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Rule 424(b)(1)
Registration No. 333-14555
PROSPECTUS
14,375 SHARES
MAGAININ PHARMACEUTICALS INC.
COMMON STOCK
The shares offered hereby (the "Shares") consist of 14,375 shares of
common stock, $.002 par value per share ("Common Stock"), of Magainin
Pharmaceuticals Inc., a Delaware corporation ("Magainin" or the "Company"),
which are being offered by the selling stockholder listed herein under "Selling
Stockholder" (the "Selling Stockholder"). The shares may be offered from time to
time by the Selling Stockholder. All expenses of registration incurred in
connection herewith are being borne by the Company, but all selling and other
expenses incurred by the 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 Stockholder.
The Selling Stockholder has 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
Stockholder 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 May 7, 1997, the last
reported closing price of the Common Stock was $7.625 per share.
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" ON PAGES 6 TO 12 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 May 8, 1997
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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.
Such material also may be accessed electronically by means of the Commission's
home page on the Internet (http://www.sec.gov). 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, 1996.
(b) 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.
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THE COMPANY
GENERAL
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.
Magainin's development efforts are focused on three technology
platforms:
- Magainin Peptides - a new class of antibiotics for the treatment
of infection.
- Aminosterols - a new class of pharmaceuticals that control cell
proliferation.
- Asthma Genomics - a program to identify the genes responsible for
controlling bronchial hyperresponsiveness associated with asthma.
DEVELOPMENT EFFORTS
MAGAININ PEPTIDES
The Company's most advanced class of compounds under development are
"magainin" peptides. Discovered in the skin of the African clawed frog,
magainins have demonstrated broad activity against a variety of pathogens in
preclinical studies. These molecules act by selectively interfering with the
membrane of the cell.
The Company's lead product development candidate is Cytolex(TM)
(MSI-78), a topical cream antibiotic. The Company has completed two successful,
pivotal Phase III clinical trials of Cytolex for the treatment of infection in
diabetic foot ulcers. These studies were designed as equivalence trials, with
the goal of demonstrating that topically applied Cytolex is as effective as
orally administered ofloxacin, a quinolone antibiotic indicated for the
treatment of skin and soft tissue infections. Company analyses of the data from
the studies showed statistical equivalence between Cytolex and ofloxacin, with
respect to the primary end point of clinical response of infection at day 10 of
treatment, and at subsequent time points through day 28, and at follow-up. The
two studies enrolled approximately 925 patients.
As a secondary endpoint in the trials, Cytolex and ofloxacin were
comparable with respect to overall assessments of microbiological improvement.
Analyses of adverse events in the studies suggest a favorable profile
for Cytolex. Both drugs were well tolerated, however, treatment with ofloxacin
was associated with a significant excess of adverse events related to the
central nervous system, particularly as it relates to insomnia.
In February 1997, the Company and SmithKline Beecham ("SB") entered
into a development, supply and distribution agreement pursuant to which SB will
market and sell Cytolex in North America. Under this agreement, SB made an
upfront payment of $5 million to the Company, and may make additional payments
of up to $27.5 million upon the occurrence of certain product milestones. SB
will also fund a percentage of development expenses for any additional
indications for Cytolex. Upon the commencement of commercial sales by SB,
Magainin will be responsible for the supply of Cytolex, and SB will be
responsible for the marketing and sales of Cytolex. Magainin will receive
certain percentages of SB sales revenues under agreed upon terms. The Agreement
also gives SB the right to negotiate for rights to another Magainin product
development candidate under certain terms and conditions.
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AMINOSTEROLS
Since the discovery in 1992 of squalamine by Dr. Michael Zasloff,
Magainin's founding scientist, the Company has identified a number of additional
natural steroids in the dogfish shark. In preclinical testing conducted to date,
these compounds have demonstrated an ability to control cell growth. These
properties may have application in a number of disease indications, including
solid cancer tumors and lymphocytic viral infections.
Squalamine
The Company's initial disease focus for squalamine is solid cancer
tumors. The formation of new blood vessels, or angiogenesis, is a key stage in
the development of tumor malignancy. Squalamine may be of benefit in the
treatment of solid cancer tumors by inhibition of new blood vessel growth
required for tumor nourishment. Squalamine has exhibited anti-angiogenic
properties in several in vitro and in vivo assays. The Company is currently
conducting preclinical research on squalamine, including pathology and
toxicology testing. Should squalamine proceed into human clinical testing, the
Company expects that it will be evaluated as a cancer therapy in conjunction
with existing cytotoxic treatment.
MSI-1436
The Company's initial disease focus for MSI-1436 is viral infection,
principally human immunodeficiency virus ("HIV"). MSI-1436 has been shown to be
an effective inhibitor of HIV replication in tissue culture for both acute and
chronically infected lymphocytes. Unlike current HIV therapies which target the
active infection, MSI-1436 acts on the host lymphocyte, reducing the likelihood
of drug resistance. The Company has a Cooperative Research and Development
Agreement ("CRADA") with the National Institutes of Health, and is currently
conducting preclinical research on MSI-1436, including pathology and toxicology
testing. Should MSI-1436 proceed into human clinical testing, the Company
expects that it will be evaluated in conjunction with existing HIV therapies.
ASTHMA GENOMICS
New techniques in molecular biology have significantly enhanced the
ability of scientists to clone and sequence human genes, and more closely study
genetic variations between individuals. This, in turn, has allowed for an
examination of the genetic influences on many human diseases. This field of
research is called genomics, or the study of the genome. Genomics has led to an
increasing acceptance that genes, in addition to factors such as lifestyle and
environment, play a fundamental role in human disease.
In 1996, the Company initiated a research program in the genomics of
asthma. The Company's research initiative in this area is based principally on
the concept of positional cloning, or the analysis of disease inheritance
patterns. Positional cloning refers to a collection of tagging and sequencing
techniques that are used to localize and identify genes associated with
particular diseases. For example, DNA may be collected from family groups where
a particular disease is more prevalent than in the general population. Analysis
of the sequence of such DNA should then allow for insight into the pathogenesis
of the disease. While a number of companies in the genomics field are primarily
focused on sequencing without regard to function, the Company's focus is to
locate specific genes in a particular disease. The Company believes that
identification of disease genes will provide insight into the causes of disease,
and facilitate the development of therapeutic products against that disease.
The Company has identified two genes which it believes may be critical
in the pathogenesis of asthma. These genes, Asthma Associated Factor 1 ("AAF1")
and Asthma Associated Factor 2 ("AAF2"), are the subject of pending patent
publications. AAF1 and AAF2 appear critical in determining the allergic and
inflammatory response characteristic of bronchial asthma. These genes regulate
mediators of the allergic response, including serum IgE molecules. Variant forms
of these genes occur widely and appear to be significant in susceptibility to
asthma. The Company has conducted confirmatory analysis in animals, and is
engaged in the early stages of a compound development program.
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The Company currently has no marketable products, and it may be several
years, if ever, until marketable products are developed and approved.
Magainin was incorporated in Delaware in June 1987. The Company's
offices and research facility are located at 5110 Campus Drive, Plymouth
Meeting, PA 19462, and its telephone number is (610) 941-4020.
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This Prospectus contains, in addition to historical information,
statements by the Company with regard to its expectations as to financial
results and other aspects of its business that involve risks and uncertainties
and may constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements reflect management's
current views and are based on certain assumptions. Actual results could differ
materially from those currently anticipated as a result of a number of factors,
including, but not limited to, the risks and uncertainties discussed in the
Company's 1996 Annual Report to Stockholders under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 under the
following sections of Item 1: "Product Development and Research Programs;"
"Manufacturing;" "Research and Development Organization'" "Collaborative
Arrangements;" "Government Regulation;" "Reimbursement; Health Care Reform;"
"Patent and Proprietary Rights; Licensed Technology;" "Competition" and "Product
Liability and Insurance" and under "Risk Factors" in this Prospectus.
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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.
Uncertainties Relating to Clinical Testing of Cytolex. The clinical
trials conducted for Cytolex yielded substantial data. Such data includes
information relating to the primary endpoints for the studies, as well as data
relating to patient subgroup analysis, wound healing, side effects, and
secondary endpoints of the study, including microbiological results. Although
the Company believes the two pivotal trials of Cytolex yielded successful
results, there can be no assurance that the United States Food and Drug
Administration (the "FDA") will concur with the Company's analysis in this
regard.
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 December 31, 1996, has
generated no revenue from product sales. The Company has incurred losses in each
year since its inception, and at December 31, 1996, had an accumulated deficit
of approximately $95.2 million. 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 substantial losses
for the foreseeable future.
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. The Company has submitted an Investigational New Drug ("IND")
application to the FDA, to obtain authorization for human testing, for only one
compound, Cytolex. 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. Additionally, 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 development stage, require
significant further research, development, testing and regulatory approvals, and
are subject to the risks of failure inherent in the development of all
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 manufacture or to market; that third parties hold
proprietary rights that preclude the Company from marketing any products; or
that third parties market superior or equivalent products.
Need for Substantial Additional Funds. The Company will require
substantial additional funds to continue its research and development programs
and to commercialize potential products. The Company may not have sufficient
funds to complete development activities for any of its proposed products,
including Cytolex.
The Company does not have any commitments 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 future funding will be
available to the Company, or, if available, will be obtainable on terms
favorable to the Company. 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. Under
collaborative arrangements, the Company may convey marketing, distribution,
manufacturing, development or other rights to its proposed products to
pharmaceutical
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companies in order to receive financial or other assistance. This will result in
lower consideration to the Company upon commercialization of such products 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 arrangements on favorable
terms, if at all. The receipt of funding from corporate partners, if any, will
depend largely on the progress of research and development programs.
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 potential
products, including Cytolex, or to enter into collaborations with third parties
to commercialize potential products or technologies that the Company would
otherwise seek to develop itself, or seek other arrangements.
Manufacturing Uncertainties; Dependence on Third Parties. Production of
peptides (such as magainins) is expensive relative to production of traditional
antibiotics. The Company contracts with third parties for the manufacture of
materials, and is working with Abbott Laboratories ("Abbott") with regard to the
manufacture of bulk Cytolex. The Company's current arrangement with Abbott
provides for the development by Abbott of a solution phase chemical process to
manufacture bulk Cytolex on a commercial scale, for the production of bulk
Cytolex, and for Abbott to perform those activities necessary to submit a Drug
Master File to the FDA in support of any filing for marketing approval of
Cytolex. This arrangement provides for cash payments by the Company to Abbott
through early 1998 aggregating approximately $15,400,000, 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 Cytolex. Through March
31, 1997, the Company has paid Abbott approximately $10,500,000 under this
arrangement. Stock issuances by the Company to Abbott will result in a charge to
earnings, representing the fair value of the shares when issued. The Company
issued 125,000 shares of common stock to Abbott in October 1995, resulting in a
charge to earnings of $1,250,000 in the year ended December 31, 1995. Future
stock issuances are related to the achievement by Abbott of contractual
performance milestones which could begin to occur in 1997. Substantial
additional funds will also be required to continue manufacturing development
efforts beyond the term of this current arrangement.
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.
There are a limited number of companies currently able to produce materials on
the scale which the Company expects to require to commercialize its compounds.
There can be no assurance that qualified outside contractors will be available
to manufacture materials for the Company, or do so at costs which are affordable
by the Company. The Company is currently dependent upon Abbott for the
production of bulk Cytolex, and, as described above, Abbott is currently
conducting certain manufacturing development activities. 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
Cytolex. In the event that this agreement is not entered into, or Abbott does
not otherwise continue to manufacture Cytolex, the Company's timeline to
commercialize Cytolex would be adversely affected, and the Company would need to
spend substantial funds on securing other manufacturing arrangements or building
a manufacturing infrastructure, and licensing applicable manufacturing related
technology from such contract manufacturer.
The Company also expects to conduct significant manufacturing
development activities for its other products under development. The Company is
currently working with outside contractors for the chemical production of its
aminosterol compounds. 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.
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. Significant progress in
scale-up and manufacturing development efforts will be required to enable the
Company to manufacture and sell Cytolex on a profitable basis. No assurance can
be given that a cost-effective manufacturing process can be developed,
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or that any such process would be approved by the FDA, or that the Company,
Abbott, or others will be able to manufacture Cytolex or any of the Company's
other proposed products on a commercially viable basis.
Dependence on Collaborative Partners; 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. The Company has entered into such an arrangement with SB
with respect to Cytolex. 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 enter into any such arrangements, or
that such arrangements will be successful.
The amount and timing of resources to be devoted to the Company's
products by any of its collaborative partners is not within the control of the
Company. There can be no assurance that the interests of the Company will
continue to coincide with the interests of its collaborators. Collaborators
could develop products independently, or through third parties, which could
compete with the Company's proposed products. With respect to Cytolex, SB
maintains a significant presence in the antibiotic area, and currently sells a
topical antibiotic product indicated for certain skin infections. Furthermore,
there can be no assurance that collaborative agreements will not be terminated
by the Company's collaborators.
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. The production and marketing of the Company's
products and its research and development activities are subject to regulation
by numerous governmental authorities in the United States and other countries.
In the United States, vaccines, drugs and certain diagnostic products are
subject to rigorous review by the FDA. The Federal Food, Drug, and Cosmetic Act,
the Public Health Service Act and other federal statutes and regulations govern
or influence the testing, manufacture, safety, efficacy, labeling, storage,
recordkeeping, approval, advertising and promotion of such products.
Noncompliance with applicable requirements can result in fines, recall or
seizure of products, refusal of the government to approve product approval
applications and establishment licenses or to allow the Company to enter into
government supply contracts, withdrawal of previously approved new drug
applications and criminal prosecution.
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 preclinical and clinical testing. The results of
preclinical studies are submitted to the FDA as part of an Investigational New
Drug Application ("IND"). Once the IND is approved, human clinical trials may be
conducted. The results of the clinical trials are submitted to the FDA as part
of a new drug application (" NDA"). Detailed manufacturing documentation is also
required, and with respect to Cytolex, even if clinical testing is successful,
the submission to FDA of any application for approval, and the review by FDA of
such application, will require additional time to complete manufacturing
stability studies, which additional time may be significant.
Following extensive review of the NDA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Sales of a new drug may commence following FDA approval of an NDA and
satisfactory completion of a pre-approval review of the manufacturing facility
and pertinent production records. If there are any modifications to the drug,
including any changes in indication, manufacturing process, labeling or
manufacturing facility, an NDA supplement may be required to be submitted to the
FDA.
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There is no assurance that the FDA will act favorably or quickly in
reviewing submitted applications, and significant difficulties or costs may be
encountered by the Company in its efforts to obtain FDA approvals that could
delay or preclude the Company from marketing any products it may develop. The
FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of such products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained.
Continued compliance with all FDA requirements and conditions in an
approved application, including those concerning product specification,
manufacturing process, validation, labeling, promotional material, recordkeeping
and reporting, is necessary for all products. Failure to comply could lead to
the need for product recall or other FDA-initiated actions, which could delay
further marketing until the products are brought into compliance. 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.
In October 1992, the Prescription Drug User Fee Act of 1992 was
enacted, imposing substantial fees on a one-time basis for applications for
approval, and on an annual basis for manufacturing and marketing, of
prescription drugs.
The Company is also subject to regulation by other regulatory
authorities, including the Occupational Safety and Health Administration, the
Environmental Protection Agency, the Nuclear Regulatory Commission, the Drug
Enforcement Agency and the United States Department of Agriculture, and to
regulation under the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the future be subject to
additional federal, state or local regulations. These agencies may promulgate
regulations that affect the Company's research and development programs.
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not the FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior to
the commencement of marketing the product in those countries. The time required
to obtain such approval may be longer or shorter than that required for FDA
approval.
There can be no assurance that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, cause the Company to undertake costly procedures and furnish
a competitive advantage to the more substantially capitalized companies with
which the Company competes. In addition, the extent of potentially adverse
government regulations which might arise from future administrative action or
legislation cannot be predicted.
Competition. The pharmaceutical industry is characterized by intense
competition. Many companies, research institutions and universities are working
in a number of areas 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 compounds from the host-defense systems of various animals. Many
companies are involved in research and development activities focused on the
pathogenesis of disease, and competition among companies attempting to find the
genes responsible for disease is intense. In addition, the Company's proposed
products will be subject to competition from products using techniques other
than those developed by the Company or based on advances that may render the
Company's products obsolete.
The Company expects technological developments in the biopharmaceutical
field to occur at a rapid rate and expects competition to intensify as advances
in this field are made. Accordingly, the Company will be required to continue to
devote substantial resources and efforts to research and development activities
in order to maintain a competitive position in this field. 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
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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 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.
Colleges, universities, governmental agencies and other public and
private research organizations are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed, some of which may be directly competitive with that of
the Company. In addition, these institutions, along with pharmaceutical and
specialized biotechnology companies, can be expected to compete with the Company
in recruiting highly qualified scientific personnel.
As to the disease areas being targeted by the Company, there can be no
assurance that Cytolex will be successfully marketed against oral antibiotics
for the treatment of infection in diabetic foot ulcers. These infections have
historically been treated with systemically administered antibiotics. There also
can be no assurance that Cytolex can be manufactured at a cost which will allow
it to be sold at a competitive price relative to oral antibiotics. Significant
efforts are underway by many companies in the development and marketing of
products intended for the additional disease areas being targeted by the
Company, including HIV, cancer and asthma. A number of major pharmaceutical
companies have significant franchises in these disease areas, and can be
expected to invest heavily to protect these interests.
Uncertainties Relating to Patents and Proprietary Rights. The Company's
success will depend in part upon its ability to obtain patent protection for
compounds, uses of compounds and processes. Patent matters involve complex legal
and factual issues, and can be highly uncertain. Host-defense 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, or their
uses. In the genomics area, a number of companies are attempting to rapidly
identify and patent genes whose functions have not yet been characterized.
Additional companies are seeking to patent fully characterized genes. The
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. In addition, 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.
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 assurances can be given 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. Additionally, 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, vendors 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.
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The Company owns or has rights under license agreements to several
patents and patent applications under which the Company expects to owe royalties
on sales of certain of its proposed products. Additionally, certain of these
agreements also 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.
Product Liability and Insurance Risks. 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.
The Company carries limited clinical trial insurance, and 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 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 maintain such insurance or that such insurance can be maintained in
sufficient amounts to protect the Company against such liability or at a
reasonable cost. Certain arrangements also require the Company to indemnify
third parties against any liabilities that may arise in connection with such
third party's activities on behalf of the Company.
In the event of an uninsured or inadequately insured claim, the
Company's business and financial condition could be materially adversely
affected.
Uncertainty Related to Health Care Reform; Reimbursement Policies.
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, 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 an 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 an
adverse effect on the Company.
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.
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Possible Volatility of Stock Price. The market prices for securities of
emerging and biotechnology companies, including the Company, have historically
been highly volatile. Future events concerning the Company or its competitors,
including product testing results, technological innovations, new commercial
products, government regulations, proprietary rights, regulatory actions,
litigation and other matters, 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. As of December 31, 1996, the Company had 2,466,000 outstanding options
at prices ranging from $.002 per share to $16.75 per share, of which
approximately 1,203,000 were exercisable as of such date. Also outstanding at
December 31, 1996 were warrants to purchase 229,739 shares of the Company's
Common Stock exercisable at $8 per share, a warrant to purchase 300,000 shares
of the Company's Common Stock, exercisable at $7.50 per share, and warrants to
purchase an aggregate of 1,011,896 shares of the Company's Common Stock,
exercisable at $8.48 per share, subject to adjustment. 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 "Risk
Factors - Need for Substantial Additional Funds."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Stockholder.
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SELLING STOCKHOLDERS
Prior to the offering of the Shares being offered hereby, the Selling
Stockholder, Julio H. Cuervo, beneficially owned 14,375 shares of Common Stock,
all of which are being offered hereby. Accordingly, the Selling Stockholder will
not beneficially own any shares of Common Stock following completion of the
offering of the Shares. The Shares are being registered to permit public
secondary trading of the Shares, and the Selling Stockholder may offer the
Shares for resale from time to time. See "Plan of Distribution."
In recognition of the fact that the Selling Stockholder may wish to be
legally permitted to sell his Shares when he deems 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
Stockholder.
The shares being offered hereby by the Selling Stockholder were
acquired by him from The Scripps Research Institute ("Scripps"), which acquired
the shares from the Company in a private placement transaction in connection
with certain amendments to license agreements relating to Cytolex. In
consideration for the issuance of the shares, Scripps and Houghten
Pharmaceuticals Inc. agreed to amend such license agreements to provide that the
Company's license as it relates to Cytolex will be fully-paid and royalty-free.
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<PAGE> 14
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Stockholder 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 the 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 Stockholder). 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.
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.
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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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................ 2
Incorporation of Certain Documents
by Reference...................................... 2
The Company ......................................... 3
Risk Factors......................................... 6
Use of Proceeds...................................... 12
Selling Stockholders................................. 13
Plan of Distribution................................. 14
Legal Opinion........................................ 14
Experts.............................................. 14
</TABLE>
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14,375 Shares
MAGAININ PHARMACEUTICALS INC.
Common Stock
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PROSPECTUS
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May 8, 1997
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