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PROSPECTUS
Filed pursuant to Rule 424(b)(3)
Registration No. 333-31354
ALKERMES, INC.
$250,000,000 3-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2007
1,845,018 SHARES OF COMMON STOCK
The selling securityholders named in this prospectus or in prospectus
supplements may offer and sell the notes and the common stock issued upon
conversion of the notes with this prospectus. We will not receive any of the
proceeds from sales of these securities by the selling securityholders.
The notes are convertible at any time prior to maturity into common
stock at a conversion price of $135.50 per share, subject to adjustment upon
certain events.
Interest is payable on each February 15 and August 15, beginning August
15, 2000. The notes mature on February 15, 2007. The notes are subordinated to
our senior indebtedness.
We may redeem some or all of the notes on or after February 19, 2003 at
the redemption prices listed in this prospectus, plus accrued interest. Prior to
that date, we may redeem some or all of the notes if the price of our common
stock has exceeded 200% of the conversion price for at least 20 out of the 30
consecutive trading days prior to redemption. If we redeem some or all of the
notes prior to February 15, 2001, we will also make an additional payment on the
redeemed notes. The holders may require us to repurchase the notes upon a
repurchase event in cash or, at our option, common stock, at 105% of the
principal amount of the notes, plus accrued interest.
The notes, issued in denominations of $1,000, are currently eligible
for trading on the Portal Market of the Nasdaq Stock Market. Our common stock is
traded on the Nasdaq National Market under the symbol "ALKS." On February 28,
2000 the last sale price of our common stock, as reported on the Nasdaq National
Market, was $179.50 per share.
The selling securityholders may sell their securities from time to time
on the Nasdaq National Market or otherwise. They may sell the securities at
prevailing market prices or at prices negotiated with purchasers. The selling
securityholders 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.
INVESTING IN THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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 March 6, 2000
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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 securityholders are offering
to sell, and seeking offers to buy, the securities 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 securities. In this prospectus,
references to "we," "us" and "our" refer to Alkermes, Inc. and its subsidiaries.
TABLE OF CONTENTS
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Where You Can Find More Information.........................................2
Incorporation of Information We File with the SEC...........................3
Summary.....................................................................4
Risk Factors................................................................8
Use of Proceeds............................................................22
Dividend Policy............................................................22
Ratio of Earnings to Fixed Charges.........................................22
Selected Consolidated Financial Information................................23
Description of Notes.......................................................24
Description of Capital Stock...............................................39
Transfer Agent and Registrar...............................................42
United States Federal Income Tax Considerations............................43
Selling Securityholders....................................................46
Plan of Distribution for the Resale of the Securities......................47
Legal Matters..............................................................48
Experts....................................................................48
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ALKERMES(R), PROLEASE(R), MEDISORB(R), CEREPORT(R) AND THE ALKERMES
LOGO ARE REGISTERED TRADEMARKS OF ALKERMES, INC. AIR(TM), ALBULAST(TM),
ESTROLAST(TM), RECEPTOR-MEDIATED PERMEABILIZERS(TM), RMP(TM) AND RINGCAP(TM) ARE
TRADEMARKS OF ALKERMES, INC.
NUTROPIN DEPOT(TM) IS A TRADEMARK OF GENENTECH, INC. RISPERDAL(R) IS A
REGISTERED TRADEMARK OF JOHNSON & JOHNSON.
WHERE YOU CAN FIND MORE INFORMATION
Alkermes is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, under which we file periodic reports, proxy
and information statements and other information with the SEC. Copies of the
reports, proxy statements and other information may be examined without charge
at the Public Reference Section of the SEC, 450 Fifth Street, N.W. Room 1024,
Washington, D.C. 20549, and the SEC's Regional Offices located at 500 West
Madison Street, Suite 1400, Chicago, IL 60661, and 7 World Trade Center, 13th
Floor, New York, NY 10048 or on the Internet at http://www.sec.gov. Copies of
all or a portion of such materials can be obtained from the Public Reference
Section of the SEC upon payment of prescribed fees. Please call the SEC at
1-800-SEC-0330 for further information about the Public Reference Room. These
reports, proxy and information statements and other information may also be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
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INCORPORATION OF INFORMATION WE FILE WITH THE SEC
We have "incorporated by reference" into this prospectus the information
we file with the SEC. This means that we can disclose important business,
financial and other information in this prospectus by referring you to the
documents containing this information. All information incorporated by reference
is part of this prospectus, unless and until that information is updated and
superseded by the information contained in this prospectus or any information
incorporated later. Any information that we subsequently file with the SEC that
is incorporated by reference will automatically update and supersede any
previous information that is part of this prospectus.
We incorporate by reference our documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 until this offering is completed:
- Annual Report on Form 10-K for the fiscal year ended March 31,
1999;
- Quarterly Reports on Form 10-Q for the fiscal quarters ended
June 30, 1999, September 30, 1999 and December 31, 1999;
- Current Reports on Form 8-K filed on April 8, 1999, April 21,
1999 and February 14, 2000, and Current Reports on Form 8-K/A
filed on April 19, 1999 and May 13, 1999; and
- Item 1 of Registration Statement on Form 8-A dated June 28,
1991, as amended by Form 8-A/A dated January 17, 1997.
Alkermes will provide without charge to each person to whom a copy of
this prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the documents
incorporated by reference (other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference into the information that
this prospectus incorporates). Requests should be directed to:
Alkermes, Inc.
64 Sidney Street
Cambridge, MA 02139-4136
Attention: James M. Frates, Vice President,
Chief Financial Officer and Treasurer
Telephone: (617) 494-0171
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SUMMARY
This summary may not contain all of the information that you should consider
before investing in our securities. You should read the entire prospectus
carefully.
THE COMPANY
We are applying sophisticated drug delivery technologies and product
development and manufacturing capabilities to the development of an expanding
portfolio of pharmaceutical products. We develop product candidates in
collaboration with pharmaceutical and biotechnology company partners and for our
own account. We currently have numerous product candidates in development with
multiple collaborative partners including Genentech, Inc. ("Genentech"), Johnson
& Johnson, Janssen Pharmaceutica International ("Janssen"), Ares-Serono
International S.A. ("Ares-Serono"), Glaxo Wellcome ("Glaxo") and Eli Lilly and
Company Limited ("Eli Lilly").
Our most advanced product development programs are Nutropin Depot and
Risperdal Depot. Nutropin Depot is an injectable sustained release formulation
of Genentech's recombinant human growth hormone ("rhGH") based on our ProLease
drug delivery technology. Following the completion of clinical trials and the
scale-up, construction and validation of our Cambridge, Massachusetts
manufacturing facility, Genentech submitted a New Drug Application to the FDA in
June 1999. Nutropin Depot was granted priority review status and, on December
23, 1999, was approved for marketing in the United States for the treatment of
growth hormone deficiency in children. In addition, we began a Phase I clinical
trial of Nutropin Depot in adult patients with growth hormone deficiency in
January 2000. Risperdal Depot is an injectable sustained release formulation of
Janssen's anti-psychotic drug, Risperdal, based on our Medisorb drug delivery
technology. Following completion of Phase I and multi-center Phase II clinical
trials and the scale-up and expansion of our Wilmington, Ohio manufacturing
facility, Phase III clinical trials of Risperdal Depot began in the second
calendar quarter of 1999. In addition to our work with collaborators, we have
also used our Medisorb technology to develop products for our own account. For
example, we intend to proceed into Phase I clinical trials with an injectable
sustained release Medisorb formulation of Naltrexone, an opiate antagonist, for
the treatment of alcoholism.
Our product development programs are based on improving the medical or
commercial potential of pharmaceutical compounds through advanced drug delivery
systems. We have focused on applying the tools and science of biotechnology to
the development of drug delivery systems characterized by their value,
uniqueness and proprietary nature.
We believe that we have established a leadership position in the
development and manufacturing of pharmaceutical products based on injectable
sustained release drug delivery technologies. We have two such technologies:
ProLease, developed specifically for application to fragile protein and peptide
based drugs, and Medisorb, designed primarily for application to small molecule
drugs and stable peptides. We have scaled-up manufacturing processes for these
two technologies and designed and constructed commercial scale GMP production
facilities incorporating state-of-the-art sterile manufacturing processes.
We have also established a significant presence in the field of
pulmonary drug delivery. Our pulmonary drug delivery system, known as AIR,
offers a unique, proprietary delivery system for optimized drug delivery to the
lungs. The AIR system is useful for small molecules, proteins or peptides and
allows for both local delivery to the lungs and systemic delivery via the lungs.
The technology has a number of advantages including the use of a small,
convenient, inexpensive delivery device, the ability to deliver high doses
efficiently and the potential for sustained drug release in the lungs. We have
scaled-up key aspects of our AIR particle manufacturing to support large scale
clinical trials and have entered into an agreement with a leading manufacturer
of inhaler devices.
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On February 3, 2000, we announced a collaboration with Glaxo upon
Glaxo's exercise of its option to obtain a license to our AIR technology for use
in the development of multiple product candidates in up to four specified
respiratory disease categories. Glaxo's decision to obtain a license followed
the completion of a 12-month feasibility study between the two companies. On
February 8, 2000, we announced that we entered into an agreement with Eli Lilly
to develop an inhaled formulation of human growth hormone based on our AIR
pulmonary drug delivery system. This agreement follows the completion of a nine-
month feasibility program conducted by the two companies. We are also developing
for our own account AlbuLast, a sustained release pulmonary formulation of
albuterol sulfate, for the treatment of asthma. Phase I clinical trials have
been conducted and a Phase I/II clinical trial in asthmatic patients is
currently underway.
On February 28, 2000, we announced that our Board of Directors has
authorized a two-for-one split of our common stock and an increase in the
authorized shares of common stock from 80,000,000 to 160,000,000 shares. The
proposal to effect the stock split and the increase in the authorized shares of
common stock is contingent upon receipt of shareholder approval. The proposal
will be submitted to shareholders for approval at a special meeting to be held
on April 28, 2000, in Cambridge, Massachusetts. If the proposal is approved, the
stock split and the increase in the authorized shares of common stock will
become effective with the filing of an amendment to our charter, which is
expected to occur on April 28, 2000. If approved, each share of common stock
owned by holders of common stock on such date will become two shares of common
stock. Distribution of the additional shares is expected to occur on or about
May 12, 2000.
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SECURITIES TO BE OFFERED
We issued and sold $200 million aggregate principal amount of the notes
in February 2000 to the initial purchasers in transactions that were exempt from
the registration requirements imposed by the Securities Act of 1933. The initial
purchasers reasonably believed that the persons to whom they resold the notes
were "qualified institutional buyers" as defined in Rule 144A under the
Securities Act. The initial purchasers have an option to purchase an additional
$50 million principal amount of the notes.
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Securities offered........................... Up to $250,000,000 principal amount of 3-3/4% Convertible
Subordinated Notes due 2007.
Interest..................................... Interest is payable at the rate of 3-3/4% per year on each February
15 and August 15, beginning on August 15, 2000.
Maturity..................................... February 15, 2007.
Conversion................................... The notes are convertible at the option of the holder at any time
prior to maturity into common stock at a conversion price of
$135.50 per share, subject to adjustment upon certain events.
Provisional redemption....................... We may redeem some or all of the notes at any time prior to
February 19, 2003 if the price of our common stock has exceeded
200% of the conversion price for at least 20 out of the 30
consecutive trading days immediately prior to our delivery of a
redemption notice. If we redeem some or all of the notes prior to
February 15, 2001 we will also make an additional payment on the
redeemed notes equal to one year of interest per $1,000 note, minus
the amount of any interest we actually paid on the notes. See
"Description of Notes -- Provisional Redemption."
Optional redemption.......................... We may redeem some or all of the notes on or after February 19,
2003 at the declining redemption prices listed in this prospectus,
plus accrued and unpaid interest. See "Description of Notes --
Optional Redemption."
Repurchase at holder's option upon a
repurchase event........................... You may require us to repurchase your notes upon a repurchase event
in cash, or, at our option, in common stock, at 105% of the
principal amount of the notes, plus accrued and unpaid interest.
Ranking...................................... The notes will be subordinated to our senior indebtedness. As of
December 31, 1999, if the notes had been issued, we would have had
approximately $34.1 million of senior indebtedness outstanding.
The indenture for the notes does not limit our ability to incur
additional indebtedness, senior or otherwise.
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Use of proceeds.............................. We will not receive any of the proceeds from the sale of the
securities under this prospectus.
Trading...................................... The notes are currently eligible for trading in the Portal Market.
Our common stock is traded on the Nasdaq National Market under the
symbol "ALKS."
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents that are and will be incorporated
into this prospectus contain forward-looking statements that involve risks and
uncertainties. These statements may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to our future plans, objectives, expectations and intentions
and may be identified by the use of words like "believes," "expects," "may,"
"will," "should," "seeks," "pro forma," or "anticipates," and similar
expressions.
Although we believe that our expectations are based on reasonable
assumptions within the bounds of our knowledge of our business and operations,
our business is subject to significant risks and we cannot assure you that
actual results of our development activities and our results of operations will
not differ materially from our expectations. Factors which could cause actual
results to differ from expectations include, among others: (i) our first
product, Nutropin Depot, may not produce significant revenues and, in commercial
use, may have unintended side effects, adverse reactions or incidents of misuse;
(ii) we and our collaborators may not be permitted by regulatory authorities to
undertake clinical trials for RingCap or DST or to undertake additional clinical
trials for ProLease, Cereport, Medisorb or AIR product candidates or clinical
trials could be delayed; (iii) our product candidates could be ineffective or
unsafe during clinical trials; (iv) even if clinical trials are completed and
the data is submitted to the FDA as an NDA for marketing approval and to other
health authorities as a marketing authorization application, the NDA or
marketing authorization application could fail to be accepted or could fail to
receive approval on a timely basis, if at all; (v) we could incur difficulties
or set-backs in obtaining the substantial additional funding required to
continue research and development programs and clinical trials; (vi) disputes
with collaborators, termination of collaborations or failure to negotiate
acceptable new collaborative arrangements for ProLease, Medisorb, AIR, RingCap
or DST technologies, or for Cereport, could occur; (vii) our collaborators could
elect to terminate or delay development programs; (viii) even if our 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; (ix) we may be
unable to manufacture Nutropin Depot or future products on a commercial scale;
(x) technological change in the biotechnology or pharmaceutical industries could
render our product candidates obsolete or noncompetitive; (xi) difficulties or
set-backs in obtaining or enforcing our patents and difficulties with the patent
rights of others could occur; (xii) disputes with Alkermes Clinical Partners,
L.P. over rights to Cereport and related technology could occur; and (xiii)
other factors discussed under "Risk Factors" beginning on page 8, and elsewhere
in this prospectus and documents incorporated by reference, could occur.
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RISK FACTORS
An investment in the securities offered by this prospectus involves a
high degree of risk. You should consider carefully the following risk factors in
addition to the remainder of this prospectus before making an investment
decision.
OUR DELIVERY TECHNOLOGIES MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS
All of our product candidates, except Nutropin Depot, need significant
additional research and development and each of them requires FDA approval
before it can be marketed. Nutropin Depot has received FDA approval but it has
not yet been commercially launched. To be profitable, we must develop,
manufacture and market our products, either alone or by collaborating with
others. It can take several years for a product to be approved and we may not be
successful in bringing other 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;
- fail to receive a sufficient level of reimbursement from
government or third-party payors; 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, or if our partners
decide not to pursue one of our product candidates, our business and financial
condition will be materially adversely affected.
NUTROPIN DEPOT MAY NOT PRODUCE SIGNIFICANT REVENUES
Our first product, Nutropin Depot, was approved by the FDA on December
23, 1999 and has not yet been launched commercially. Our partner Genentech is
responsible for marketing the product, which will face significant competition
from the currently approved products that treat growth hormone deficiency. In
addition, Genentech has a number of daily injection formulations on the market,
which may affect its efforts related to Nutropin Depot. The revenues we receive
from the sale of Nutropin Depot may not be significant and depend on numerous
factors outside of our control, including Genentech's decisions on pricing and
discounting, Genentech's reliance on third-party marketing partners outside the
United States, the ability to obtain reimbursement from third-party payors, the
market size for the product and the reaction of companies that market
competitive products, as well as general market conditions. If Nutropin Depot
does not produce significant revenues our business and financial condition could
be materially adversely affected.
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AS NUTROPIN DEPOT IS USED COMMERCIALLY, UNINTENDED SIDE EFFECTS, ADVERSE
REACTIONS OR INCIDENTS OF MISUSE MAY APPEAR
Until recently, the use of Nutropin Depot has been limited to clinical
trial patients under controlled conditions and under the care of physicians. We
cannot predict whether the widespread commercial use of Nutropin Depot will
produce undesirable or unintended side effects that have not been evident in our
clinical trials to date. Additionally, incidents of product misuse may occur.
These events, among others, could result in additional regulatory controls.
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 our 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. 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 recruit patients at the expected rate;
- 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;
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- our inability to manufacture sufficient quantities of
materials used for clinical trials; 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.
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 ("GMP"). 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:
- 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 similar reasons. Any delay in, or failure to receive, approval will
have a material adverse effect on our business and financial condition.
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 certain types of brain tumor. If
the FDA approves Cereport based on these trials, the approval will be for
Cereport's 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
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or any violation of regulations could result in restrictions on the drug,
including its withdrawal from the market.
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, 1999, our accumulated deficit was $227.7 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 begin to manufacture Nutropin Depot or other future
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 additional 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;
- market acceptance of our products;
- the ability to obtain additional research and development
funding from collaborative partners; and
- the ability to achieve certain product development milestones.
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 for additional products, we may not achieve
significant commercial success.
Our recently completed manufacturing facilities in Cambridge,
Massachusetts and Wilmington, Ohio require specialized personnel and are
expensive to operate and maintain. Any delay in the market launch of Nutropin
Depot or the approval of future product candidates to be manufactured in these
facilities will require us to continue to operate these expensive facilities and
retain the specialized personnel, which may 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 at least the next 18 months, 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;
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- 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, compounds or companies;
- 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 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. 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 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 we may not be able to continue the
program. 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.
12
<PAGE> 13
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 the drug from another
party. We cannot assure you that we will be able to obtain any such drugs on
reasonable terms.
In January 2000, Glaxo exercised its option to obtain a license to our
AIR technology for use in the development of multiple products in up to four
respiratory disease categories. The companies are negotiating the definitive
license agreement, but we cannot assure you that we and Glaxo will sign a
definitive agreement.
OUR MANUFACTURING EXPERIENCE IS LIMITED AND WE HAVE NO EXPERIENCE MANUFACTURING
COMMERCIAL PRODUCTS
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 current GMP regulations and by other
regulators under other laws and regulations. We have manufactured product
candidates for use in clinical trials but we do not have experience
manufacturing commercial products. We cannot assure you that we can successfully
manufacture Nutropin Depot or other future products in sufficient quantities for
commercial sale, or in a timely or economical manner.
In October 1998, we completed construction of a new commercial
manufacturing plant for Nutropin Depot and future ProLease product candidates.
In June 1998, we completed an expansion of our existing Medisorb manufacturing
facility. The only manufacturing facility that the FDA has inspected and
approved is for the manufacture of Nutropin Depot. We cannot guarantee that the
FDA will approve any of our other facilities or, once they are approved, that we
will remain in compliance with current GMP.
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 cannot assure you 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 economically at a commercial scale, our
development programs will be materially 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 adversely affect our business and financial
condition.
WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT OF PRODUCTS FOR OUR OWN ACCOUNT
In addition to our development work with collaborators, we are
developing proprietary product candidates for our own account and applying our
drug delivery technologies to off patent drugs. Because of the lack of external
funding for such development programs there is a risk that we may not be able to
continue to fund all such programs to completion or to provide the support
necessary to perform the
13
<PAGE> 14
clinical trials, obtain regulatory approvals or market any approved products on
a worldwide basis. We expect the development of products for our own account to
consume more resources than our programs with collaborators.
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;
- 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 GMP regulations. Current GMP 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 current GMP requirements and other FDA regulatory requirements.
If we 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, L.P. ("Clinical
Partners") substantially all of our rights to certain technology that includes
Cereport and then entered into an agreement with Clinical Partners under which
we perform research and development of Cereport. 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 Clinical Partners was
insufficient to complete clinical trials and apply for
14
<PAGE> 15
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 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 significant charges 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.
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.
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 biotechnology and
pharmaceutical industries; and the development by competitors of technologically
improved or different products may make our product candidates obsolete or
noncompetitive.
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:
15
<PAGE> 16
- 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.
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
16
<PAGE> 17
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 agreements 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 disclosed to or independently developed by a competitor,
our business and financial condition could be materially 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 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 are 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, particularly products developed for our own account, we must either
develop a marketing and sales force or contract with another party (including
collaborators) 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 to sell our
products.
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 and the commercial sale of
our products in the amount of up to $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 and we begin commercial sales, this coverage may be
inadequate; and we
17
<PAGE> 18
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 adversely affected by a product liability claim.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL
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 our business.
WE MAY ENCOUNTER DIFFICULTIES INTEGRATING FUTURE ACQUISITIONS
As part of our business strategy we may acquire novel technologies or
compounds through acquisitions. Although no current acquisition is planned, we
cannot assure you that any such future acquisition will be successfully
integrated with our current businesses, will achieve revenues or will be
profitable. We may have difficulty assimilating the operations, technology and
personnel of any acquired businesses.
If we make significant acquisitions for stock consideration, the common
stock issuable upon conversion of the notes may be significantly diluted. If we
make significant acquisitions for cash consideration, we may be required to use
a substantial portion of our available cash.
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. As of December 31, 1999, we had outstanding
2,303,500 shares of convertible preferred stock in two separate series. We must
pay cash dividends to the holders of the convertible preferred stock, and any
dividends that we do not pay will accrue and remain owing to the holders of the
convertible preferred stock but will not bear interest. We must pay the
accumulated, unpaid dividends on 2,300,000 shares of the convertible preferred
stock before we can declare or pay cash dividends on the common stock.
WE MAY 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 current holders of our common stock, which
may adversely affect the market price of the common stock. In addition, we must
issue 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.
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<PAGE> 19
Convertible preferred stock
We may exchange our $3.25 convertible exchangeable preferred stock (the
"$3.25 preferred stock") in whole for debentures, but have no current plans to
do so. Any holder of shares of our $3.25 preferred stock, or the debentures for
which they 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 issuable upon conversion under the Securities Act of 1933. Each
share of our $3.25 preferred stock is currently convertible into 1.6878 shares
of common stock for a total of 3,881,940 shares of common stock. We are
currently considering various alternatives designed to effect an early
conversion of our $3.25 preferred stock into common stock. We have not reached
any conclusions on whether we will proceed with any of these alternatives.
The holder of our 1999 redeemable convertible exchangeable preferred
stock (the "1999 preferred stock") may convert its shares into common stock (and
non-voting common stock which is convertible into common stock) during any
period that the closing price of our common stock is above $45 per share for at
least ten consecutive trading days. On February 15, 2000, the holder gave us
notice of its intent to convert the 1999 preferred stock. We may redeem all or a
portion of the shares of our 1999 preferred stock for cash or common stock (and
non-voting common stock which is convertible into common stock). We are
obligated to register for resale all shares of common stock after conversion or
redemption for common stock under the Securities Act of 1933. Each share of our
1999 preferred stock is convertible into shares of common stock based on an
average of the closing price of our common stock over a ten-day period.
Convertible note held by Schering
In October 1998, we issued a promissory note in the principal amount of
approximately $6.0 million to Schering Corporation. We have the option to pay in
cash or convert the amount due on this note into our common stock. If we convert
the amount due into common stock, we may need to register the common stock under
the Securities Act of 1933. This note is due in October 2001.
Stock options and awards; warrants
At December 31, 1999, we were obligated to issue the following shares
of common stock under the circumstances described:
- 4,465,511 shares upon the exercise of stock options and
vesting of stock awards; and
- 528,717 shares upon the exercise of warrants.
The warrants expire in March and April 2000. We have already registered
these shares under the Securities Act of 1933.
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:
19
<PAGE> 20
- 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;
- success of research and development programs;
- 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 and bylaws also contain certain
provisions that could have a similar effect. The articles 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 such preferred stock could make it more difficult for
a third party to acquire us.
THE NOTES ARE UNSECURED AND, IN THE EVENT OF OUR INSOLVENCY, LIQUIDATION OR
SIMILAR EVENT, WE MUST PAY IN FULL OUR SENIOR INDEBTEDNESS BEFORE WE CAN MAKE
ANY PAYMENTS ON THE NOTES
The notes are unsecured and subordinated to our existing and future
senior indebtedness. In the event of our insolvency, liquidation, reorganization
or payment default on senior indebtedness, we will not be able to make payments
on the notes until we have paid in full all of our senior indebtedness. We may,
therefore, not have sufficient assets to pay the amounts due on the notes.
Neither we nor our subsidiaries are prohibited from incurring debt under the
indenture for the notes, including debt senior to, on a parity with or
subordinate to the notes. If we incur additional debt, our ability to pay
amounts due on the notes could be adversely affected. As of December 31, 1999,
if the notes had been issued, we would have had approximately $34.1 million of
senior indebtedness. We may also incur additional debt in the future. In
addition, under our senior indebtedness we must maintain minimum levels of
unencumbered cash balances, consolidated capital base and liquidity ratios,
which could further limit our ability to pay the amounts due on the notes.
WE MAY BE REQUIRED TO REPURCHASE THE NOTES UPON A REPURCHASE EVENT
You may require us to repurchase all or any portion of your notes upon
a repurchase event. We may not have sufficient cash funds to repurchase the
notes upon a repurchase event. We may elect, subject to certain conditions, to
pay the repurchase price in common stock. Certain of our existing debt
agreements, as well as future debt agreements, may prohibit us from paying the
repurchase price in either cash or common stock. If we are prohibited from
repurchasing the notes, we could seek consent from our lenders to repurchase the
notes. If we are unable to obtain their consent, we could attempt to refinance
the notes. If we were unable to obtain a consent or refinance, we would be
prohibited from repurchasing the notes. If we were unable to repurchase the
notes upon a repurchase event, it would result in an event of default under the
indenture. An event of default under the indenture could result in a further
event of default under our other then-existing debt. In addition, the occurrence
of the repurchase event may be an
20
<PAGE> 21
event of default under our other debt. As a result, we would be prohibited from
paying amounts due on the notes under the subordination provisions of the
indenture.
WE SUBSTANTIALLY INCREASED OUR INDEBTEDNESS
As a result of the sale of the notes by us to the initial purchasers in
February 2000, we incurred $200.0 million of additional indebtedness, increasing
our ratio of debt to equity (expressed as a percentage) from approximately 20.7%
to approximately 143.5% as of December 31, 1999, on a pro forma basis giving
effect to the sale of the notes. If the initial purchasers exercise their option
to purchase an additional $50 million principal amount of the notes, our ratio
of debt to equity (expressed as a percentage) will increase to approximately
174.2% as of December 31, 1999, on a pro forma basis giving effect to the sale
of all of the notes. Our other indebtedness is principally comprised of bank
financing. We may incur substantial additional indebtedness in the future. The
level of our indebtedness, among other things, could
- make it difficult for us to make payments on the notes;
- make it difficult for us to obtain any necessary financing in
the future for working capital, capital expenditures, debt
service requirements or other purposes;
- limit our flexibility in planning for, or reacting to changes
in, our business; and
- make us more vulnerable in the event of a downturn in our
business.
We cannot assure you that we will be able to meet our debt service obligations,
including our obligations under the notes.
THE LIMITED MARKET FOR THE NOTES MAY LIMIT YOUR ABILITY TO SELL YOUR HOLDINGS
The notes are a new issue of securities for which there is currently no
public market. The notes have been approved for trading on the Portal Market. We
cannot be sure that a liquid trading market in the notes will develop. We are
not obligated to list the notes on the Nasdaq National Market System or on a
national securities exchange and we do not intend to do so. We cannot be sure
that a market in the notes will develop.
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<PAGE> 22
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the securities
covered by 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. For a discussion of dividends payable on our outstanding
preferred stock, see "Description of Capital Stock -- Description of Preferred
Stock."
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED MARCH 31, ENDED
--------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges and preferred stock
dividends (1) .............. -- -- -- -- -- --
</TABLE>
- ----------------------------
(1) For the fiscal years ended March 31, 1995, 1996, 1997, 1998 and 1999 and
for the nine months ended December 31, 1999, earnings were insufficient to cover
fixed charges by $10,519,000, $11,971,000, $16,414,000, $9,868,000, $30,034,000
and $29,729,000, respectively. For this reason, no ratios are provided.
22
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents our selected consolidated financial information
for each of the years ended March 31, 1995, 1996, 1997, 1998 and 1999, which
have been derived from our Consolidated Financial Statements. The selected data
for each of the nine month periods ended December 31, 1998 and 1999, which have
been derived from our Consolidated Financial Statements, reflect in the opinion
of our management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for such periods.
The selected consolidated financial information prior to February 1, 1999 gives
retroactive effect to the acquisition of Advanced Inhalation Research, Inc.
("AIR") on February 1, 1999, which was accounted for as a pooling of interests.
The results for the nine month period ended December 31, 1999 are not
necessarily indicative of results for the full year. The selected financial data
should be read in conjunction with our Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our SEC filings incorporated by reference in this prospectus. See
"Incorporation of Information We File with the SEC."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(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 .................... $ 3,049 $ 2,849 $ 15,969 $ 25,585 $ 33,892 $ 29,457 $ 17,137
Research and development revenue
under collaborative arrangement
with related party .............. 9,277 11,183 1,415 -- -- -- --
Interest income ................... 1,577 1,887 2,443 5,782 9,824 7,565 7,424
-------- -------- -------- -------- -------- -------- --------
Total revenues .................... 13,903 15,919 19,827 31,367 43,716 37,022 24,561
Research and development expenses.. 18,955 21,586 29,554 31,762 48,457 34,804 39,323
Net loss .......................... (11,904) (13,747) (18,798) (12,582) (41,057) (25,803) (39,920)
Preferred stock dividends ......... -- -- -- -- 7,454 5,586 6,846
-------- -------- -------- -------- -------- -------- --------
Net loss attributable to common
shareholders .................... $(11,904) $(13,747) $(18,798) $(12,582) $(48,511) $(31,389) $(46,766)
======== ======== ======== ======== ======== ======== ========
Basic and diluted loss per common
share ........................... $ (0.88) $ (0.93) $ (1.03) $ (0.55) $ (1.98) $ (1.28) $ (1.85)
======== ======== ======== ======== ======== ======== ========
Weighted average number of common
shares .......................... 13,535 14,775 18,288 23,019 24,558 24,611 25,221
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
---------------------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents and
short-term investments .... $ 21,351 $ 32,374 $ 85,297 $ 194,257 $ 163,419 $ 152,550
Total assets ................ 36,708 45,752 104,697 220,977 213,452 213,045
Long-term debt, less current
portion ................... 8,376 9,876 10,914 12,933 28,417 24,142
Accumulated deficit ......... (87,300) (101,047) (119,844) (132,427) (180,937) (227,704)
Shareholders' equity ........ 21,163 23,513 79,151 181,455 156,206 162,823
</TABLE>
23
<PAGE> 24
DESCRIPTION OF NOTES
We issued the notes under an indenture dated as of February 18, 2000,
between us and State Street Bank & Trust Company, as trustee, and are
registering the resale of the notes and the common stock underlying the notes on
the registration statement of which this prospectus is a part, pursuant to a
registration rights agreement with the initial purchasers. The following
summarizes some, but not all, of the provisions of the notes, the indenture and
the registration rights agreement. You should refer to the actual terms of the
notes, the indenture and the registration rights agreement for the definitive
terms and conditions. As used in this description, the words "we," "us" or "our"
do not include any current or future subsidiary of Alkermes.
GENERAL
The notes are unsecured general obligations that are subordinate in
right of payment as described under "Subordination." The notes are convertible
into common stock as described under "Conversion by Holders." The aggregate
principal amount of the notes is limited to $250,000,000. The notes are issued
in fully registered form and denominated in integral multiples of $1,000. The
notes will mature on February 15, 2007 unless earlier converted, redeemed or
repurchased.
The notes bear interest at the annual rate shown on the cover page of
this prospectus. Interest will be paid on each February 15 and August 15 of each
year, beginning August 15, 2000, subject to limited exceptions if the notes are
converted, redeemed or repurchased prior to the applicable interest payment
date. The record dates for payment of interest will be February 1 and August 1.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months.
We will maintain an office in the Borough of Manhattan in New York, New
York where the notes may be presented for registration, transfer, exchange or
conversion. Initially, this will be an office or agency of the trustee. We may,
at our option, pay interest on the notes by check mailed to the registered
holders of notes. However, holders of more than $2,000,000 in principal amount
of notes may elect in writing to be paid by wire transfer; provided that any
payment to The Depository Trust Company ("DTC") or its nominee will be made by
wire transfer of immediately available funds to the account of DTC or its
nominee.
We are not restricted from paying dividends or repurchasing securities
or incurring indebtedness under the indenture. The indenture has no financial
covenants. You are not protected in the event of a highly leveraged transaction
or a change in control of Alkermes except as described under "Repurchase at
Option of Holders upon a Repurchase Event" below.
You will not be required to pay a service charge for registration or
transfer of your notes. We may, however, require you to pay any tax or other
governmental charge in connection with the transfer. We are not required to
exchange or register the transfer of:
- any note for a period of 15 days before selection for
redemption;
- any note or portion selected for redemption;
- any note or portion surrendered for conversion; or
- any note or portion surrendered for repurchase but not
withdrawn in connection with a repurchase event.
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<PAGE> 25
FORM, DENOMINATION AND REGISTRATION
Global Security; Book-Entry Form
The notes are evidenced by a global security initially deposited with
DTC, and registered in the name of Cede & Co. ("Cede") as DTC's partnership
nominee. Except as set forth below, the global security may be transferred only
to another nominee of DTC or to a successor of DTC or its nominee.
Qualified institutional buyers, as defined in Rule 144A under the
Securities Act of 1933, may hold their interests in the global security directly
through DTC or indirectly through organizations which are participants in DTC
("participants"). Transfers between participants will be affected in the
ordinary way in accordance with DTC rules and will be settled in clearinghouse
funds. The laws of some states require that some persons take physical delivery
of securities in definitive form. As a result, you may be unable to transfer
beneficial interests in the global security to those persons.
Holders that are not participants may beneficially own interests in the
global security held by DTC only through participants or banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants"). So long as Cede, as the nominee of DTC, is the
registered owner of the global security, Cede will be considered the sole holder
of the global security for all purposes. Except as provided below, owners of
beneficial interests in the global security will not:
- be entitled to have certificates registered in their names;
- be entitled to receive physical delivery of certificates in
definitive form; or
- be considered the registered holders thereof.
We will make cash payments of interest on and principal of and the
redemption or repurchase price of the global security to Cede, the nominee for
DTC as the registered holder of the global security. We will make these payments
by wire transfer of immediately available funds. Neither we, the trustee nor any
paying agent will have any responsibility or liability for:
- any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the global
security; or
- maintaining, supervising or reviewing any records relating to
those beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global security
as shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on the payment date. Payments by participants to owners of
beneficial interests in notes represented by the global security held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in "street
name."
We will send any redemption notices to Cede. We understand that if less
than all of the notes are being redeemed, DTC's practice is to determine by lot
the amount of the holdings of each participant to be redeemed.
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<PAGE> 26
We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an "omnibus proxy" to us as soon as possible after the record date.
The omnibus proxy assigns Cede's consenting or voting rights to those
participants to whose accounts the notes are credited on the record date
identified in a listing attached to the omnibus proxy.
A person having a beneficial interest in notes represented by the
global security may be unable to pledge that interest to persons or entities
that do not participate in the DTC system, or to take other actions in respect
of that interest, because that beneficial interest is not represented by a
physical certificate.
We and the trustee have no responsibility for the performance by DTC,
its participants and its indirect participants, of their respective obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of notes,
including the presentation of notes for conversion as described below, only at
the direction of one or more participants whose DTC accounts are credited with
interests in the global security and only in respect of the principal amount of
the notes represented by the global security as to which those participants have
given such a direction.
DTC has advised us as follows:
- DTC is a limited purpose trust company organized under the
laws of the State of New York;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes to accounts of its
participants. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include other types of
organizations. Some of the participants, together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC is under no obligation to perform or continue to perform the above
procedures, and these procedures may be discontinued at any time. If DTC is at
any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by us within 90 days, we will cause notes to be
issued in definitive form in exchange for the global security.
Certificated Notes
Qualified institutional buyers may request that certificated notes be
issued in exchange for notes represented by the global security. In addition,
certificated notes may be issued in exchange for notes represented by the global
security if no successor depositary is appointed by us as set forth in the
preceding paragraph.
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<PAGE> 27
Restrictions on Transfer; Legends
Prior to resale pursuant to this prospectus, the notes will bear a
restrictive legend upon issuance as described in the indenture.
CONVERSION BY HOLDERS
If you purchase the notes, you may, at your option, convert your notes,
in whole or in part, at any time prior to maturity into our common stock at an
initial conversion price of $135.50 per share. You may convert notes in
denominations of $1,000 and multiples of $1,000. The conversion price is subject
to adjustment as described below. If the notes are called for redemption, your
conversion rights on the notes called for redemption will expire at the close of
business of the last business day before the redemption date, unless we default
in payment of the redemption price. If you have submitted your notes for
repurchase after a repurchase event, you may only convert your notes if you
deliver a withdrawal notice before the close of business on the last business
day before the repurchase date.
Except as described below, we will not make any adjustment for accrued
interest or dividends on common stock upon conversion of the notes. If you
convert your notes after a record date and prior to the next interest payment,
you will have to pay us interest, unless the notes have been called for
redemption under the indenture. We will pay a cash adjustment for any fractional
shares based on the market price of our common stock on the last business day
before the conversion date.
You can convert your notes by delivering the notes to an office or
agency of the Trustee in the Borough of Manhattan, The City of New York, along
with a duly signed and completed notice of conversion, a form of which may be
obtained from the trustee. In the case of a global security, DTC will effect the
conversion upon notice from the holder of a beneficial interest in the global
security in accordance with DTC's rules and procedures. See the description of
DTC's procedures under "Form, Denomination and Registration." The conversion
date will be the date on which the notes and the duly signed and completed
notice of conversion are delivered. As promptly as practicable on or after the
conversion date, but no later than three business days after the conversion
date, we will issue and deliver to the conversion agent certificates for the
number of full shares of common stock issuable upon conversion, together with
any cash payment for fractional shares. In the event we fail to convert your
notes into common stock in accordance with the terms of the indenture, you may
bring an action to enforce your right to convert.
If you deliver a note for conversion, you will not be required to pay
any taxes or duties for the issue or delivery of common stock on conversion.
However, we will not pay any transfer tax or duty payable as a result of the
issuance or delivery of the common stock in a name other than that of the holder
of the note. We will not issue or deliver common stock certificates unless we
have been paid the amount of any transfer tax or duty or we have been provided
satisfactory evidence that the transfer tax or duty has been paid.
The conversion price of $135.50 per share will be adjusted if:
1. we dividend or distribute shares of our common stock to our
common stock holders;
2. we split, subdivide or combine our common stock;
3. we issue rights or warrants to all holders of our common stock
to purchase common stock at less than the current market price;
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<PAGE> 28
4. we dividend or distribute to all holders of our common stock
capital stock or evidences of indebtedness or assets, but
excluding:
- dividends, distributions and rights or warrants
referred to in (3) above or to be exercised in
connection with certain trigger events;
- dividends and distributions paid exclusively in cash
or paid in connection with our liquidation,
dissolution or winding up; or
- capital stock, evidence of indebtedness, cash or
assets distributed in a merger or consolidation.
5. we make a dividend or distribution consisting exclusively of
cash to all holders of common stock if the aggregate amount of
these distributions combined together with (A) all other all-cash
distributions made within the preceding 12 months in respect of
which we made no adjustment plus (B) any cash and the fair market
value of other consideration payable in any tender offers by us or
any of our subsidiaries for common stock concluded within the
preceding 12 months in respect for which we made no adjustment,
exceeds 10% of our market capitalization, being the product of the
then current market price of the common stock multiplied by the
number of shares of our common stock then outstanding;
6. the purchase of common stock pursuant to a tender offer made by
us or any of our subsidiaries involves an aggregate consideration
that, together with (A) any cash and the fair market value of any
other consideration payable in any other tender offer by us or any
of our subsidiaries for common stock expiring within the 12 months
preceding such tender offer plus (B) the aggregate amount of any
such all-cash distributions referred to in (5) above to all
holders of common stock within the 12 months preceding the
expiration of the tender offer for which we have made no
adjustment, exceeds 10% of our market capitalization on the
expiration of such tender offer; or
7. payment on tender offers or exchange offers by a third party
other than Alkermes or our subsidiaries if, as of the closing date
of the offer, our board of directors does not recommend rejection
of the offer. We will only make this adjustment if a tender offer
increases the person's ownership to more than 25% of our
outstanding common stock and the payment per share is greater than
the current market price of the common stock. We will not make
this adjustment if the tender offer is a merger or transaction
described below under "-- Consolidation, Merger or Transfer of
Assets."
If we implement a stockholders' rights plan, we will be required under
the indenture to provide that the holders of notes will receive the rights upon
conversion of the notes, whether or not these rights were separated from the
common stock prior to conversion.
If we reclassify our common stock, consolidate, merge or combine with
another person or sell or convey our property and assets as an entirety or
substantially as an entirety, each note then outstanding will, without the
consent of the holder of any note, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, combination, sale or conveyance by a
holder of the number of shares of common stock into which the note was
convertible immediately prior to the reclassification, consolidation, merger,
combination, sale or conveyance. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of
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<PAGE> 29
consideration. The adjustment will not be made for a consolidation, merger or
combination that does not result in any reclassification, conversion, exchange
or cancellation of our common stock.
You may, in some circumstances, be deemed to have received a
distribution or dividend subject to United States federal income tax as a result
of an adjustment (or the nonoccurrence of an adjustment) to the conversion
price. See "United States Federal Income Tax Considerations."
We are permitted to reduce the conversion price of the notes for
limited periods of time, if our board of directors deems it advisable. Any such
reduction shall be effective for not less than 20 days. We are required to give
at least 15 days' prior notice of any such reduction. We may also reduce the
conversion price to avoid or diminish income tax to holders of our common stock
in connection with a dividend or distribution of stock or similar event.
No adjustment in the conversion price will be required unless it would
result in a change in the conversion price of at least one percent. Any
adjustment not made will be taken into account in subsequent adjustments.
PROVISIONAL REDEMPTION
We may redeem some or all of the notes at any time prior to February
19, 2003, at a redemption price equal to $1,000 per note plus accrued and unpaid
interest to the redemption date if (1) the closing price of our common stock has
exceeded 200% of the conversion price for at least 20 trading days in the
consecutive 30-trading day period ending on the trading day immediately prior to
the mailing of the notice of redemption and (2) the shelf registration statement
covering resales of the notes and the common stock is effective and expected to
remain effective and available for use for the 30 days following the redemption
date.
If we redeem some or all of the notes prior to February 15, 2001, we
will also make an additional payment on the redeemed notes equal to one year of
interest per $1,000 note, minus the amount of any interest we actually paid on
the notes prior to the date we mailed the notice. We must make these additional
payments on all notes called for redemption, including notes converted after the
date we mailed the notice.
OPTIONAL REDEMPTION
At any time on or after February 19, 2003, we may redeem some or all of
the notes, at our option, at the redemption prices specified below. The
redemption price, expressed as a percentage of the principal amount, is as
follows for the 12-month periods beginning on February 15 of the year indicated
(February 19, 2003 through February 14, 2004, in the case of the first such
period):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
<S> <C>
2003....................................................................................102.14%
2004....................................................................................101.61&
2005....................................................................................101.07%
2006....................................................................................100.54%
</TABLE>
and 100% of the principal amount on February 15, 2007. In each case we will also
pay accrued and unpaid interest to, but excluding, the redemption date. If the
redemption date is an interest payment date, we will pay interest to the record
holders as of the relevant record date. We are required to give notice of
redemption not more than 60 and not less than 30 days before the redemption date
under the indenture.
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<PAGE> 30
No sinking fund is provided for the notes, which means that the
indenture does not require us to redeem or retire the notes periodically. We may
not redeem the notes if there is a default under the indenture. See "Events of
Default and Remedies."
REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT
If a repurchase event occurs, you will have the right, at your option,
to require us to repurchase all or any portion of your notes 40 days after we
mail holders a notice of repurchase event. The repurchase price we are required
to pay will be 105% of the principal amount of the notes submitted for
repurchase, plus accrued and unpaid interest to, but excluding, the repurchase
date. If a repurchase date is an interest payment date, we will pay to the
record holder on the record date.
At our option, instead of paying the repurchase price in cash, we may
pay the repurchase price in common stock, valued at 95% of the average of the
closing prices for the five trading days immediately before and including the
third trading day preceding the repurchase date. We may only pay the repurchase
price in common stock if we satisfy conditions provided in the indenture.
A repurchase event will be considered to have occurred if:
1. our common stock or other common stock into which the notes
are convertible is neither listed for trading on a United
States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in
the United States, or
2. one of the following "change in control" events occurs:
- any person or group becomes the beneficial owner of
more than 50% of the voting power of our outstanding
securities entitled to generally vote for directors;
- our stockholders approve any plan or proposal for
our liquidation, dissolution or winding up;
- we consolidate with or merge into any other
corporation or any other corporation merges into us
and, as a result, our outstanding common stock is
changed or exchanged for other assets or securities
unless our shareholders immediately before the
transaction own, directly or indirectly, immediately
following the transaction at least 51% of the
combined voting power of the corporation resulting
from the transaction in substantially the same
proportion as their ownership of our voting stock
immediately before the transaction;
- we convey, transfer or lease all or substantially
all of our assets to any person; or
- the continuing directors do not constitute a
majority of our board of directors at any time.
However, a change in control will not be deemed to have
occurred if:
- the last sale price of our common stock for any five
trading days during the 10 trading days immediately
before the change in control is equal to at least
105% of the conversion price, or
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- all of the consideration, excluding cash payments for
fractional shares in the transaction constituting the
change in control, consists of common stock traded on
a United States national securities exchange or
quoted on the Nasdaq National Market, and as a result
of the transaction the notes become convertible
solely into that common stock.
The term "continuing director" means at any date a member of
our board of directors:
- who was a member of our board of directors on
December 31, 1999; or
- who was nominated or elected by at least a majority
of the directors who were continuing directors at the
time of the nomination or election or whose election
to our board of directors was recommended by at least
a majority of the directors who were continuing
directors at the time of the nomination or election
or by the nominating committee comprised of our
independent directors.
Under the above definition of continuing director, if the current board
of directors approved a new director or directors and then resigned, no change
in control would occur. The interpretation of the phrase "all or substantially
all" used in the definition of change in control would likely depend on the
facts and circumstances existing at such time. As a result, there may be
uncertainty as to whether or not a sale or transfer of "all or substantially
all" of our assets has occurred.
We will be required to mail you a notice within 15 days after the
occurrence of a repurchase event. The notice must describe, among other things,
the repurchase event, your right to elect repurchase of the notes and the
repurchase date. We must deliver a copy of the notice to the trustee and cause a
copy, or a summary of the notice, to be published in a newspaper of general
circulation in New York, New York. You may exercise your repurchase rights by
delivering written notice to us and the trustee. The notice must be accompanied
by the notes duly endorsed for transfer to us. You must deliver the exercise
notice on or before the close of business on the thirty-fifth calendar day after
the mailing date of the repurchase notice.
You may require us to repurchase all or any portion of your notes upon
a repurchase event. We may not have sufficient cash funds to repurchase the
notes upon a repurchase event. We may elect, subject to certain conditions, to
pay the repurchase price in common stock. Certain of our existing debt
agreements, as well as future debt agreements, may prohibit us from paying the
repurchase price in either cash or common stock. If we are prohibited from
repurchasing the notes, we could seek consent from our lenders to repurchase the
notes. If we are unable to obtain their consent, we could attempt to refinance
the notes. If we were unable to obtain a consent or refinance, we would be
prohibited from repurchasing the notes. If we were unable to repurchase the
notes upon a repurchase event, it would result in an event of default under the
indenture. An event of default under the indenture could result in a further
event of default under our other then-existing debt. In addition, the occurrence
of the repurchase event may be an event of default under our other debt. As a
result, we would be prohibited from paying amounts due on the notes under the
subordination provisions of the indenture.
The change in control feature may not necessarily afford you protection
in the event of a highly leveraged transaction, a change in control or similar
transactions involving us. We could, in the future, enter into transactions,
including recapitalizations, that would not constitute a change in control but
that would increase the amount of our senior indebtedness or other debt. We are
not prohibited from incurring senior indebtedness or debt under the indenture.
If we incur significant amounts of additional debt, this could have an adverse
effect on our ability to make payments on the notes.
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<PAGE> 32
In addition, our management could undertake leveraged transactions that
could constitute a change in control. The Board of Directors does not have the
right under the indenture to limit or waive the repurchase right in the event of
these types of leveraged transaction. Our requirement to repurchase notes upon a
repurchase event could delay, defer or prevent a change of control. As a result,
the repurchase right may discourage:
- a merger, consolidation or tender offer;
- the assumption of control by a holder of a large
block of our shares; and
- the removal of incumbent management.
The repurchase feature was a result of negotiations between us and the
initial purchasers in the initial private placement. The repurchase feature is
not the result of any specific effort to accumulate shares of common stock or to
obtain control of us by means of a merger, tender offer or solicitation, or part
of a plan by us to adopt a series of anti-takeover provisions. We have no
present intention to engage in a transaction involving a change of control,
although it is possible that we would decide to do so in the future.
The Securities Exchange Act and the SEC rules thereunder require the
distribution of specific types of information to security holders in the event
of issuer tender offers. These rules may apply in the event of a repurchase. We
will comply with these rules to the extent applicable.
SUBORDINATION
The notes are unsecured and subordinated to the prior payment in full
of all existing and future senior indebtedness as provided in the indenture.
Upon any distribution of our assets upon our dissolution, winding up,
liquidation or reorganization, payments on the notes will be subordinated to the
prior payment in full of all senior indebtedness. If the notes are accelerated
following an event of default under the indenture, the holders of any senior
indebtedness will be entitled to payment in full before the holders of the notes
are entitled to receive any payment on the notes.
We may not make any payments on the notes if:
- we default in the payment on senior indebtedness
beyond any grace period; or
- any other default occurs and is continuing under any
designated senior indebtedness that permits holders
of the designated senior indebtedness to accelerate
its maturity, and we and the trustee receive a
notice known as a payment blockage notice from a
person permitted to give this notice under the
indenture.
We may resume making payments on the notes:
- in the case of a payment default, when the default
is cured or waived or ceases to exist; and
- in the case of a nonpayment default, the earlier of
when the default is cured or waived or ceases to
exist or 179 days after receipt of the payment
blockage notice.
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<PAGE> 33
No new period of payment blockage may be commenced unless:
- 365 days have elapsed since our receipt of the prior
payment blockage notice; and
- all scheduled payments on the notes have been paid
in full, or the trustee or the holders of notes
shall not have begun proceedings to enforce the
right of the holders to receive payments.
No default that existed on any senior indebtedness on the date of
delivery of any payment blockage notice may be the basis for a subsequent
payment blockage notice.
The term "senior indebtedness" means the principal, premium, if any,
and interest on, including bankruptcy interest, and any other payment on the
following current or future incurred:
- indebtedness for money borrowed or evidenced by
notes, debentures, bonds or other securities;
- reimbursement obligations under letters of credit,
bank guarantees or bankers' acceptances;
- indebtedness under interest rate and currency swap
agreements, cap, floor and collar agreements,
currency spot and forward contracts and other
similar agreements and arrangements;
- indebtedness consisting of commitment or standby
fees under our credit facilities or letters of
credit;
- obligations under leases required or permitted to be
capitalized under generally accepted accounting
principles;
- obligations of the type listed above that have been
assumed or guaranteed by us or in effect guaranteed,
directly or indirectly, by us through an agreement
to purchase; and
- any amendment, modification, renewal, extension,
refunding or deferral of any indebtedness or
obligation of type listed in the bullet points
above.
Senior indebtedness will not include:
- any indebtedness or amendment or modification that
expressly provides that it is subordinate to or is
not senior to or is on the same basis as the notes;
- any indebtedness to any subsidiary;
- indebtedness for trade payables or the deferred
purchase price of assets or services incurred in the
ordinary course of business; or
- the notes.
If the trustee or any holder of the notes receives any payment or
distribution of our assets of any kind on the notes in contravention of any of
the terms of the indenture, then such payment or distribution will be held by
the recipient in trust for the benefit of the holders of senior indebtedness,
and will be
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<PAGE> 34
immediately paid or delivered to the holders of senior indebtedness
or their representative or representatives.
In the event of our insolvency, liquidation, reorganization or payment
default on senior indebtedness, we will not be able to make payments on the
notes until we have paid in full all of our senior indebtedness. We may,
therefore, not have sufficient assets to pay the amounts due on the notes.
Neither we nor our subsidiaries are prohibited from incurring debt under the
indenture. If we incur additional debt, our ability to pay amounts due on the
notes could be adversely affected. As of December 31, 1999, if the notes had
been issued, we would have had approximately $34.1 million of senior
indebtedness. We may also incur additional debt in the future. The subordination
provisions will not prevent the occurrence of any default or event of default or
limit the rights of any holder of notes to pursue any other rights or remedies
with respect to the notes.
As a result of the subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings, holders of the notes may receive less than other creditors on a
ratable basis.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute "events of default" under the
indenture:
- we fail to pay the principal or premium, if any, on
any of the notes when due, whether or not prohibited
by the subordination provisions of the indenture;
- we fail to pay interest or liquidated damages on the
notes when due if such failure continues for 30
days, whether or not prohibited by the subordination
provisions of the indenture;
- we fail to perform any covenant in the indenture if
such failure continues for 45 days after notice is
given in accordance with the indenture;
- we fail to repurchase any notes after a repurchase
event;
- we fail to provide timely notice of a repurchase
event;
- we fail or any of our significant subsidiaries fail
to make any payment at maturity on any indebtedness,
including any applicable grace periods, in an amount
in excess of $7,500,000, and such amount has not
been paid or discharged within 30 days after notice
is given in accordance with the indenture;
- a default by us or any significant subsidiary on any
indebtedness that results in the acceleration of
indebtedness in an amount in excess of $7,500,000,
without this indebtedness being discharged or the
acceleration being rescinded or annulled for 30 days
after notice is given in accordance with the
indenture; or
- certain events involving bankruptcy, insolvency or
reorganization of us or any significant subsidiary.
The trustee is generally required under the indenture, within 90 days
after its becoming aware of a default, to provide holders written notice of all
incurred default. However, the trustee may, except in the
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case of a payment default on the notes, withhold this notice of default if it
determines that withholding the notice is in the best interest of the holders.
If an event of default has occurred and is continuing, the trustee or
the holders of not less than 25% in principal amount of outstanding notes, may
declare the principal and premium, if any, on the notes to be immediately due
and payable. After acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding notes may, under circumstances set forth in the indenture, rescind
the acceleration of the principal of and premium, if any, on the notes, other
than the payment of principal of the notes that has become due other than
because of the acceleration. If an event of default arising from events of
bankruptcy, insolvency or reorganization occurs and is continuing with respect
to us, all unpaid principal of and accrued interest on the outstanding notes
would become due and payable immediately without any declaration or other act on
the part of the trustee or holders of notes.
Holders of a majority in principal amount of outstanding notes may
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee, subject to specified limitations. Before exercising any right or power
under the indenture at the direction of the holders, the trustee will be
entitled to receive from such holders reasonable security or indemnity against
any costs, expenses and liabilities that it might incur as a result.
Before you may take any action to institute any proceeding relating to
the indenture, or to appoint a receiver or a trustee, or for any other remedy,
each of the following must occur:
- you must have given the trustee written notice of a
continuing event of default;
- the holders of at least 25% of the aggregate
principal amount of all outstanding notes must make
a written request of the trustee to take action
because of the default;
- holders must have offered reasonable indemnification
to the trustee against the cost, expenses and
liabilities of taking action; and
- the trustee must not have taken action for 60 days
after receipt of such notice and offer of
indemnification.
These limitations do not apply to a suit for the enforcement of payment
of the principal of or any premium or interest on a note or the right to convert
the note in accordance with the indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of outstanding notes may waive any default or event of default,
except if:
- we fail to pay the principal of, premium or interest
on any note when due;
- we fail to convert any note into common stock; or
- we fail to comply with any of the provisions of the
indenture that would require the consent of the
holder of each outstanding note affected.
We will send the trustee annually a statement as to whether we are in
default and the nature of any default under the indenture.
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CONSOLIDATION, MERGER OR TRANSFER OF ASSETS
We may not consolidate or merge into another person or sell, lease,
convey or transfer all or substantially all of our assets to another person,
whether in a single or series of related transactions, unless:
- either (A) we are the surviving entity, or (B) the
resulting entity is a U.S. corporation, limited
liability company, partnership or trust and
expressly assumes in writing all of our obligations
under the notes and the indenture;
- no default or event of default exists or would
occur; and
- other conditions specified in the indenture are
satisfied.
MODIFICATIONS OF THE INDENTURE
The consent of the holders of a majority in principal amount of the
outstanding notes affected is required to make a modification or amendment to
the indenture. However, a modification or amendment requires the consent of the
holder of each outstanding note affected if it would:
- extend the fixed maturity of any note;
- reduce the interest rate or extend the time of
payment of interest on any note;
- reduce the principal amount or any premium of any
note;
- reduce any amount payable upon redemption or
repurchase of any note;
- adversely change our obligation to repurchase any
note upon a repurchase event;
- adversely change the holder's right to institute
suit for the payment of any note;
- change the currency in which any note is payable;
- adversely modify the right to convert the notes;
- adversely modify the subordination provisions of the
notes; or
- change the percentage required to consent to
modifications and amendments.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding if:
- all notes will become due in one year or are
scheduled for redemption in one year; and
- we deposit sufficient funds to pay all outstanding
notes on their scheduled maturity or redemption
date.
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REGISTRATION RIGHTS GRANTED TO THE INITIAL PURCHASERS OF THE NOTES
We and the initial purchasers of the Notes entered into a registration
rights agreement on February 18, 2000. We are filing this registration statement
pursuant to our obligations under the registration rights agreement. Under the
registration rights agreement, we are required to:
- file, within 60 days after February 18, 2000, a
shelf registration statement covering the resale of
the notes and the common stock issuable upon
conversion of the notes;
- use our reasonable best efforts to cause the shelf
registration to be declared effective as promptly as
practicable; and
- use our best efforts to keep the shelf registration
statement effective until the earlier of the resale
of all the transfer restricted securities or two
years after the latest date of original issuance.
When we use the term "transfer restricted securities" in this section,
we mean the notes and the common stock issued upon conversion of the notes until
the earlier of the following events:
- the date the notes or common stock issued upon
conversion have been effectively registered under
the Securities Act and sold or transferred pursuant
to the shelf registration statement; or
- the date the notes or common stock issued upon
conversion are distributed to the public pursuant to
Rule 144 under the Securities Act or are saleable
pursuant to Rule 144(k) under the Securities Act; or
- the date the notes or common stock issued upon
conversion cease to be outstanding.
We will be required to pay predetermined liquidated damages if one of
the following "registration defaults" occurs:
- we do not file the shelf registration statement
within 60 days after February 18, 2000;
- the SEC does not declare the shelf registration
statement effective within 150 days after such date;
or
- after it has been declared effective and during the
period in which we are obligated to keep it
effective, the shelf registration statement ceases
to be effective or available for more than 90 days
in any period of 365 consecutive days.
If a registration default occurs, liquidated damages initially will
accrue (a) for the notes that are transfer restricted securities, at the rate of
$.05 per week per $1,000 principal amount of the notes and (b) for any common
stock issued on conversion of the notes that are transfer restricted securities,
at an equivalent rate based on the conversion price. If the registration default
has not been cured within 90 days, the liquidated damages rate will increase by
$.05 per week per $1,000 principal amount of the notes that are transfer
restricted securities (and an equivalent amount for any common stock issued upon
conversion of the notes that are transfer restricted securities) for each
subsequent continuing 90-day non-compliance period, up to a maximum rate of $.25
per week per $1,000 principal amount of the notes that are transfer restricted
securities (and an equivalent amount for any common stock issued upon conversion
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of the notes that are restricted securities). Liquidated damages generally will
be payable at the same time as interest payments on the notes.
We may suspend the use of this prospectus, which is a part of the shelf
registration statement, in certain circumstances described in the registration
rights agreement upon notice to the holders of the transfer restricted
securities. We will provide copies of this prospectus and notify registered
holders of notes and common stock issued upon conversion when the shelf
registration statement is filed and when it becomes effective.
We agreed to distribute a questionnaire to each holder to obtain
certain information regarding the holder for inclusion in this prospectus.
GOVERNING LAW
The notes, the indenture and the registration rights agreement are
governed by the laws of the State of New York, without regard to conflicts of
laws principles.
CONCERNING THE TRUSTEE
We have appointed the trustee as the initial paying agent, conversion
agent, registrar and custodian for the notes. We may maintain deposit accounts
and conduct other banking transactions with the trustee or its affiliates in the
ordinary course of business. In addition, the trustee and its affiliates may in
the future provide banking and other services to us in the ordinary course of
their business.
If the trustee becomes one of our creditors, the indenture and the
Trust Indenture Act of 1939 may limit the right of the trustee to obtain payment
on or realize on security for its claims. If the trustee develops any
conflicting interest with the holders of notes or us, it must eliminate the
conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Alkermes' authorized capital stock consists of 80,000,000 shares of
common stock, $.01 par value, 2,696,500 shares of capital stock, $.01 par value,
which have not been designated as to class or series, 2,300,000 shares of $3.25
convertible exchangeable preferred stock, $.01 par value (the "$3.25 preferred
stock"), and 3,500 shares of 1999 convertible exchangeable preferred stock, $.01
par value (the "1999 preferred stock"). As of December 31, 1999, there were
25,523,852 shares of common stock outstanding, 2,300,000 shares of the $3.25
preferred stock outstanding and 3,500 shares of the 1999 preferred stock
outstanding.
The following summary of the terms and provisions of our capital stock
does not purport to be complete and is qualified in its entirety by reference to
our amended and restated certificate of incorporation and bylaws.
DESCRIPTION OF COMMON STOCK
The majority of our authorized capital stock consists of common stock,
par value $.01 per share. The holders of common stock are entitled to one vote
for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferences applicable to any series or class of
capital stock with superior dividend rights that may be outstanding, holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. We have paid
no cash dividends on our common stock and do not anticipate paying cash
dividends on our common stock in the foreseeable future.
In the event of liquidation, dissolution or winding up of Alkermes,
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any series or
class of capital stock with superior liquidation rights that may be outstanding.
The outstanding shares of common stock are, and the common stock to be issued
upon conversion of the notes will be, fully paid and nonassessable. No
pre-emptive rights, conversion rights, redemption rights or sinking fund
provisions are applicable to the common stock.
The 1988 Pennsylvania Business Corporation Law ("1988 BCL") includes
certain shareholder protection provisions, which apply to us. The following is a
description of those provisions of the 1988 BCL that apply to us and that may
have an anti-takeover effect. This description of the 1988 BCL is only a summary
thereof, does not purport to be complete and is qualified in its entirety by
reference to the full text of the 1988 BCL.
(i) Upon a control-share acquisition (acquiring person
acquires or proposes to acquire 20%, 33 1/3% or 50% or more of the
voting power of our common stock) the 1988 BCL operates to suspend the
voting rights of the control shares (the newly acquired shares upon
such an acquisition, plus any shares acquired within 180 days of
exceeding a threshold) held by an acquiring person upon a control share
acquisition. The acquiring person can regain his right to vote such
control shares upon the approval of a majority of the outstanding
disinterested shares and a majority of all common stock.
(ii) The disgorgement provisions require a controlling person
(a person who acquired, offered to acquire or publicly disclosed the
intention of acquiring at least 20% of the voting power of Alkermes) to
disgorge "greenmail" profits, or profits realized from the disposition
of our securities within 18 months after becoming a controlling person
and the
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security was acquired by the controlling person within 24 months before
or 18 months after becoming a controlling person.
(iii) The control transaction provisions of the 1988 BCL allow
holders of voting shares of a corporation to "put" their stock to an
acquiror for fair value in the event of a control transaction (the
acquisition of 20% of voting power over our common stock). Fair value
is defined as not less than the highest price paid by the acquiror
during a certain 90 day period.
(iv) An interested shareholder (the beneficial owner of 20% of
the voting stock either of a corporation or of an affiliate of the
corporation who was at any time within the five-year period immediately
prior to the date in question the beneficial owner of 20% of the voting
stock of the corporation) cannot engage in a business combination with
the corporation for a period of five years unless: (a) the board
approves the business combination prior to the interested shareholder
becoming such or approves the acquisition of shares in advance, or (b)
if the interested shareholder owns 80% of such stock, the business
combination is approved by a majority of the disinterested shareholders
and the transaction satisfies certain "fair price" provisions. After
the five-year period, the same restrictions apply, unless the
transaction either is approved (a) by a majority of the disinterested
shareholders and satisfies the fair price provisions or (b) by all
shareholders.
(v) Corporations may adopt shareholders' rights plans with
discriminatory provisions (sometimes referred to as poison pills)
whereby options to acquire shares or corporate assets are created and
issued which contain terms that limit persons owning or offering to
acquire a specified percentage of outstanding shares from exercising,
converting, transferring or receiving options and allows the exercise
of options to be limited to shareholders or triggered based upon
control transactions. Such poison pills take effect only in the event
of a control transaction. Pursuant to the 1988 BCL, such poison pills
may be adopted by the Board without shareholder approval.
(vi) Shareholders of a corporation do not have a statutory
right to call special meetings of shareholders or to propose amendments
to the articles under the provisions of the 1988 BCL.
(vii) In discharging the duties of their respective positions,
the board of directors, committees of the board and individual
directors may, in considering the best interests of the corporation,
consider to the extent they deem appropriate, (i) the effects of any
action upon shareholders, employees, suppliers, customers and creditors
of the corporation and the community in which the corporation is
located, (ii) the short-term and long-term interests of the
corporation, including benefits that may accrue to the corporation from
its long-term plans and the possibility that these interests may be
best served by the continued independence of the corporation, (iii) the
resources, intent and conduct (past, stated and potential) of any
person seeking to acquire control of the corporation and (iv) all other
pertinent factors. Further, the board of directors, committees of the
board and individual directors are not required, in considering the
best interests of the corporation or the effects of any action, to
regard any corporate interest or the interests of any particular group
affected by such action as a dominant or controlling interest or
factor. The consideration of the foregoing factors shall not constitute
a violation of the applicable standard of care.
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DESCRIPTION OF PREFERRED STOCK
The Board of Directors has the authority, from time to time and without
further action by the shareholders, to divide its unissued capital stock into
one or more classes and one or more series within any class and to make
determinations of the designation and number of shares of any class or series
and determinations of the voting rights, preferences, limitations and special
rights, if any, of the shares of any class or series. The rights, preferences,
limitations and special rights of different classes of capital stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters.
$3.25 preferred stock
Holders of the $3.25 preferred stock are entitled to receive, when, as
and if declared by the Board of Directors, out of the funds of Alkermes legally
available therefor, cash dividends at an annual rate of $3.25 per share of $3.25
preferred stock, payable in equal quarterly installments on March 1, June 1,
September 1 and December 1, commencing June 1, 1998. Each share of $3.25
preferred stock is convertible at the option of the holder at any time into such
number of shares of common stock determined by dividing the liquidation
preference of the $3.25 preferred stock (currently $50 per share) by the
conversion rate (currently 1.6878). The $3.25 preferred stock is not subject to
any sinking fund or other obligation of Alkermes to redeem or retire the $3.25
preferred stock. Unless earlier converted, exchanged or redeemed by us, the
$3.25 preferred stock has a perpetual maturity. The $3.25 preferred stock is not
redeemable by us prior to March 6, 2001. At any time on or after that date the
shares of $3.25 preferred stock may be redeemed at our option, out of funds
legally available therefor. The $3.25 preferred stock is exchangeable in whole,
but not in part, at our option, for 6 1/2% Convertible Subordinated Debentures
on any dividend payment date beginning March 1, 1999 at the rate of $50
principal amount of debentures for each share of $3.25 preferred stock
outstanding at the time of exchange. We are currently considering various
alternatives designed to effect an early conversion of our $3.25 preferred stock
into common stock. We have not reached any conclusions on whether we will
proceed with any of these alternatives. The holders of the $3.25 preferred stock
have no voting rights except with respect to certain additional stock issuances
or as required by law. In exercising any such vote, each outstanding share of
$3.25 preferred stock will be entitled to one vote, excluding shares held by us
or any of our affiliates, which shares shall have no voting rights.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of Alkermes, before any distribution of assets is made to holders
of the common stock or any other stock of Alkermes ranking junior to the shares
of $3.25 preferred stock upon liquidation, dissolution or winding up, the
holders of $3.25 preferred stock shall receive a liquidation preference of $50
per share and shall be entitled to receive all accrued and unpaid dividends
through the date of distribution, and the holders of any class or series of
$3.25 preferred stock ranking on a parity with the $3.25 preferred stock as to
liquidation, dissolution or winding up shall be entitled to receive the full
respective liquidation preferences (including any premium) to which they are
entitled and shall receive all accrued and unpaid dividends with respect to
their respective shares through and including the date of distribution. If, upon
such a voluntary or involuntary liquidation, dissolution or winding up of
Alkermes, the assets of Alkermes are insufficient to pay in full the amounts
described above as payable with respect to the $3.25 preferred stock and any
class or series of preferred stock of Alkermes ranking on a parity with the
$3.25 preferred stock as to liquidation, dissolution or winding up, the holders
of the $3.25 preferred stock and of such other class or series of preferred
stock will share ratably in any such distributions of assets of Alkermes first
in proportion to their respective liquidation preferences until such preferences
are paid in full, and then in proportion to their respective amounts of accrued
but unpaid dividends. After payment of any such liquidation preference and
accrued dividends, the shares of $3.25 preferred stock will not be entitled to
any further participation in any distribution of assets by Alkermes. Neither the
sale of all or
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substantially all of the assets of Alkermes, nor the merger or
consolidation of Alkermes into or with any other corporation, nor any
liquidation, dissolution, winding up or reorganization of Alkermes immediately
followed by reincorporation of another corporation, will be deemed to be a
liquidation, dissolution or winding up of Alkermes.
1999 PREFERRED STOCK
Holders of the 1999 preferred stock are entitled to receive, when, as
and if declared by the Board of Directors, out of the funds of Alkermes legally
available therefor, cash dividends at a floating three-month LIBOR rate, payable
in quarterly installments on March 1, June 1, September 1 and December 1,
commencing June 1, 1999. If, during any given period, the closing price of the
common stock is above $45 per share for at least 10 consecutive trading days,
each share of 1999 preferred stock is convertible at the option of the holder
into shares of non-voting common stock or common stock determined by an
established formula. The 1999 preferred stock is not subject to any sinking
fund. Prior to January 1, 2009, we can redeem the 1999 preferred stock at the
redemption price of $10,000 per share plus accrued and unpaid dividends. We are
required to redeem the 1999 preferred stock on January 1, 2009. The 1999
preferred stock is exchangeable in whole, but not in part, at our option, for
redeemable convertible subordinated debentures on any dividend payment date
beginning June 1, 1999 at the rate of $10,000 principal amount of debentures for
each share of 1999 preferred stock outstanding at the time of exchange. The
holders of the 1999 preferred stock have no voting rights except with respect to
certain additional stock issuances or as required by law. In exercising any such
vote, each outstanding share of 1999 preferred stock will be entitled to one
vote, excluding shares held by us or any of our affiliates, which shares shall
have no voting rights.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of Alkermes, before any distribution of assets is made to holders
of the common stock or any other stock of Alkermes ranking junior to the shares
of 1999 preferred stock upon liquidation, dissolution or winding up, the holders
of 1999 preferred stock shall receive a liquidation preference of $10,000 per
share and shall be entitled to receive all accrued and unpaid dividends through
the date of distribution, and the holders of any class or series of 1999
preferred stock ranking on a parity with the 1999 preferred stock as to
liquidation, dissolution or winding up shall be entitled to receive the full
respective liquidation preferences (including any premium) to which they are
entitled and shall receive all accrued and unpaid dividends with respect to
their respective shares through and including the date of distribution. If, upon
such a voluntary or involuntary liquidation, dissolution or winding up of
Alkermes, the assets of Alkermes are insufficient to pay in full the amounts
described above as payable with respect to the 1999 preferred stock and any
class or series of preferred stock of Alkermes ranking on a parity with the 1999
preferred stock as to liquidation, dissolution or winding up, the holders of the
1999 preferred stock and of such other class or series of preferred stock will
share ratably in any such distributions of assets of Alkermes first in
proportion to their respective liquidation preferences until such preferences
are paid in full, and then in proportion to their respective amounts of accrued
but unpaid dividends. After payment of any such liquidation preference and
accrued dividends, the shares of 1999 preferred stock will not be entitled to
any further participation in any distribution of assets by Alkermes. Neither the
sale of all or substantially all of the assets of Alkermes, nor the merger or
consolidation of Alkermes into or with any other corporation, nor any
liquidation, dissolution, winding up or reorganization of Alkermes immediately
followed by reincorporation of another corporation, will be deemed to be a
liquidation, dissolution or winding up of Alkermes.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock and the $3.25
preferred stock is BankBoston, N.A.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal income tax
consequences of purchasing, owning and disposing of the notes and the common
stock into which you may convert the notes. This summary is not a complete
analysis of all the potential tax consequences that you may need to consider
before investing based on your particular circumstances.
This summary is based on the Internal Revenue Code, the applicable
Treasury regulations promulgated or proposed under the Internal Revenue Code,
judicial authority and administrative rulings. Any of these may change, possibly
on a retroactive basis.
This summary deals only with beneficial owners of notes or common stock
who acquire the notes in this offering and hold the notes or common stock as
"capital assets." It does not address tax consequences under any special tax
rules. Special rules may apply, for example, to banks, tax-exempt organizations,
pension funds, insurance companies, dealers in securities or foreign currencies,
persons participating in a hedging transaction or a "straddle" or "conversion
transaction," or persons that have a "functional currency" other than the U.S.
dollar. In addition, this discussion does not address the tax consequences to
non-U.S. holders. We have not sought any ruling from the IRS with respect to the
statements and conclusions in this summary. We cannot guarantee that the IRS
will agree with these statements and conclusions.
Before you invest in the notes, you should consult your own tax adviser
to determine how the United States federal income tax laws apply to your
particular situation and for information about any tax consequences arising
under other tax laws, such as United States federal estate tax laws and the laws
of any state, local or foreign taxing jurisdiction or under any applicable tax
treaty.
This summary applies to you if you are a U.S. holder. For purposes of
this discussion, the term "U.S. holder" means a beneficial owner of a note or
common stock that is for United States federal income tax purposes:
- a citizen or resident of the United States,
- a corporation or other entity created or organized
in or under the laws of the United States or any
political subdivision thereof, or
- an estate or trust, the income of which is subject
to United States federal income taxation regardless
of its source.
If a partnership holds notes or common stock, the tax treatment of a
partner will generally depend upon the status of the partner and upon the
activities of the partnership. Partners of partnerships holding notes or common
stock should consult their tax advisers.
PAYMENT OF INTEREST
You generally must include interest on the notes in your income as
ordinary income at the time you receive or accrue the interest based on your
method of accounting for United States federal income tax purposes. We must pay
liquidated damages to you in specified circumstances. According to Treasury
regulations, the possibility of liquidated damages being paid to you will not
affect the amount of interest income you recognize, in advance of the payment of
any liquidated damages, if there is only a remote chance as of the date the
notes were issued that you will receive liquidated damages. We believe that the
likelihood that we will pay liquidated damages is remote. Therefore, we do not
intend to treat the potential payment of liquidated damages as part of the yield
to maturity of any notes. If we pay you
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liquidated damages, however, you would treat the payments as interest income
when you receive them. Similarly, we intend to take the position that the
likelihood of a redemption or repurchase of the notes is remote, and likewise do
not intend to treat the possibility of any premium payable on a redemption or
repurchase as affecting the yield to maturity of any notes.
SALE, EXCHANGE OR REDEMPTION OF NOTES
You generally will recognize gain or loss on the sale, exchange (other
than a conversion) or redemption of notes equal to the difference between (1)
the amount of cash proceeds and the fair market value of any property you
receive on the sale, exchange or redemption (except any portion that is accrued
interest income, which is taxable as ordinary income) and (2) your adjusted tax
basis in the notes. Your adjusted tax basis generally will equal the cost of the
notes to you. Your gain or loss generally will be capital gain or loss. Capital
gain or loss will be long-term if you have held the notes for more than one year
and will be short-term if you have held the notes for one year or less.
Long-term capital gains for noncorporate taxpayers, including individuals, are
taxed at a maximum rate of 20%, and short-term capital gains at a maximum rate
of 39.6%. If you recognize capital loss, your deduction for the loss may be
limited. Corporate taxpayers pay a maximum regular tax rate of 35% on all net
capital gains and ordinary income.
CONVERSION OF NOTES
You generally will not recognize any income, gain or loss on the
conversion of notes into common stock, except for any cash you receive instead
of a fractional share of common stock as described below. Any gain so recognized
will generally be capital gain. Your tax basis in the common stock will be the
same as your adjusted tax basis in the notes at the time of conversion, reduced
by any basis attributable to fractional shares. For capital gains purposes, your
holding period for the common stock will generally include your holding period
for the notes you converted.
You should treat cash you receive instead of a fractional share of common
stock as a payment in exchange for the fractional share of common stock. This
will result in capital gain or loss (measured by the difference between the cash
you receive for the fractional share and your adjusted tax basis in the
fractional share).
DIVIDENDS ON COMMON STOCK
If we make a distribution on common stock (probably including any
liquidated damages), the distribution generally will be treated as a dividend
and taxed as ordinary income to the extent of our current and/or accumulated
earnings and profits. A distribution in excess of earnings and profits is
treated as a tax-free return of capital to the extent of your tax basis in the
common stock, on a share-by-share basis, and then as gain from the sale or
exchange of such stock.
A dividend to a corporate holder may qualify for a deduction of 70% of
the dividend received, subject to limitations in certain cases, if the holder
owns less than 20% of the voting power or value of our stock (disregarding
certain nonvoting, nonconvertible, nonparticipating preferred stock). A
corporate holder that owns 20% or more of the voting power and value of our
stock (similarly disregarding such preferred stock) generally will qualify for
an 80% dividends received deduction.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price of the notes may change under certain
circumstances. In such a case, you may be treated as having received a
constructive distribution whether or not your notes are ever converted. Such a
distribution will generally be deemed to occur if, and to the extent that, the
adjustment in the conversion price increases your proportionate interest in our
assets or earnings and profits. The
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constructive distribution may be taxed as ordinary income, subject to a possible
dividends received deduction if you are a corporate holder, to the extent of our
current and/or accumulated earnings and profits. For example, an adjustment to
reflect a taxable dividend to holders of common stock will result in a
constructive dividend. Holders who have converted their notes into common stock
will generally be treated as having received a constructive distribution if
there is not a full adjustment to the conversion price of the notes to reflect a
stock dividend or other event that would (absent such adjustment) increase the
proportionate interest of the common stockholders in our assets or earnings and
profits. In such an event, the constructive distribution will be taxable as
ordinary income, subject to a possible dividends received deduction if you are a
corporate holder, to the extent of our current and/or accumulated earnings and
profits.
SALE OF COMMON STOCK
On the sale or exchange of common stock, you generally will recognize
capital gain or loss equal to the difference between (1) the amount of cash and
the fair market value of any property you receive on the sale or exchange and
(2) your adjusted tax basis in the common stock. This capital gain or loss will
be long-term if you have held the stock for more than one year and will be
short-term if you have held the stock for one year or less. Long-term capital
gains for noncorporate taxpayers, including individuals, are taxed at a maximum
stated rate of 20%, and short-term capital gains at a maximum stated rate of
39.6%. A holder's basis and holding period in common stock received upon
conversion of notes are determined as discussed above under "Conversion of
Notes." If you recognize capital loss, your deduction for the loss may be
limited. Corporate taxpayers pay a maximum regular stated tax rate of 35% on all
net capital gains and ordinary income.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, the payer or broker must report to the IRS payments of
principal, premium and interest on notes, payments of dividends on common stock,
payments of the proceeds of the sale or exchange of notes, and payments of the
proceeds of the sale or exchange of common stock. The payer or broker must
backup withhold at the rate of 31% if:
- you fail to furnish a taxpayer identification number
to the payer or broker or establish an exemption
from backup withholding;
- the IRS notifies the payer or broker that the number
you furnished is incorrect;
- you have underreported interest or dividends; or
- you have failed to certify under penalties of
perjury that you are not subject to backup
withholding under the Internal Revenue Code.
Some holders, including all corporations, are exempt from backup
withholding. You may credit any amounts withheld under the backup withholding
rules against your United States federal income tax liability, or receive a
refund, if you furnish the required information to the IRS.
Treasury regulations that apply to payments made after December 31,
2000 will modify current information reporting and backup withholding procedures
and requirements. These regulations provide certain presumptions regarding the
status of holders when payments to the holders cannot be reliably associated
with appropriate documentation provided to the payer. For payments made after
December 31, 2000, holders must provide certification, if applicable, that
conforms to the requirements of the regulations, subject to certain transitional
rules permitting certification in accordance with current Treasury regulations
until December 31, 2000. Because the application of these regulations may depend
on your particular circumstances, we urge you to consult your tax adviser
regarding the application of these regulations.
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SELLING SECURITYHOLDERS
We originally issued the notes in transactions exempt from the
registration requirements of the Securities Act to persons that the initial
purchasers believed to be qualified institutional buyers. As used in this
prospectus, the term selling securityholders includes their transferees,
pledges, donees and their successors. The selling securityholders may from time
to time offer and sell pursuant to this prospectus any or all of the notes and
the shares of common stock initially issued or issuable upon conversion of the
notes, if issued.
The following table sets forth information regarding (1) the beneficial
ownership of the notes and the maximum principal amount of the notes that each
selling securityholder may offer and (2) the number of shares of common stock
that each selling securityholder may sell under this prospectus. Because the
selling securityholders may offer all or a portion of the notes and the common
stock, if converted, under this prospectus, we cannot estimate the amount of
notes or the common stock that the selling securityholders will hold upon
termination of any sale. The following table is based upon information furnished
to us by the selling securityholders.
<TABLE>
<CAPTION>
Principal Amounts Number of Shares of Common Stock
Name of of Notes Beneficially Owned and Issued Upon Conversion of the Notes
Selling Securityholder Offered that May be Offered
<S> <C> <C>
Convexity Partners LP $ 500,000 3,690
Employee Benefit Convertible Securities Fund 220,000 1,623
JMG Capital Partner, LP 1,500,000 11,070
Nations Capital Income Fund 3,280,000 24,206
Tribeca Investments LLC 6,000,000 44,280
Warburg Dillon Read LLC 250,000 1,845
All other holders 238,250,000 1,758,304
Total $250,000,000 1,845,018
</TABLE>
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PLAN OF DISTRIBUTION FOR THE RESALE OF THE SECURITIES
A selling securityholder may from time to time, in one or more
transactions, sell all or a portion of the securities in negotiated
transactions, in underwritten transactions or otherwise or, with respect to the
common stock, on the Nasdaq National Market, at prices then prevailing or
related to the then current market price or at negotiated prices. The offering
price of the securities from time to time will be determined by a selling
securityholder, and, with respect to the common stock, at the time of such
determination, may be higher or lower than the market price of our common stock
on the Nasdaq National Market. The securities may be sold directly or through
broker-dealers acting as principal or agent. The methods by which the securities
may be sold include:
- a block trade in which the broker-dealer so engaged
will attempt to sell the securities as agent but may
position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale
by such broker-dealer for its account pursuant to
this prospectus;
- ordinary brokerage transactions and transactions in
which the broker solicits purchasers; and
- privately negotiated transactions.
In effecting sales, brokers or dealers engaged by a selling
securityholder may arrange for other brokers or dealers to participate. These
brokers or dealers may receive commissions or discounts from a selling
securityholder as applicable, in amounts to be negotiated immediately prior to
the sale. A selling securityholder and any underwriters, dealers or agents
participating in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the securities by a selling securityholder and any commissions received
by any broker-dealers may be deemed to be underwriting commissions under the
Securities Act. In addition, any securities covered by this prospectus that
qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather than
pursuant to this prospectus.
Additionally, in connection with the sale of the securities, a selling
securityholder may enter into hedging transactions with broker-dealers and the
broker-dealers may engage in short sales of the securities in the course of
hedging the positions they assume with the selling securityholder. A selling
securityholder may also enter into option or other transactions with
broker-dealers that involve the delivery of the shares to the broker-dealers,
who may then resell or otherwise transfer the shares. A selling securityholder
may also loan or pledge the shares to a broker-dealer and the broker-dealer may
sell the securities so loaned or upon a default may sell or otherwise transfer
the pledged securities.
When a selling securityholder elects to make a particular offer of
securities, we will distribute a prospectus supplement, if required, that will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from a selling securityholder, as
applicable, and any other required information.
In order to comply with the securities laws of certain states, if
applicable, the securities may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the securities may not be
sold unless they have been registered or qualified for sale in such state or an
exemption from such registration or qualification requirement is available and
is complied with.
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We also have agreed to indemnify the selling securityholders in certain
circumstances, against certain liabilities arising under the Securities Act.
Each selling securityholder has agreed to indemnify us and our directors and
officers who sign the registration statement against certain liabilities,
including liabilities arising under the Securities Act.
We have agreed to pay all costs and expenses relating to the
registration of the securities (other than fees and expenses, if any, of counsel
or other advisors to the selling stockholders). Any commissions, discounts or
other fees payable to broker-dealers in connection with any sale of the
securities will be borne by the selling securityholder selling such shares.
All references to selling securityholders in this section of the
prospectus shall also be deemed to include any transferees, assignees and
pledgees of the selling securityholders.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
Alkermes by Ballard Spahr Andrews & Ingersoll, LLP, 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, LLP.
EXPERTS
The consolidated financial statements of Alkermes, Inc. and
subsidiaries, incorporated in this prospectus by reference from our Annual
Report on Form 10-K for the year ended March 31, 1999, 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.
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