<PAGE> 1
Rule 424(b)(3)
Reg. No. 333-09927
PROSPECTUS
2,568,659 SHARES
MAGAININ PHARMACEUTICALS INC.
COMMON STOCK
---------------
The shares offered hereby consist of (i) 1,556,763 shares (the
"Original Shares") of common stock, $.002 par value per share ("Common Stock"),
of Magainin Pharmaceuticals Inc., a Delaware corporation ("Magainin" or the
"Company"), which are owned by the selling stockholders listed herein under
"Selling Stockholders" (collectively, the "Selling Stockholders") and (ii)
1,011,896 shares (the "Warrant Shares" and, together with the Original Shares,
the "Shares") of Common Stock which may be acquired from time to time by the
Selling Stockholders upon exercise of warrants issued by the Company (the
"Warrants"). The Original Shares may be offered from time to time by the Selling
Stockholders and the Warrant Shares may be offered from time to time by the
Selling Stockholders following exercise of their Warrants. All expenses of
registration incurred in connection herewith are being borne by the Company, but
all selling and other expenses incurred by a Selling Stockholder will be borne
by the Selling Stockholder. The Company will not receive any of the proceeds
from the sale of the Shares by the Selling Stockholders.
The Selling Stockholders have not advised the Company of any
specific plans for the distribution of the Shares covered by this Prospectus,
but it is anticipated that the Shares will be sold from time to time primarily
in transactions (which may include block transactions) on the Nasdaq National
Market of the Nasdaq Stock Market at the market price then prevailing, although
sales may also be made in negotiated transactions or otherwise. The Selling
Stockholders and the brokers and dealers through whom sale of the Shares may be
made may be deemed to be "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), and their commissions or discounts
and other compensation may be regarded as underwriters' compensation. See "Plan
of Distribution."
The Company's Common Stock is quoted on the Nasdaq National
Market of The Nasdaq Stock Market under the symbol "MAGN." On September 17,
1996, the last reported closing price of the Common Stock was $11.25 per share.
---------------
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" ON PAGES 4 TO 9 OF THIS PROSPECTUS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 18, 1996
<PAGE> 2
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration
Statement on Form S-3 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act, omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.
Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by references to the copy of the applicable document
filed with the Commission.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained in person
from the Public Reference Section of the Commission at its principal office
located at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Reports and proxy statements concerning the Company also may be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C.
20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the
Company (File No. 0-19651) with the Commission are incorporated herein by
reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1996.
(c) The description of the Company's Common Stock which is
contained in the Company's Registration Statement on Form 8-A filed under the
Exchange Act on November 7, 1991 and as amended on January 15, 1993, including
any amendment or reports filed for the purpose of updating such description.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities remaining unsold,
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of the filing of such reports and documents. Any statement
contained in a document, all or a portion of which is incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained or incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Upon request, the Company will provide without charge to each
person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Written or oral requests
for copies should be directed to Michael R. Dougherty, Executive Vice President
and Chief Financial Officer, Magainin Pharmaceuticals Inc., 5110 Campus Drive,
Plymouth Meeting, PA 19462, (610) 941-5228.
2
<PAGE> 3
THE COMPANY
Magainin Pharmaceuticals Inc. ("Magainin" or the "Company") is a
biopharmaceutical company engaged in the development of breakthrough medicines
for serious diseases. The Company isolates and develops compounds from the
host-defense systems of animals and uses molecular techniques such as gene
identification to understand the pathogenesis of disease. The Company's
development efforts are focused on anti-infectives, oncology and, pulmonary and
allergic disorders.
The Company's most advanced class of products under development
are "magainins," which are peptides that kill certain pathogens by selectively
perturbing the membrane of the cell. The most advanced magainin under
development by the Company is MSI-78, a topical anti-infective. In August 1994,
the Company initiated the first of two planned pivotal Phase III clinical trials
of MSI-78 for the treatment of infection in diabetic foot ulcers. The study is
designed as an equivalence trial with the goal of demonstrating that topically
applied MSI-78 is as effective as orally administered ofloxacin, a quinolone
antibiotic frequently used in the treatment of infection in diabetic foot
ulcers. An interim analysis of results of this trial was conducted in June 1995
by an independent data monitoring committee. The objective of this interim
analysis was successfully met in that there were no significant differences at
this interim time point in treatment efficacy between MSI-78 and ofloxacin.
Additionally, no serious adverse reactions attributable to MSI-78 have been
observed in this trial. In view of these results, this trial continued and a
second required pivotal trial in the same indication is now also being
conducted. Both trials compare topical MSI-78 at a 1% concentration to orally
administered ofloxacin. The Company expects to announce the results of these
trials later in 1996.
The Company is engaged in pre-clinical development of an
inhalation product for the treatment of pseudomonas infections in patients with
cystic fibrosis. A magainin peptide has demonstrated in vitro activity against
clinical isolates of pseudomonas from cystic fibrosis patients which were
resistant to currently available antibiotics, and has also demonstrated binding
to lipopolysaccharide, which is thought to be adverse to lung function. The
Company has begun to explore the feasibility of a more convenient, dry powder
inhalation formulation for this product.
The Company is also conducting research on an aminosterol class
of compounds, discovered in the dogfish shark. Certain of these compounds have
demonstrated anti-angiogenic activity in vitro and in vivo. The Company is
evaluating one such compound, squalamine, in cancer and another such compound,
MSI-1436, in viral infections.
The Company's newest research efforts are in the understanding of
the pathogenesis of disease using molecular techniques. The Company's initial
disease focus in this area is asthma.
The Company currently has no marketable products, and it may be
several years, if ever, until marketable products are developed and approved.
In November 1993, the Company changed its fiscal year end to
December 31.
Magainin was incorporated in Delaware in June 1987. The Company's
executive offices and research facility are located at 5110 Campus Drive,
Plymouth Meeting, PA 19462, and its telephone number is (610) 941-4020.
---------------
This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in forward-looking statements. Factors that might
such a difference include, but are not limited to, those discussed in "Risk
Factors."
3
<PAGE> 4
RISK FACTORS
In addition to the other information in this Prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any Shares offered hereby.
Status of MSI-78. Results obtained to date from clinical testing
of MSI-78 in the treatment of infection in diabetic foot ulcers are of an
interim nature only. For the purpose of the interim analysis conducted in June
1995, treatment efficacy was defined as a clinical response of infection as
measured by cure or improvement on or about the tenth day of treatment for the
cohort of 190 evaluable patients. Other factors will also be evaluated at the
conclusion of the trial, and there can be no assurance that topically applied
MSI-78 will ultimately be determined to be statistically equivalent to
ofloxacin. Infection in diabetic foot ulcers has historically been treated with
systemically administered antibiotics, such as orally-administered ofloxacin.
The Company has initiated a second required pivotal trial of
MSI-78 for the treatment of infection in diabetic foot ulcers. There can be no
assurance that this trial will be successful. Success in both pivotal trials
will be required for the submission of MSI-78 for review and approval by the
FDA. Failure of MSI-78 to show efficacy in human clinical trials will have a
material adverse effect on the Company. The Company expects to announce the
results of these trials later in 1996.
MSI-78 was previously tested in a pivotal trial for the treatment
of impetigo, a skin infection which usually occurs in children. In this trial,
completed in early 1994, MSI-78 did not demonstrate a statistically significant
advantage over the placebo control vehicle. Clinical responses in the range of
80% were achieved by MSI-78, however, similar responses were observed in the
placebo control vehicle.
Development Stage Company; Accumulated Deficit; Continuing
Losses. The Company is in the development stage, has been engaged to date
primarily in research and development activities and, through June 30, 1996, had
generated no revenue from product sales. At June 30, 1996, the Company had an
accumulated deficit of approximately $77 million, and losses are continuing and
are expected to increase. The Company's operations are subject to numerous risks
associated with establishing a new business, including a competitive and
regulatory environment in an industry characterized by numerous well-established
and well-capitalized companies and by exhaustive and expensive regulatory
scrutiny. The Company will be required to conduct significant research,
development and testing activities which, together with projected general and
administrative expenses, are expected to result in continued and increasing
losses for the foreseeable future, particularly due to the extended time period
before the Company expects to commercialize any products.
Technological Uncertainty and Early Stage of Product Development.
There can be no assurance that the Company's research and development activities
will be successful, that any products under development will be approved or
commercially viable and successfully marketed or that the Company will ever
achieve significant levels of revenue or profits. In addition, the Company may
encounter unanticipated problems, including development, regulatory,
manufacturing and marketing difficulties, some of which may be beyond the
Company's ability to resolve.
There has been only limited research in the area of the use of
naturally occurring host-defense compounds for the treatment of infectious and
other diseases, and results obtained in research conducted to date are not
conclusive as to whether pharmaceutical compounds being investigated by the
Company will be safe or effective. While the Company has demonstrated certain
utility of its technology in model systems in the laboratory and in animals and
has identified a number of compounds for additional testing, the Company has
submitted an Investigational New Drug ("IND") application to the FDA, to obtain
authorization for human testing, for only one compound, MSI-78. The Company's
research activities in asthma have only recently been initiated, and there can
be no assurance that any product candidates will result from these efforts.
There can be no assurance that results obtained in preclinical studies will be
indicative of results that will be obtained in human clinical testing.
The Company's proposed products are in the developmental stage,
require significant further research, development, testing and regulatory
approvals and are subject to the risks of failure inherent in the development of
all
4
<PAGE> 5
pharmaceutical products. These risks include the possibilities that any or all
of the proposed products are found to be ineffective or toxic, or otherwise fail
to receive necessary regulatory approvals, that the proposed products, although
effective, are uneconomical to market, that third parties hold proprietary
rights that preclude the Company from marketing them, or that third parties
market superior or equivalent products. Due to the extended testing and
regulatory review process required before marketing clearance can be obtained,
the Company does not expect to be able to commercialize any drugs for several
years, if at all.
Need for Substantial Additional Funds. The Company will require
substantial additional funds to continue its research and development programs
and to commercialize any potential products. The Company may not have sufficient
funds to complete clinical studies or manufacturing scale-up on any of its
proposed products, including MSI-78. In addition, the Company may not have
sufficient funds to prepare a New Drug Application ("NDA") with the FDA for any
proposed products or to pay the user fees associated with filing NDAs. The
Company intends to seek additional funding through a combination of future
offerings of securities and collaborative arrangements with third parties and
regularly explores alternatives in this regard. The Company does not have any
commitments or arrangements to obtain any additional funds and has no
established banking arrangements through which it can obtain debt financing, and
there can be no assurance that required funds will be available to the Company.
Furthermore, to develop and commercialize its products, it will be necessary to
seek arrangements under which the Company conveys marketing, distribution,
manufacturing, development or other rights to its proposed products to
pharmaceutical companies in order to receive financial or other assistance. This
will result in lower consideration to the Company upon commercialization than if
no arrangements were entered into or if such arrangements were entered into at
later stages in the product development process. There can be no assurance that
the Company will be able to enter into such additional ventures on favorable
terms, if at all.
If the Company does not enter into appropriate collaborations, or
is not able to raise sufficient funds from the periodic sale of securities, the
Company will be required to delay or eliminate expenditures for certain of its
potential products, including MSI-78, or to license third parties to
commercialize potential products or technologies that the Company would
otherwise seek to develop itself, or to seek other arrangements.
Dependence on Third Parties; Manufacturing Uncertainties. The
Company does not have the resources, facilities or capabilities to manufacture
any of its proposed products. The Company has no current plans to establish a
manufacturing facility. The Company expects that it will be dependent to a
significant extent on contract manufacturers for commercial scale manufacturing
of its proposed products in accordance with regulatory standards. The Company's
dependence on third parties for manufacturing may adversely affect operating
results as well as the Company's ability to develop and deliver products on a
timely and competitive basis. There can be no assurance that the Company will be
able to enter into any arrangements for the manufacturing of any of its proposed
products, or that the costs of any such arrangements would be acceptable to the
Company.
The Company is currently dependent upon a single contract
manufacturer, Abbott Laboratories ("Abbott"), for the development of a chemical
process to manufacture bulk MSI-78 on a commercial scale, and for the actual
production of bulk MSI-78. The Company has entered into an agreement with Abbott
which provides for cash payments by the Company aggregating approximately
$11,000,000, as well as the issuance by the Company to Abbott of up to 500,000
shares of its Common Stock and the obligation to pay a royalty on future sales
of MSI-78. Under this Agreement, Abbott will continue scale-up activities for
MSI-78, and perform other activities necessary to submit a Drug Master File to
the FDA in support of any filing for marketing approval of MSI-78. Substantial
additional funds will also be required to continue manufacturing development
efforts beyond the term of this current arrangement. The Company and Abbott have
agreed that, upon completion of such activities, they will negotiate in good
faith a supply agreement for the Company's worldwide supply needs of MSI-78. In
the event that this agreement is not entered into or Abbott does not otherwise
continue to manufacture MSI-78, the Company's timeline to commercialize MSI-78
would be adversely affected. Additionally, the Company would need to spend
substantial funds on building a manufacturing infrastructure or securing
alternative contract manufacturing arrangements, and for the licensing of
applicable manufacturing related technology from its current contract
manufacturer. Any such facility would require substantial funds, and the Company
would be required to hire and retain significant additional personnel and comply
with extensive regulations applicable to such a facility and such manufacturing
operations.
5
<PAGE> 6
Production of peptides (such as magainins) is expensive relative
to production of traditional antibiotics. Peptides, such as magainins, can be
synthesized chemically or produced by recombinant expression systems. The
Company's contract manufacturer is focused on a solution phase chemical process.
While progress has been made in reducing the cost of chemically synthesizing
peptides, further significant progress will be required to enable the Company to
manufacture and sell MSI-78 on a profitable basis. No assurance can be given
that a cost-effective manufacturing process can be developed, or that any such
process would be approved by the FDA, or that the Company, Abbott or others will
be able to manufacture MSI-78 or any of the Company's other proposed products on
a commercially viable basis, or that raw materials for synthesis in commercial
quantities will be available.
The Company is currently evaluating outside contractors for the
production of its aminosterol compounds. The Company is currently producing
limited quantities of these compounds internally through a natural extraction
process. The Company expects to expend significant resources in the chemical
synthesis of these compounds, and there can be no assurance that these efforts
will be successful.
Marketing Uncertainties. In order to successfully develop and
market its products, it will be necessary for the Company to enter into
marketing, distribution, development or other arrangements with third parties,
granting marketing rights, which may be exclusive, to potential products,
including MSI-78. Such arrangements may also involve delegating to the Company's
partner the responsibility for all or a significant portion of the development
and regulatory approval process. In the event that partners do not develop an
approvable or marketable product or do not market a product successfully, the
Company's business will be adversely affected. There can be no assurance that
the Company will be able to successfully enter into any such arrangements.
For certain products under development, the Company may conduct
its own marketing activities through its own sales force. The Company has no
marketing and sales staff and, although certain members of management have
experience in the marketing of pharmaceutical products, the Company has no
experience with respect to marketing its proposed products. Significant
additional expenditures, management resources and time will be required to
develop a sales force, and there can be no assurance that the Company will be
successful either in developing a sales force or penetrating the markets for any
proposed products it may develop.
Government Regulation. Products such as those proposed to be
developed or commercialized by the Company are subject to an extensive
regulatory approval process by the FDA and comparable agencies in other
countries. In order to obtain FDA approval of a new product, the Company must
submit proof of safety, purity, potency and efficacy. Such proof entails
extensive and time consuming pre-clinical and clinical testing. Detailed
manufacturing documentation is also required, and with respect to MSI-78, even
if clinical testing is successful, the submission of any application for product
approval and the review by FDA of such application, will require additional time
to complete manufacturing activities and stability studies, which additional
time may be significant.
Although certain members of management have had experience in
conducting and supervising preclinical testing and human clinical trials for
pharmaceutical products, the Company has very limited experience designing
clinical protocols on its own behalf and has not prepared an NDA submission. The
process of obtaining required regulatory approvals from the FDA and other
regulatory authorities often takes many years and can vary substantially based
on the type, complexity and novelty of the product. As with any new drug,
additional governmental regulations may be promulgated which could impose
additional costly testing procedures necessary to obtain regulatory approval and
delay regulatory approval of the Company's products. There can be no assurance
that, even after investment of time and expenditures, regulatory approval will
be obtained for any of the Company's proposed products. Even if regulatory
approval is obtained, a marketed product is subject to continual post-market
review, and later discovery of previously unknown problems or failure to comply
with the applicable regulatory requirements may result in restrictions on a
product's marketing or withdrawal of the product from the market as well as
possible civil or criminal sanctions. Adverse governmental regulation which
might arise from future legislative or administrative action cannot be
predicted.
Clinical Testing. Before obtaining required regulatory approvals
for the commercial sale of products, the Company must demonstrate through
preclinical and clinical testing that such products are safe and efficacious for
use
6
<PAGE> 7
in each target indication. The results of preclinical and initial clinical
testing of products under development by the Company are not necessarily
predictive of results that will be obtained from large-scale clinical testing.
Even after any approval by the FDA and foreign regulatory authorities, products
may later exhibit adverse effects that prevent their widespread use or
necessitate their withdrawal from the market. There can be no assurance that any
products developed by the Company will be safe and efficacious when administered
to patients.
Competition. The pharmaceutical industry is characterized by
intense competition. Many companies, research institutions and universities are
working in a number of pharmaceutical or biotechnology disciplines similar to
the Company's field of interest. In addition, many companies are engaged in the
development and sale of products, such as traditional antibiotics, which may be
or are competitive with the Company's proposed products. Most of these entities
have substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the Company. The Company is aware that
research is being conducted by others in connection with anti-infective and
anti-cancer compounds from the host-defense systems of various animals, and many
companies are working in the genomics field, and in the area of asthma. In
addition, the Company's proposed products will be subject to competition from
products using techniques other than those used by the Company or based on
advances that may render the Company's products obsolete. The field of
biotechnology is subject to rapid and significant technological changes, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Compounds, products or
processes developed by the Company may become obsolete before the Company is
able to recover a significant portion of its research and development expenses.
The Company will be competing with respect to its proposed products with
companies that have significantly more experience in undertaking preclinical
testing and human clinical trials of new or improved therapeutic products and
obtaining FDA and other regulatory approvals of such products. Some of these
companies may be in advanced phases of clinical testing of various drugs that
may be competitive with the Company's proposed products.
As to the Company's lead product candidate, even if MSI-78 is
shown in clinical testing to be statistically equivalent to ofloxacin, there can
be no assurance that it will be successfully marketed against oral antibiotics.
There also can be no assurance that MSI-78 can be manufactured at a cost which
will allow it to be sold at a competitive price relative to oral antibiotics.
Patents and Proprietary Rights. The Company's success will depend
in part upon its ability to obtain patent protection of compounds, combinations
or processes, as well as the drug or therapeutic use of the compound. The patent
position of biotechnology firms generally is highly uncertain and involves
complex legal and factual questions. Anti-infective and anti-cancer compounds
can be isolated from a wide variety of sources, and it is not possible for the
Company or any other entity to have proprietary rights to all such compounds. In
the genomics area, a number of companies are attempting to rapidly identify and
patent genes whose functions have not been characterized. Additional companies
are seeking to patent fully characterized genes. The current criteria for
obtaining patent protection for genes is unclear and the impact of this
uncertainty on the Company's business cannot be determined.
There can be no assurance that any patent applications now
pending or filed in the future will result in patents being issued or that any
patents now held by or licensed to the Company, or issued or licensed to the
Company in the future, will afford any competitive advantages for the Company,
will not be challenged by third parties or cannot be designed around by others.
The cost of litigation to uphold the validity and prevent infringement of
patents and to enforce licensing rights can be substantial. Furthermore, there
can be no assurance that others will not independently develop similar
technologies or duplicate the technology owned by or licensed to the Company or
design around the patented aspects of such technology. There can be no assurance
that the products and technologies the Company will seek to market will not
infringe patents or other rights owned by others, licenses to which may not be
available to the Company.
Pursuant to the terms of the Uruguay Round Agreements Act,
patents filed after June 8, 1995 will have a term of twenty years from the date
of such filing, irrespective of the period of time it may take for such patents
to ultimately issue. As compared to the prior law which established a patent
term of seventeen years from the date of issuance, this may shorten the period
of patent protection afforded to the Company's products as patent applications
in the biopharmaceutical sector often take considerable time to issue.
7
<PAGE> 8
The Company also relies upon unpatented proprietary technology,
and may determine in appropriate circumstances that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. No assurance can be made that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to such proprietary technology or that the Company can meaningfully
protect its rights in such unpatented proprietary technology. If the Company is
unable to obtain strong proprietary rights protection of its products after
obtaining regulatory clearance, competitors may be able to market competing
products by obtaining regulatory clearance, through showing equivalency to the
Company's product, without being required to conduct the lengthy, clinical tests
required to be conducted by the Company.
To the extent that consultants, key employees or other third
parties apply technological information independently developed by them or by
others to the Company's proposed products, disputes may arise as to the
proprietary rights to such information, which may not be resolved in favor of
the Company. Members of the Company's Scientific Advisory Board and other
consultants are employed by or have consulting agreements with third parties,
and any inventions discovered by such individuals are not likely to become the
property of the Company.
The Company owns or has rights under licenses to several
patents and patent applications filed worldwide. The Company will owe royalties
on sales of most of its proposed products, including MSI-78, under certain of
these licenses. Certain of these agreements provide that if the Company elects
not to pursue the commercial development of any licensed technology, or does not
adhere to an acceptable schedule of commercialization, then the Company's
exclusive rights to such technology would terminate.
Dependence on Key Personnel. The Company depends to a
considerable degree on a limited number of key personnel. Due to the Company's
limited number of employees, many key responsibilities within the Company have
been assigned to a relatively small number of individuals. The Company does not
maintain "key man" insurance on any of its employees. The loss of certain senior
management could adversely affect the business of the Company. The success of
the Company will depend, among other factors, upon the successful recruitment
and retention of qualified personnel.
Reimbursement. Successful commercialization of the Company's
potential products will be dependent in part on the availability of
reimbursement of the costs of such products from third-party payors, such as
government authorities, private health insurers and other organizations, such as
health maintenance organizations. There can be no assurance that such
reimbursement will be available or, if available, will be in adequate amounts.
Risk of Product Liability. Before obtaining required regulatory
approvals for the commercial sale of products, the Company must demonstrate
through human clinical testing that such products are safe and efficacious for
use in each target indication. The administration of any product being developed
by the Company could produce undesirable side effects in humans. Although the
Company carries limited clinical trial insurance, there can be no assurance that
such coverage is adequate.
In addition, in the event the Company successfully develops any
products, the marketing of such products could expose the Company to product
liability claims. Certain of the Company's agreements require the Company to
maintain insurance coverage naming third parties as additional insureds at such
time as any related products may be marketed. There can be no assurance that the
Company will be able to obtain any product liability insurance or that such
insurance can be maintained in sufficient amounts to protect the Company against
such liabilities or at a reasonable cost.
In the event of an uninsured or inadequately insured claim, the
Company's business and financial condition could be materially adversely
affected.
Health Care Reform. Various proposals have been put forth to
reform the current health care system in the United States. Additionally,
several states have enacted modifications to the current health care system to
both improve access and control costs. Such reform measures could adversely
affect the amount of reimbursement available from governmental agencies or third
party insurers, or could affect the ability to set prices for newly approved
therapeutic products. Similar proposals are being considered by governmental
officials in other significant pharmaceutical markets,
8
<PAGE> 9
including Europe. Governmental or private payors for health care goods and
services can be expected to continue to undertake cost reduction efforts.
The Company cannot predict if such reforms will be implemented or
the effect any such reforms might have on the Company's business, and no
assurance can be given that any such reforms will not have a material adverse
effect on the Company's business. In particular, it is possible that any such
reform could impact the manner in which drugs or therapies are marketed and
could include restrictions on the ability of pharmaceutical and biotechnology
companies to price drugs or therapies, which in turn could impact the ability of
biotechnology companies such as the Company to obtain financing for the
continued development of potential products. Furthermore, any such reform could
also impose limits on the overall growth of health care spending, as well as
limits on the growth of Medicare and Medicaid spending, all which could have a
material adverse effect on the Company.
Possible Volatility of Stock Price. The market prices for
securities of emerging and biotechnology companies, including the Company, have
historically been highly volatile. Future announcements concerning the Company
or its competitors, including the results of testing, technological innovations
or new commercial products, government regulations, developments concerning
proprietary rights, litigation or public concern as to safety of products
developed by the Company or others, may have a significant impact on the market
price of the Common Stock.
Effect of Exercise of Options and Warrants, and Other Issuance of
Shares. The Company grants stock options to employees, directors and
consultants. As of June 30, 1996, the Company had 2,407,384 outstanding options
at prices ranging from $.002 per share to $16.75 per share, of which
approximately 1,070,783 were exercisable as of such date. Warrants to purchase
229,739 shares of the Company's Common Stock exercisable at $8 per share, and a
warrant to purchase 300,000 shares exercisable at $7.50, were also outstanding
as of June 30, 1996. In addition, the Warrants, to purchase an aggregate of
1,011,896 shares of Common Stock, were issued to the Selling Stockholders on
August 6, 1996. Exercise of options and warrants at prices below the market
price of the Company's Common Stock could adversely affect the price of the
Company's Common Stock. Additional dilution may result from the issuance of
shares in connection with collaborations or manufacturing arrangements, or in
connection with other financings. See "-Need for Substantial Additional Funds."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholders.
9
<PAGE> 10
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of each Selling Stockholder and as
adjusted to give effect to the sale of the Shares offered hereby. The Shares are
being registered to permit public secondary trading of the Shares, and the
Selling Stockholders may offer the Shares for resale from time to time. See
"Plan of Distribution."
The Original Shares being offered hereby by the Selling
Stockholders were acquired by them from the Company in private placement
transactions pursuant to purchase agreements, dated as of August 6, 1996 (the
"Purchase Agreements"), pursuant to which the Selling Stockholders acquired an
aggregate of 1,556,763 Units, at a purchase price of $7.7083 per Unit,
consisting of (i) an aggregate of 1,556,763 Original Shares and (ii) the
Warrants to purchase 1,011,896 Warrant Shares, at an exercise price, subject to
adjustment, of $8.4791 per Warrant Share (the "Exercise Price"). The Warrant
Shares being offered hereby may be acquired, from time to time, by the Selling
Stockholders upon exercise of the Warrants.
Subject to certain exceptions, the Exercise Price per Warrant
Share is subject to adjustment, on a weighted average basis, upon the following
events: (i) the issuance or sale of shares of Common Stock for a consideration
per share of Common Stock less than the then current Exercise Price, (ii) the
grant or sale by the Company of options for which the exercise price per share
of Common Stock is less than the then current Exercise Price, (iii) the issuance
or sale by the Company of any securities convertible into shares of Common Stock
for which the conversion price per share of Common Stock is less than the then
current Exercise Price, (iv) a change in any exercise price or conversion price
for options or convertible securities to a price below the then current Exercise
Price and (v) the subdivision or combination of shares of Common Stock. In such
events, the number of Warrant Shares issuable upon exercise of the Warrants is
subject to a corresponding adjustment. In addition, the Exercise Price per
Warrant is subject to a one-time adjustment per Warrant, at the option of the
holder of such Warrant, in the event that the average of the closing prices for
the Common Stock on the Nasdaq National Market in any calendar month prior to
August 1999 is less than $7.7083. In that event, the holder of each Warrant
shall have the option to reset the Exercise Price to equal 110% of the average
of the closing prices for such month.
In recognition of the fact that investors may wish to be legally
permitted to sell their Shares when they deem appropriate, the Company has filed
with the Commission, under the Securities Act, a Registration Statement on Form
S-3, of which this Prospectus forms a part, with respect to the resale of the
Shares from time to time on the Nasdaq National Market of The Nasdaq Stock
Market or in privately-negotiated transactions and has agreed to prepare and
file such amendments and supplements to the Registration Statement as may be
necessary to keep the Registration Statement effective until the Shares are no
longer required to be registered for the sale thereof by the Selling
Stockholders.
<TABLE>
<CAPTION>
Beneficial Ownership
Number of After Offering
Number of Shares Shares --------------------
Name of Beneficially Owned Being Number of
Selling Stockholder Prior to Offering Offered Shares Percent
- -------------------------------- ------------------ --------- ------------ -------
<S> <C> <C> <C> <C>
T. Rowe Price New Horizons Fund, Inc. 856,220 856,220 0 --
Vector Later-Stage Equity Fund, L.P. 642,165 642,165 0 --
Goodland International Investments Ltd. 599,354 599,354 0 --
Weyburn Overseas Ltd. 256,865 256,865 0 --
T. Rowe Price Health Sciences, Inc. 214,055 214,055 0 --
</TABLE>
10
<PAGE> 11
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Stockholders may be sold
from time to time by the Selling Stockholder, or by pledgees, donees,
transferees or other successors in interest. Such sales may be made on one or
more exchanges or in the over-the-counter market (including the Nasdaq National
Market of The Nasdaq Stock Market), or otherwise at prices and at terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Shares may be sold by one or more of the following
methods, including, without limitation: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face transactions between the Selling Stockholder and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Stockholder may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from the Selling
Stockholder in amounts to be negotiated immediately prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act, in connection
with such sales. 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.
Upon the Company being notified by a Selling Stockholder that any
material arrangement has been entered into with a broker or dealer for the sale
of shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplemented
Prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (a) the name of each such broker-dealer, (b) the
number of shares involved, (c) the price at which such shares were sold, (d) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (e) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this Prospectus, as supplemented, and (f) other facts material to the
transaction.
The Company is bearing all costs relating to the registration of
the Shares (other than fees and expenses, if any, of counsel or other advisers
to the Selling Stockholders). Any commissions, discounts or other fees payable
to broker-dealers in connection with any sale of the Shares will be borne by the
Selling Stockholder selling such Shares.
The Company has agreed to indemnify the Selling Stockholders in
certain circumstances, against certain liabilities, including liabilities
arising under the Securities Act. Each Selling Stockholder has agreed to
indemnify the Company and its directors, and its officers who sign the
registration statement against certain liabilities, including liabilities
arising under the Securities Act.
LEGAL OPINION
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania.
EXPERTS
The financial statements contained in the Company's Annual Report
on Form 10-K, incorporated by reference in this Prospectus, have been audited by
Richard A. Eisner & Company, LLP, independent auditors, as indicated in their
report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing.
11
<PAGE> 12
No dealer, salesman or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or the Selling
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy to any person in any jurisdiction in which such
offer or solicitation would be unlawful or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to the date hereof.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information....................................................... 2
Incorporation of Certain Documents
by Reference............................................................. 2
The Company ................................................................ 3
Risk Factors................................................................ 4
Use of Proceeds............................................................. 9
Selling Stockholders........................................................ 10
Plan of Distribution........................................................ 11
Legal Opinion............................................................... 11
Experts..................................................................... 11
</TABLE>
2,568,659 Shares
MAGAININ PHARMACEUTICALS INC.
Common Stock
PROSPECTUS
September 18, 1996
