may reach the market and
not sell, for a variety of reasons.
The drug may:
- Be shown to be ineffective or to cause harmful side effects
during preclinical testing or clinical trials;
- Fail to receive regulatory approval on a timely basis or at all;
- Be hard to manufacture on a large scale;
- Be uneconomical;
- Not be prescribed by doctors or accepted by patients; or
- Infringe on proprietary rights of another party.
If our technology fails to generate product candidates that lead to the
successful development and commercialization of products, our business and
financial condition will be materially adversely affected.
THE FDA MAY NOT APPROVE OUR PRODUCT CANDIDATES
Approval from the FDA is required to manufacture and market
pharmaceutical products in the United States. Other countries have similar
requirements. The process that pharmaceutical products must undergo to get this
approval is extensive and includes preclinical testing and clinical trials to
demonstrate safety and efficacy and a review of the manufacturing process to
ensure compliance with good manufacturing practices. This process can last many
years and be very costly and still be unsuccessful. FDA approval can be delayed,
limited or not granted at all for many reasons, including:
9
<PAGE> 12
- A product candidate may not be safe or effective;
- Data from preclinical testing and clinical trials can be
interpreted by FDA officials in different ways than we interpret
it;
- The FDA might not approve our manufacturing processes or
facilities;
- The FDA may change its approval policies or adopt new
regulations; and
- A product candidate may not be approved for all the indications
we requested.
The process of getting approvals in foreign countries is subject to delay and
failure for the same reasons. Any delay in, or failure to receive, approval will
have a material adverse effect on our business and financial condition.
We and our collaborator, Genentech, are currently working to submit a
new drug application for Nutropin Depot. We cannot guarantee that the FDA will
accept this application, that it will be approved in a timely manner, or that it
will be approved at all.
Most of our product candidates are drug delivery systems combined with
a drug in a single formulation to treat a specific condition. In most cases, the
FDA has already approved the drug used in these product candidates for treating
the condition targeted by the product candidate. Cereport is a separate
formulation from the drug it is intended to be used with but must be tested with
that drug. We are conducting clinical trials on Cereport with carboplatin, which
is a chemotherapeutic agent, in patients with a certain type of brain tumor. If
the FDA approves Cereport based on these trials, it will be for its use in
conjunction with carboplatin for the treatment of that type of brain tumor.
Unlike the drugs used with many of our product candidates, the FDA has not
approved carboplatin for treating the type of tumor that we are targeting, and
this could result in the FDA requiring additional clinical trials. However, the
FDA has approved carboplatin for the treatment of other types of cancerous
tumors. Any delay in the approval process for any of our product candidates will
result in increased costs that could materially and adversely affect our
business and financial condition.
Regulatory approval of a product candidate is limited to specific
therapeutic uses for which the product has demonstrated safety and efficacy in
clinical testing. Approval of a product candidate could also be contingent on
post-marketing studies. In addition, any marketed drug and its manufacturer
continue to be subject to strict regulation after approval. Any unforeseen
problems with an approved drug or any violation of regulations could result in
restrictions on the drug, including its withdrawal from the market.
10
<PAGE> 13
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our partners must demonstrate through preclinical testing and
clinical trials that our product candidates are safe and effective for use in
humans. We have incurred and will continue to incur substantial expense for, and
devote a significant amount of time to, preclinical testing and clinical trials.
Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new drugs have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.
Clinical trials conducted by us, by our collaborators or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals for Nutropin Depot, ProLease EPO,
Cereport, the Janssen Medisorb compound, the AIR compounds or for our other
product candidates. Regulatory authorities may not permit us to undertake any
additional clinical trials for our product candidates.
Clinical trials of each of our product candidates involve a drug
delivery technology and a drug, either as a single formulation or, as in the
case of Cereport, as two products administered in conjunction with each other.
This makes testing more complex because the outcome of the trials depends on the
performance of our technology in combination with a drug.
We have other product candidates in preclinical development, and we
have not submitted investigational new drug applications or begun clinical
trials for these product candidates. Our preclinical and clinical development
efforts may not be successfully completed. We may not file further
investigational new drug applications. We or our collaborators may not begin
clinical trials as planned.
Completion of clinical trials may take several years or more. The
length of time can vary substantially with the type, complexity, novelty and
intended use of the product candidate. Our commencement and rate of completion
of clinical trials may be delayed by many factors, including:
- Our inability to manufacture sufficient quantities of materials
used for clinical trials;
- Our inability to recruit patients at the expected rate;
11
<PAGE> 14
- The failure of clinical trials to demonstrate a product
candidate's efficacy;
- Our inability to follow patients adequately after treatment;
- Our inability to predict unforeseen safety issues; and
- The potential for unforeseen governmental or regulatory delays.
If a product candidate fails to demonstrate safety and efficacy in
clinical trials, this failure may delay development of other product candidates
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of these failures, we may also be unable to find additional
collaborators or to obtain additional financing. Our business and financial
condition may be materially adversely affected by any delays in, or termination
of, our clinical trials.
WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE
We have had net operating losses since being founded in 1987. At
December 31, 1998, our accumulated deficit was in excess of $150 million. These
losses principally consist of the costs of research and development, the costs
of acquiring rights to research and development performed by others, and general
and administrative expenses. The majority of revenues that we have received have
come from collaboration and development agreements, research grants, and
interest income. We expect to incur substantial additional expenses over the
next several years as our research and development activities, including
clinical trials, accelerate and as we prepare to manufacture products for
commercial sale. Because we do not expect to generate significant revenues from
the sale of products, if any, for several years, we anticipate that additional
expenses will result in losses.
Our future profitability depends, in part, on:
- Obtaining regulatory approval for our product candidates;
- Entering into agreements to develop and commercialize products;
- Developing the capacity to manufacture and market products or
entering into agreements with others to do so; and
- Market acceptance of our products.
We may not achieve any or all of these goals and, thus, cannot provide
assurances that we will ever achieve significant revenues or profits. Even if we
do receive regulatory approval of one or more of our products, we may not
achieve significant commercial success.
Our recently completed manufacturing facilities in Cambridge and Ohio
require specialized personnel and are expensive to operate and maintain. Any
delay in the approval of
12
<PAGE> 15
product candidates to be manufactured in these facilities will require us to
continue to operate these expensive facilities and retain the specialized
personnel, which will increase our expected losses.
WE NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE
We believe that our liquid assets, anticipated funding from our
collaborators and interest income will satisfy our capital and operating
requirements for the foreseeable future, but we cannot guarantee that this will
be the case. We will need to spend substantial amounts of money before we can be
profitable, if ever. The amount we will spend, and when we will spend it, will
depend, in part, on:
- How our research and development programs, including clinical
trials, progress;
- How much time and expense will be required to receive FDA
approval for our product candidates;
- The cost of building, operating and maintaining manufacturing
facilities;
- How many product candidates we pursue;
- How much time and money we need to prosecute and enforce patent
rights;
- How competing technological and market developments affect our
product candidates;
- The cost of possible acquisitions of drug delivery technologies
and systems;
- The cost of obtaining licenses to use technology owned by others;
and
- Whether and how we choose to exercise our option to purchase the
limited partnership interests in Alkermes Clinical Partners.
If we require additional funds to complete any of our programs, we may
seek funds through arrangements with collaborators, by issuing securities or
through debt financing. If we can only raise additional funds on terms that are
not favorable to us, we may have to cut back significantly on one or more of our
programs, give up some of our rights to our technologies or product candidates
or agree to reduced royalty rates from collaborators.
WE RELY HEAVILY ON COLLABORATORS
Our arrangements with collaborators and licensors are critical to our
success in bringing our product candidates to the market. In some cases, we
depend on these parties to conduct preclinical testing and clinical trials and
to provide funding for our development programs.
13
<PAGE> 16
Some of our collaborators can terminate their agreements with us for no reason
and on limited notice. We cannot guarantee that any of these relationships will
continue. Failure to make or maintain these arrangements or a delay in a
collaborator's performance may materially and adversely affect our business and
financial condition.
We cannot control our collaborators' performance or the resources they
devote to our programs. If a collaborator fails to perform, the research,
development or commercialization program on which it is working will be delayed.
If this happens, we may have to use funds, personnel, laboratories and other
resources that we have not budgeted, and may not have, to continue the program,
or we may have to stop the program entirely. The failure of a collaborator to
perform or a loss of a collaborator may materially adversely affect our business
and financial condition.
Disputes may arise between us and a collaborator and may involve the
issue of which of us owns the technology that is developed during a
collaboration. Such a dispute could delay the program on which the collaborator
or we are working. It could also result in expensive arbitration or litigation,
which may not be resolved in our favor.
A collaborator may choose to use its own or other technology to develop
a way to deliver its drug and withdraw its support of our product candidate.
Our collaborators could merge with or be acquired by another company or
experience financial or other setbacks unrelated to our collaboration that
could, nevertheless, adversely affect us.
None of our drug delivery systems can be commercialized as stand-alone
products but must be combined with a drug. To develop any new product candidate
using one of these drug delivery systems, we must obtain rights to a drug from
another party. We cannot provide assurances that we will be able to negotiate
any such additional rights on reasonable terms.
OUR MANUFACTURING EXPERIENCE IS LIMITED AND WE HAVE NEVER MANUFACTURED AN
APPROVED PRODUCT
We currently manufacture each of our product candidates, except for
Cereport. The manufacture of drugs for clinical trials and for commercial sale
is subject to regulation by the FDA under good manufacturing practices
regulations and by other regulators under other laws and regulations. We have
manufactured product candidates for use in clinical trials but otherwise have no
manufacturing experience. We cannot assure you that we can successfully
manufacture each of our product candidates in sufficient quantities for
commercial sale, or in a timely or economical manner.
In the quarter ended December 31, 1998, we completed construction of a
new commercial manufacturing plant for Nutropin Depot and future ProLease
product candidates. In the quarter ended June 30, 1998, we completed an
expansion of our existing Medisorb manufacturing facility. Neither of these
14
<PAGE> 17
facilities has been inspected or validated by the FDA, a process by which the
FDA approves a facility for the manufacture of products to be sold. We cannot
guarantee that the FDA will approve either of these facilities or find them to
be in compliance with good manufacturing practices.
We rely on an unrelated party to manufacture Cereport for use in
clinical trials. We expect to rely on the same party to manufacture Cereport for
commercial sale if Cereport receives FDA approval. If we are unable to do so, or
the manufacturer fails to perform as required, we may be unable to secure an
alternative manufacturer on reasonable terms or in a timely manner.
If more of our product candidates progress to late stage development,
we will incur significant expenses in the expansion or construction of
manufacturing facilities and increases in personnel in order to manufacture
product candidates. The development of commercial scale manufacturing processes
is complex and expensive. We can provide no assurances that we will be able to
develop this manufacturing capability in a timely way or at all.
If we fail to develop manufacturing capacity and experience, fail to
continue to contract for manufacturing on acceptable terms, or fail to
manufacture our product candidates at a commercial scale our development
programs will be adversely affected. This may result in delays in receiving FDA
approval for one or more of our product candidates or delays in the commercial
production of a product that has already been approved. Any such delays could
materially and adversely affect our business and financial condition.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS
Our product candidates are subject to extensive and rigorous domestic
government regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biopharmaceutical
products. If our products are marketed abroad, they will also be subject to
extensive regulation by foreign governments. Certain material changes to an
approved product, such as manufacturing changes or additional labeling claims,
are subject to further FDA review and approval. Any required approvals, once
obtained, may be withdrawn. Further, if we fail to comply with FDA and other
regulatory requirements at any stage during the regulatory process, we may be
subject to sanctions, including:
- Delays, warning letters and fines;
- Product recalls or seizures and injunctions on sales;
- Refusal of the FDA to review pending market approval applications
or supplements to approval applications;
15
<PAGE> 18
- Total or partial suspension of production;
- Withdrawals of previously approved marketing applications; and
- Civil penalties and criminal prosecutions.
We are also subject to federal, state and local government regulation
in the conduct of our business, including regulations on employee safety and our
handling and disposal of hazardous and radioactive materials. Any new regulation
or change to an existing regulation could require us to implement costly capital
or operating improvements for which we have not budgeted. We cannot assure you
that these regulations will remain the same or that we will maintain compliance
with these regulations.
We and our contract manufacturer of Cereport also are required to
comply with the FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control, quality assurance and maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA and must be
approved before we can use them in commercial manufacturing of our products. We
or our contract manufacturer may be unable to comply with the applicable good
manufacturing practice requirements and other FDA regulatory requirements. If
Alkermes or our contract manufacturer fail to comply, our business and financial
condition will be materially adversely affected.
WE HAVE ONLY LIMITED RIGHTS TO CEREPORT
We transferred to Alkermes Clinical Partners substantially all of our
rights to certain technology that includes Cereport and then entered into an
agreement with Alkermes Clinical Partners under which we perform research and
development of Cereport. Alkermes Clinical Partners issued securities and used
the proceeds from the sale of those securities to fund our research and
development of Cereport. Funding provided by Alkermes Clinical Partners was
insufficient to complete clinical trials and apply for FDA approval. Since June
1996, we have used our own funds to develop Cereport. So long as we continue
this funding, we have an option to purchase the limited partnership interests in
Alkermes Clinical Partners for cash or our common stock. If this purchase option
terminates, we will have no rights to Cereport or the related technology in the
United States or Canada.
If we exercise this purchase option, we must make a substantial cash
payment or issue a large number of shares of common stock. The exercise of the
option may require us to record a significant charge to earnings for the
purchase of in-process research and development. If we acquire rights to the
Cereport technology under the option, we will still be obliged to pay royalties
to the limited partners.
16
<PAGE> 19
COMPETITION IN THE BIOTECHNOLOGY INDUSTRY
We can provide no assurance that we will be able to compete
successfully against the competitive forces discussed below in developing,
marketing or selling our products.
WE FACE INTENSE COMPETITION
We face intense competition from academic institutions, government
agencies, research institutions and biotechnology and pharmaceutical companies,
including other drug delivery companies. Some of these competitors are also our
collaborators. These competitors are working to develop and market other drug
delivery systems, vaccines and other methods of preventing or reducing disease,
and new small-molecule and other classes of drugs that can be used without a
drug delivery system.
We know of no products approved by the FDA or foreign regulatory
authorities for increasing the permeability of the blood-brain barrier, which is
the intended use of Cereport. However, there are other companies developing
sustained release drug delivery systems, pulmonary delivery systems and oral
delivery systems. In addition, we know of new chemical entities that are being
developed that, if successful, could compete against our product candidates.
These chemical entities are being designed to work differently than our product
candidates and may turn out to be safer or to work better than our product
candidates. Among the many experimental therapies being tested in the United
States and Europe, there may be some that we do not now know of that may compete
with our drug delivery systems or product candidates. Our collaborators could
choose a competing drug delivery system to use with their drugs instead of one
of our drug delivery systems.
Many of our competitors have much greater capital resources,
manufacturing and marketing experience, research and development resources, and
production facilities than we do. Many of them also have much more experience
than we do in preclinical testing and clinical trials of new drugs and in
obtaining FDA and foreign approvals. In addition, they may succeed in obtaining
patents that would make it difficult or impossible for us to compete with their
products.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR DRUG DELIVERY SYSTEMS
OBSOLETE OR NONCOMPETITIVE
Major technological changes can happen quickly in the biotechnological
and pharmaceutical industries; and the development by competitors of
technologically improved or different products may make our product candidates
obsolete or noncompetitive.
17
<PAGE> 20
THE COMPETITIVE NATURE OF OUR INDUSTRY COULD ADVERSELY AFFECT MARKET
ACCEPTANCE OF OUR PRODUCTS
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidates that we develop will depend on a number of
factors, including:
- Demonstration of their clinical efficacy and safety;
- Their cost-effectiveness;
- Their potential advantage over alternative treatment methods;
- The marketing and distribution support they receive; and
- Reimbursement policies of government and third-party payors.
Our product candidates, if successfully developed, will compete with a
number of drugs and therapies currently manufactured and marketed by major
pharmaceutical and other biotechnology companies. Our products may also compete
with new products currently under development by others or with products which
may cost less than our products. Physicians, patients, third-party payors and
the medical community may not accept or utilize our products. If our products do
not achieve significant market acceptance, our business and financial condition
will be materially adversely affected.
PATENT PROTECTION FOR OUR PRODUCTS IS IMPORTANT AND UNCERTAIN
The following factors are important to our success:
- Receiving patent protection for our product candidates and
those of our collaborators;
- Maintaining our trade secrets;
- Not infringing on the proprietary rights of others; and
- Preventing others from infringing our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
18
<PAGE> 21
We know of several U.S. patents issued to other parties that relate to
our product candidates. One of those parties has asked us to compare our
Medisorb technology to that party's patented technology. The manufacture, use,
offer for sale, sale or importing of these product candidates might infringe on
the claims of these patents. A party might file an infringement action against
us. Our cost of defending such an action is likely to be high and we might not
receive a favorable ruling.
We also know of patent applications filed by other parties in the
United States and various foreign countries that may relate to some of our
product candidates if issued in their present form. If patents are issued to any
of these applicants, we may not be able to manufacture, use, offer for sale, or
sell some of our product candidates without first getting a license from the
patent holder. The patent holder may not grant us a license on reasonable terms
or it may refuse to grant us a license at all. This could delay or prevent us
from developing, manufacturing or selling those of our product candidates that
would require the license.
We try to protect our proprietary position by filing United States and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business. Because
the patent position of biopharmaceutical companies involves complex legal and
factual questions, enforceability of patents cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from others may not provide any protection
against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. And, if issued, they may not provide us with proprietary
protection or competitive advantages against competitors with similar
technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed. The laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States.
We also rely on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. We try to protect
this information by entering into confidentiality agreements with parties that
have access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way. If any trade secret, know-how or other technology not protected
by a patent were to be wrongly disclosed to a competitor, our business and
financial condition could be adversely affected.
EFFORTS TO KEEP DOWN THE COST OF HEALTHCARE MAY THREATEN OUR PROFITABILITY
Third-party payors, which include governments and private health
insurers, are increasingly challenging the prices charged for medical products
and services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs of drugs that are not new but
19
<PAGE> 22
are being used for newly approved purposes. Patients who use a product that we
may develop might not be reimbursed for its cost. If third-party payors do not
provide adequate coverage and reimbursement for our products, if and when they
reach the market, doctors may not prescribe them or patients may not use them.
The federal government and various state governments have considered
proposals to regulate the prices of prescription drugs, as is done in certain
foreign countries. We expect that there will be more proposals like these. If
any of these proposals is enacted, we may receive a lower price for our
products, if and when they reach the market, than we currently estimate. Lack of
adequate reimbursement or the enactment of price controls would have a material
adverse effect on our business and financial condition.
WE HAVE NO MARKETING OR SALES EXPERIENCE
We currently have no experience in marketing or selling pharmaceutical
products. To achieve commercial success for any product that may be approved by
the FDA, we must either develop a marketing and sales force or contract with
another party to perform these services for us. In either case, we will be
competing with companies that have experienced and well-funded marketing and
sales operations. We may not be successful in developing a marketing and sales
force or in contracting with a third party on acceptable terms in selling our
products at all.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS
We may be exposed to liability claims arising from the use of our
product candidates in clinical trials and the commercial sale of any products.
These claims may be brought by consumers, our collaborators or parties selling
the products. We currently carry liability insurance for claims arising from the
use of our product candidates during clinical trials in the amount of $10
million per occurrence and $10 million in the aggregate. However, we cannot
provide any assurance that this coverage will be sufficient to satisfy any
liabilities that may arise. As our development activities progress, this
coverage will be inadequate; and we may be unable to get adequate coverage at an
acceptable cost or we may be unable to get adequate coverage at all. This could
prevent or limit our commercialization of our product candidates. Even if we are
able to continue to carry insurance that we believe is adequate, our financial
condition may be materially and adversely affected by a product liability claim.
WE MUST MEET CERTAIN FINANCIAL TESTS OR WE WILL DEFAULT UNDER OUR LOAN
AGREEMENTS
We must maintain minimum levels of working capital, net worth and
liquid assets under the terms of our loan agreements. Under one or more of these
agreements, we must maintain:
- An unencumbered balance of cash and permitted investments of
at least $40 million;
20
<PAGE> 23
- A tangible net worth plus subordinated debt of at least $40
million;
- A minimum liquidity of net quick assets divided by total
liabilities of 1.5 to 1.0;
- A net worth of not less than $20 million;
- A maximum ratio of total liabilities to net worth of 0.5 to
1.0;
- A minimum current ratio of current assets to current
liabilities of 2.0 to 1.0; and
- A minimum unencumbered balance of cash and permitted
investments equal to the greatest of (1) $20 million, (2) our
projected cash loss over the next 14 months and (3) an amount
equal to our cash loss for the previous six months multiplied
by 2.33.
Under the terms of one of these agreements, if we breach one of the covenants or
otherwise default, we will be required to deposit moneys equal to the then
outstanding principal balance of the loan plus three months' interest into a
restricted account at the lender bank. In addition, the lender bank will have
the right to take those moneys and apply them to repayment of the loan if our
unencumbered cash and investment balance falls below $5 million. Any default
under a loan agreement could materially and adversely affect our financial
condition.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL
As a small company, our success depends on the services of key
employees in executive and research and development positions. The loss of the
services of one or more of these employees could have a material adverse effect
on us.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK
We have not paid cash dividends on our common stock and do not expect
to do so in the foreseeable future. We currently have outstanding 2.3 million
shares of preferred stock. We must pay cash dividends to the holders of the
preferred stock, and any dividends that we do not pay will accrue and remain
owing to the holders of the preferred stock but will not bear interest. We must
pay these accumulated, unpaid dividends before we can declare or pay cash
dividends on the common stock. See "Dividend Policy."
THE MARKET PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY THE ABILITY OF
SUBSTANTIAL SHAREHOLDERS TO SELL AND WE ARE OBLIGATED TO ISSUE MORE COMMON STOCK
As discussed above under "We Need to Spend Substantial Funds to Become
Profitable," we may issue additional equity securities to raise funds, thus
reducing the ownership share of the company of current holders of our common
stock which may adversely affect the market price of the common stock. In
addition, for consideration that we have already received, we must issue
21
<PAGE> 24
common stock to certain security holders and other parties under the
circumstances described below. Any of these parties could sell all or a large
number of its shares, which could adversely affect the market price of our
common stock. Even if none of these sales happen, the perception by investors
that sales might occur could adversely affect the market price of our common
stock.
CONVERTIBLE PREFERRED STOCK
We may exchange our preferred stock in whole for debentures, but have
no current plans to do so. Any holder of the preferred stock, or the debentures
for which it may have been exchanged, may convert its shares or debentures into
shares of common stock. We have already registered for resale shares of our
common stock for this purpose. Each share of preferred stock is currently
convertible into 1.6878 shares of common stock for a total of 3,881,940 shares
of common stock.
CONVERTIBLE NOTE HELD BY GENENTECH
In January 1995, we issued a Convertible Promissory Note in the
principal amount of $3.5 million to Genentech, Inc. We have the option to pay in
cash or convert the amount due on this note to our common stock. Under certain
circumstances, Genentech can require us to convert the amount due to common
stock and to register that stock. This note is due in January 2000.
CONVERTIBLE NOTE HELD BY SCHERING
In October 1998, we issued a promissory note in the principal amount of
$6 million to Schering Corporation. We have the option to pay in cash or convert
the amount due on this note to our common stock. If we convert the amount due
into common stock, we must register the common stock. This note is due in
October 2001.
STOCK OPTIONS AND AWARDS; WARRANTS
At March 24, 1999, we were obligated to issue the following shares of
common stock under the circumstances described:
- 3,346,625 shares upon the exercise of stock options and
vesting of awards.
- 934,581 shares upon the exercise of warrants.
We have already registered these shares.
COMMON STOCK OWNED BY ALZA CORPORATION
We issued and registered for resale 2 million shares of common stock to
ALZA Corporation. ALZA may sell all or any portion of these shares at any time.
ALZA also has the
22
<PAGE> 25
right to include these shares in any underwritten public offering of our common
stock. On March 26, 1999, ALZA reported its intention to sell some or all of its
shares of our common stock in open market transactions.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE
The realization of any of the risks described in these "Risk Factors"
or other unforeseen risks could have a dramatic and adverse effect on the market
price of our common stock. Additionally, market prices for securities of
biotechnology and pharmaceutical companies, including ours, have historically
been very volatile. The market for these securities has from time to time
experienced significant price and volume fluctuations for reasons that were
unrelated to the operating performance of any one company. In particular and in
addition to circumstances described elsewhere under "Risk Factors," the
following factors can adversely affect the market price of our common stock:
- Announcements of technological innovations or new therapeutic
products by us or others;
- Public concern as to the safety of drugs developed by us or
others;
- General market conditions;
- Changes in government regulations or patent decisions; and
- Developments of our corporate partners.
ANTI-TAKEOVER PROVISIONS MAY NOT BENEFIT SHAREHOLDERS
We are a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a person or group to acquire
control of us, even if the change in control would be beneficial to
shareholders. Our articles of incorporation also contain certain provisions that
could have a similar effect. They provide that our board of directors may issue,
without shareholder approval, preferred stock having such voting rights,
preferences and special rights as the board of directors may determine. The
issuance of preferred stock could make it more difficult for a third party to
acquire us.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
We rely on software systems and embedded technology. Many software
systems and much technology in use today are unable to distinguish between the
year 2000 and the year 1900, because they use a two-digit shorthand for calendar
dates, or to recognize the year 2000 as a leap year. If we do not identify and
correct this problem before January 1, 2000, our operations could be disrupted.
Companies with which we do business also use software systems and embedded
technology, and our operations could also be disrupted if the companies with
which we do
23
<PAGE> 26
significant business are not year 2000 compliant and this failure adversely
affects their ability to do business with us.
To address these issues, we have undertaken a three-step process:
1. Identify all of our critical software and embedded systems;
2. Determine if our critical software and embedded systems are
year 2000 compliant and if the companies with which we do
significant business will be year 2000 compliant prior to
January 1, 2000; and
3. Correct or replace all our software and embedded systems that
are not year 2000 compliant and test the corrected or
replacement software and embedded systems.
We have completed the first step of the project and continue to work on
the second step. We have identified our internal information and embedded
systems which use the two-digit shorthand. We have requested compliance
information from companies with which we do significant business and continue to
follow up on our compliance requests. For those information and embedded systems
with known compliance issues, we have begun corrective measures. We will
continue to address the compliance of companies with which we do significant
business as compliance questionnaires are received.
On February 1, 1999, we acquired Advanced Inhalation Research, Inc.,
which we call AIR. We have not yet determined whether any of AIR's information
and embedded systems are year 2000 compliant. We cannot estimate the most
reasonably likely worst case scenario if the information and embedded systems of
our new subsidiary or the companies with which we do significant business fail
until we complete our evaluation or receive the compliance questionnaires and
can evaluate such responses.
We are conducting this project primarily using internal resources. We
cannot estimate the cost of completion of the project nor complete our
contingency plan until we complete the second step. We cannot assure you that we
will be able to complete the project within budget, that the project will be
completed on a timely basis, that any contingency plans will be promptly
completed or implemented, or that the use of our internal resources to complete
the project will not adversely affect other aspects of our business.
24
<PAGE> 27
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common
stock offered in this prospectus.
DIVIDEND POLICY
We have not paid any dividends on our common stock since our inception
and do not anticipate paying any dividends on our common stock in the
foreseeable future.
We must pay cash dividends to the holders of the preferred stock at an
annual rate of $3.25 per share, subject to the limitations of Pennsylvania law
regarding payment of dividends and of the terms of the preferred stock described
in our Articles of Incorporation. Any dividends that are not paid will remain
owing to the holders of the preferred stock but will not bear interest. We must
pay these accumulated, unpaid dividends before we can declare or pay cash
dividends on the common stock.
25
<PAGE> 28
SELLING SHAREHOLDERS
A table setting forth the following information will be provided by a
pre-effective amendment: (a) the names of the selling shareholders, (b) the
total number of shares beneficially owned by such selling shareholders without
restriction, (c) the total number of shares beneficially owned by such
shareholders that may be sold subject to vesting and (d) the percentage of
outstanding common stock that is beneficially owned by such selling
shareholders. Certain shareholders hold stock subject to an agreement which
restricts their ability to transfer or sell their stock. Portions of these
shares cease to be subject to these restrictions over time. Except as set forth
on the table, no selling shareholder has now, or had within the past three
years, held any position, office or other material relationship with us or any
of our predecessors or affiliates. We cannot estimate the number of shares of
common stock that any selling shareholder will have after this offering because
the selling shareholders may not sell all of the common stock that they are
offering. The selling shareholders provided the information in this table. If
this information changes, the prospectus will be supplemented.
26
<PAGE> 29
PLAN OF DISTRIBUTION
The common stock offered by this prospectus may be sold from time to
time by selling shareholders, who consist of the persons named under "Selling
Shareholders" above and those persons' pledgees, donees, transferees or other
successors in interest. We will pay all costs, expenses and fees in connection
with the registration of the common stock offered by this prospectus. The
selling shareholders must pay all brokerage commissions and similar selling
expenses relating to the sale of their shares. The selling shareholders may sell
the shares on the Nasdaq National Market or otherwise, at market prices or at
negotiated prices. They may sell shares by one or a combination of the
following:
- a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which a
broker solicits purchasers; and
- in open-market transactions in reliance on Rule 144 under the
Securities Act of 1933, provided they meet the requirements of
that rule.
In effecting sales, brokers or dealers engaged by the selling
shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from selling shareholders in
amounts to be negotiated prior to the sale. The selling shareholders and any
broker-dealers that participate in the distribution may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, and any proceeds or commissions received by them, and any profits on the
resale of shares sold by broker-dealers, may be deemed to be underwriting
discounts and commissions. Because the selling shareholders may be deemed to be
underwriters, they will be subject to the prospectus-delivery requirements of
the Securities Act of 1933. We have informed the selling shareholders that the
anti- manipulative provisions of Regulation M under the Securities Exchange Act
of 1934 may apply to their sales of the common stock in the market.
We have agreed to indemnify each selling shareholder against certain
liabilities, including liabilities arising under the Securities Act of 1933. The
selling shareholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving shares of the common stock against
certain liabilities, including liabilities arising under the Securities Act of
1933.
If any selling shareholder notifies us that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange,
29
<PAGE> 30
distribution or secondary distribution or a purchase by a broker or dealer, we
will file a prospectus supplement, if required by Rule 424 under the Securities
Act of 1933, setting forth:
- the name of each of the participating broker-dealers;
- the number of shares involved;
- the price at which the shares were sold;
- the commissions paid or discounts or concessions allowed to
the broker-dealers, where applicable;
- a statement to the effect that the broker-dealers did not
conduct any investigation to verify the information set out or
incorporated by reference in this prospectus; and
- any other facts material to the transaction.
In addition, we will file a supplement to this prospectus if a selling
shareholder notifies us that a donee or pledgee intends to sell more than 500
shares of the common stock.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania will
pass on the validity of the common stock offered with this prospectus. Morris
Cheston, Jr., who is our Secretary and Secretary of Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II, Advanced
Inhalation Research, Inc., and Alkermes Development Corporation II, all of which
are our wholly owned subsidiaries, and Martha J. Hays, who is Secretary of
Alkermes Investments, Inc., also our wholly owned subsidiary, are partners in
the law firm of Ballard Spahr Andrews & Ingersoll, LLP.
EXPERTS
The consolidated financial statements incorporated in this prospectus
by reference from our Annual Report on Form 10-K for the year ended March 31,
1998 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
30
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the amounts of expenses attributed to
the issuance of the Securities offered pursuant to this Registration Statement
which shall be borne by the Company. All of the expenses listed below, except
the Securities and Exchange Commission Registration Fee, represent estimates
only.
<TABLE>
<CAPTION>
Estimated
---------
<S> <C>
Securities and Exchange Commission Registration Fee............................ $27,882
Nasdaq Listing Fee............................................................. 17,500
Printing and Engraving Expenses................................................ 10,000
Accounting Fees and Expenses................................................... 15,000
Legal Fees and Expenses........................................................ 25,000
Miscellaneous Fees and Expenses................................................ 5,618
----------
Total................................................................. $101,000
</TABLE>
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 $5,000,000 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
II-1
<PAGE> 32
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.
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.
II-2
<PAGE> 33
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.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.1 Specimen of Preferred Stock Certificate of Alkermes, Inc. (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-3, as amended
(File No. 333-50157)).
4.2 Specimen of Common 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)).
4.3 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).
4.4 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).
4.5 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).
4.6 Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on February 26 ,1998. (Incorporated by reference to Exhibit 4.6 to the Registrant's
Registration Statement on Form S-3, as amended (File No. 333-50157)).
4.7 Indenture, dated as of March 1, 1998, between Alkermes, Inc. and State Street Bank
and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-3, as amended (File No. 333-50157)).
4.8 Form of Agreement with the Company's Stockholders by and among Alkermes, Inc., Advanced
Inhalation Research, Inc. and the stockholders of Advanced Inhalation Research, Inc.
(Incorporated by reference to Exhibit 4.1 of the Registrant's
Report on Form 8-K dated February 1, 1999).
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (contained in Exhibit 5).
24 Power of Attorney (included on signature page).
</TABLE>
II-3
<PAGE> 34
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") 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 Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
II-4
<PAGE> 35
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 36
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
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on April 2,
1999.
ALKERMES, INC.
By:/s/ Richard F. Pops
-------------------------
Richard F. Pops
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard F. Pops and James M. Frates and
each or any one of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael A. Wall Director and Chairman of the April 2, 1999
- ------------------------------------ Board
Michael A. Wall
/s/ Richard F. Pops Director and Chief Executive April 2, 1999
- ------------------------------------ Officer (Principal Executive
Richard F. Pops Officer)
/s/ Robert A. Breyer Director, President and Chief April 2, 1999
- ------------------------------------ Operating Officer
Robert A. Breyer
/s/ James M. Frates Vice President, Chief Financial April 2, 1999
- ------------------------------------ Officer and Treasurer
James M. Frates (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C>
/s/ Alexander Rich Director April 2, 1999
- ---------------------------
Alexander Rich
/s/ Paul Schimmel Director April 2, 1999
- ---------------------------
Paul Schimmel
/s/ Floyd Bloom Director April 2, 1999
- ---------------------------
Floyd Bloom
/s/ John K. Clarke Director April 2, 1999
- ---------------------------
John K. Clarke
</TABLE>
<PAGE> 38
EXHIBIT INDEX
Exhibit No. Exhibit
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to the legality of
the securities to be offered.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as part of
Exhibit 5).
<PAGE> 1
EXHIBIT 5
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
April 2, 1999
Alkermes, Inc.
64 Sidney Street
Cambridge, Massachusetts 02139
Re: Registration Statement on Form S-3 for Alkermes, Inc.
Ladies and Gentlemen:
We have acted as counsel to Alkermes, Inc., a Pennsylvania
corporation (the "Company"), and are rendering this opinion in connection with
the filing of a Registration Statement on Form S-3 (the "Registration
Statement") by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to the registration by the Company
of 3,680,508 shares of the Company's common stock, par value $.01 share (the
"Common Stock") to be sold by the holders thereof as described in the
Registration Statement (the "Selling Shareholders").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement and all exhibits
thereto and such corporate records and other agreements, documents and
instruments, and such certificates or comparable documents of public officials
and officers and representatives of the Company and have made such inquiries of
such officers and representatives and have considered such matters of law as we
have deemed appropriate as the basis for the opinion hereinafter set forth,
including the Company's By-laws, as amended, certain resolutions adopted by the
Board of Directors of the Company relating to the issuance of the Common Stock
and statements from certain officers of the Company.
Based upon and subject to the limitations, qualifications,
exceptions and assumptions set forth herein, we are of the opinion that the
shares of Common Stock to be sold by the Selling Shareholders are duly
authorized, legally issued, fully paid and nonassessable.
We express no opinion as to the law of any jurisdiction other
than the law of the Commonwealth of Pennsylvania.
We hereby consent to the sole use of this opinion as Exhibit 5
to the Registration Statement and to the use of our name under the heading
"Legal Matters" in the Prospectus included therein.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
------------------------------------------
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Alkermes, Inc. on Form S-3 of our report dated May 22, 1998, appearing in the
Annual Report on Form 10-K of Alkermes, Inc. for the year ended March 31, 1998
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 2, 1999
