<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997.
REGISTRATION NO. 333-20941
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PROTEIN DESIGN LABS, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 94-3023969
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
</TABLE>
---------------------
2375 GARCIA AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 903-3700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
DOUGLAS O. EBERSOLE, ESQ.
VICE PRESIDENT, LICENSING AND CORPORATE SERVICES,
GENERAL COUNSEL AND SECRETARY
PROTEIN DESIGN LABS, INC.
2375 GARCIA AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 903-3700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
COPIES TO:
<TABLE>
<S> <C>
GREGORY M. GALLO, ESQ. ALAN C. MENDELSON, ESQ.
DOUGLAS J. REIN, ESQ. GREGORY C. SMITH, ESQ.
GRAY CARY WARE & FREIDENRICH COOLEY GODWARD LLP
400 HAMILTON AVENUE FIVE PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94301 PALO ALTO, CALIFORNIA 94306
(415) 328-6561 (415) 843-5000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1997
2,750,000 SHARES
PDL (LOGO)
PROTEIN DESIGN LABS, INC.
COMMON STOCK
------------------------
Of the 2,750,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by Protein Design Labs, Inc. ("PDL" or the "Company") and 750,000
shares are being sold by a Selling Stockholder. See "Principal and Selling
Stockholders." The Company will not receive any proceeds from the sale of shares
by the Selling Stockholder. The Company's Common Stock is listed on the Nasdaq
National Market under the symbol "PDLI." On January 30, 1997, the last reported
sale price of the Common Stock on the Nasdaq National Market was $35.75 per
share. See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)(3) PROCEEDS TO
SELLING
STOCKHOLDER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total (3)......................... $ $ $ $
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- --------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $400,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 412,500 additional shares of
Common Stock at the Price to Public per share, less the Underwriting
Discount, for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole
or in part and subject to certain other conditions. It is expected that delivery
of the certificates representing the shares will be made against payment on or
about at the office of Oppenheimer & Co., Inc., Oppenheimer Tower, One
World Financial Center, New York, New York 10281.
------------------------
OPPENHEIMER & CO., INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
The date of this Prospectus is , 1997.
<PAGE> 3
PRODUCTS IN DEVELOPMENT
The following table summarizes the potential therapeutic indications,
development status and commercial rights for certain of PDL's clinical and
preclinical product candidates and is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus. The development and
commercialization of the Company's product candidates are subject to numerous
risks and uncertainties. See "Risk Factors."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL THERAPEUTIC COMMERCIAL
PRODUCT INDICATIONS DEVELOPMENT STATUS RIGHTS
----------------------------- -------------------------------- ---------------------- ----------------
<S> <C> <C> <C>
Organ transplant rejection Completed two Roche
Phase III
trials (kidney)
Zenapax (SMART Anti-Tac
Antibody)
Certain autoimmune diseases
Tropical spastic paraparesis Phase I/II
Uveitis Phase I/II
Psoriasis Phase I/II planned
Certain blood cancers Phase II
Acute myelogenous leukemia Phase II/III PDL and Kanebo
Acute promyelocytic leukemia Phase II
Myeloid leukemia Phase I (Japan)
SMART M195 Antibody
Chronic hepatitis B ("CHB") Phase II PDL, Boehringer
Liver transplantation Completed Phase I/II Mannheim and
due to CHB Novartis
OST 577 (Human Anti-Hepatitis
B Antibody)
CMV infections in BMT Phase II PDL, Boehringer
Mannheim and
Novartis
PROTOVIR (Human Anti-
Cytomegalovirus Antibody)
Trauma, adult respiratory Preclinical PDL and
distress syndrome ("ARDS"), Boehringer
reperfusion injury Mannheim
SMART Anti-L-Selectin
Antibody
Stroke, trauma, certain Preclinical PDL
autoimmune diseases
(e.g., psoriasis), asthma
SMART Anti-E/P-Selectin
Antibody
Organ transplant rejection and Preclinical PDL
certain autoimmune diseases
SMART Anti-CD3 Antibody
Certain autoimmune diseases Preclinical PDL
(e.g., inflammatory
bowel disease)
SMART Anti-Gamma
Interferon Antibody
B-cell lymphoma Preclinical PDL
SMART 1D10 Antibody
Certain epithelial cell cancers Preclinical PDL and Novartis
including breast, lung
and colon
SMART ABL 364 Antibody
Shingles (herpes zoster) Preclinical PDL and Novartis
Human Anti-VZV Antibody
Neonatal and genital herpes Preclinical PDL and Novartis
Human Anti-HSV Antibody
</TABLE>
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND OTHER SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
EXCHANGE ACT. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus or incorporated herein by reference. Unless
otherwise indicated, all information in this Prospectus assumes no exercise of
the over-allotment option granted to the Underwriters. An investment in the
shares of Common Stock offered hereby involves a high degree of risk.
Prospective investors should consider carefully the information provided under
"Risk Factors."
Protein Design Labs, Inc. ("PDL" or the "Company") is a leader in the
development of humanized and human monoclonal antibodies for the prevention and
treatment of a variety of disease conditions, including autoimmune diseases,
inflammatory conditions, cancers and viral infections. The Company uses
proprietary computer software and other technologies to develop its SMART
humanized antibodies for potential use as effective pharmaceuticals without the
limitations of mouse-derived (murine) antibodies. PDL believes that its
technologies are broadly applicable to a variety of diseases, as demonstrated by
the Company's diverse product development pipeline and its collaborative
arrangements with eight pharmaceutical companies. The Company and its
collaborative partners currently have four product candidates in multiple
clinical trials and numerous additional product candidates in preclinical
studies. The Company's most advanced potential product, Zenapax, has
successfully completed two multinational Phase III clinical trials for the
prevention of kidney transplant rejection. In 1996, PDL received U.S. and
European patents that the Company believes cover most humanized antibodies, and
that may lead to additional corporate partnering, patent licensing and other
revenue opportunities.
The Company's four compounds in clinical development are as follows:
Zenapax (SMART Anti-Tac Antibody). Zenapax is a humanized antibody
developed for the prevention of organ transplant rejection and the potential
treatment of certain autoimmune diseases and cancers. The Company has licensed
to Roche exclusive worldwide marketing rights to Zenapax. In addition to bearing
all development costs for Zenapax, Roche has provided PDL $19.5 million in
licensing fees, milestone payments, research funding and equity investments. In
two multinational Phase III clinical trials conducted by Roche, Zenapax, in
conjunction with standard immunosuppressive therapies, reduced the incidence of
rejection episodes in kidney transplant recipients by 37% and 40%, respectively,
compared to standard therapies alone. Roche has stated that it plans to file in
the first half of 1997 for approval to market Zenapax in the U.S., Canada and
Europe. In addition, the Company believes that Zenapax may have potential to
treat certain autoimmune diseases. Proof-of-concept clinical trials have
commenced for uveitis and are planned for psoriasis.
SMART M195 Antibody. SMART M195 is a humanized antibody developed for the
treatment of myeloid leukemia, the most prevalent form of leukemia in adults.
SMART M195 currently is in a Phase II/III trial for the treatment of acute
myelogenous leukemia ("AML") in combination with conventional chemotherapy, and
a separate Phase II trial for acute promyelocytic leukemia ("APL"), a subtype of
AML.
OST 577 (Human Anti-Hepatitis B Antibody). OST 577 is a fully human
antibody for the treatment of chronic hepatitis B ("CHB"). OST 577 has completed
Phase I/II trials in patients with CHB and in patients undergoing liver
transplantation for end-stage liver disease due to CHB. A Phase II trial in CHB
patients is being conducted by the Company's collaborative partner Boehringer
Mannheim, which has licensed development and marketing rights to this product
candidate outside of North America, and a Phase II/III trial in liver transplant
patients is being designed. In addition to sharing in product development costs,
Boehringer Mannheim has provided PDL $117 million in equity investments, license
fees, milestone payments and research and development funding for this and other
products.
PROTOVIR (Human Anti-Cytomegalovirus Antibody). PROTOVIR is a fully human
antibody in a Phase II clinical trial for the prevention of cytomegalovirus
("CMV") infections in bone marrow transplant ("BMT") recipients, for which
patient accrual has been completed.
3
<PAGE> 5
PDL's business strategy is to leverage its technologies, research expertise
and intellectual property in the field of antibodies to become a profitable,
research-based biopharmaceutical company that manufactures and, in North
America, markets its own products. Key aspects of PDL's strategy are to: (i)
expand the Company's product portfolio to provide multiple product candidates to
treat a variety of diseases and conditions; (ii) establish collaborative
relationships with pharmaceutical companies to reduce development costs and
risks and to enhance commercial opportunities; (iii) leverage its patent
position by licensing certain rights in exchange for near-term revenues and
future royalty opportunities; and (iv) retain and obtain North American
marketing or co-promotion rights to certain products to provide for greater
revenue opportunities.
The Company actively seeks partnerships with pharmaceutical companies. The
breadth of the Company's antibody technology and its patent position are key
assets in attracting other companies to enter into such collaborative
relationships with the Company. In one type of collaborative arrangement, the
Company licenses certain marketing rights to one or more potential products
developed by PDL in return for a licensing fee, research funding and milestone
payments, and royalties on potential product sales. In another type of
arrangement, PDL uses its proprietary technology to develop a SMART antibody
based on a promising murine antibody developed by its corporate partner. In such
cases, PDL typically receives a licensing fee and other payments, royalties on
potential sales and, in some cases, an option to co-promote in North America.
The following table lists the Company's collaborative relationships. For
additional information concerning these arrangements, see
"Business -- Collaborative and Licensing Arrangements."
<TABLE>
<CAPTION>
YEAR
PARTNER POTENTIAL PRODUCTS INITIATED RIGHTS OF PARTNER
- ---------------------------- ---------------------------- --------- ----------------------------
<S> <C> <C> <C>
Roche Zenapax 1989 Worldwide
Novartis SMART ABL 364 Antibody 1990 Co-promotion worldwide
Human anti-viral antibodies 1993 Certain co-promotion rights
Yamanouchi SMART Anti-Platelet Antibody 1991 Worldwide
Kanebo SMART M195 Antibody 1992 Asia
Boehringer Mannheim OST 577 1993 Rights in various geographic
PROTOVIR regions outside North
SMART Anti-L-Selectin America
Antibody
Mochida SMART antibody for certain 1995 Worldwide; PDL has option to
infectious diseases co-promote in North America
Japanese collaborator SMART antibody for cancer 1996 Worldwide; PDL has option to
and certain other diseases co-promote in North America
Roche SMART antibody for 1996 Worldwide
rheumatoid arthritis
Genetics Institute SMART antibodies for 1996 Worldwide; PDL has option to
(a subsidiary of autoimmune diseases co-promote in North America
American Home Products)
</TABLE>
The Company was incorporated in Delaware in July 1986. The Company's
executive offices are located at 2375 Garcia Avenue, Mountain View, California
94043 and its telephone number at that location is (415) 903-3700.
Protein Design Labs, the PDL logo and PROTOVIR are registered trademarks of
the Company, and SMART is a trademark of the Company. Zenapax and CellCept are
registered U.S. trademarks of Hoffmann-La Roche Inc. All other company names and
trademarks included in this Prospectus are trademarks, registered trademarks or
trade names of their respective owners.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the
Company.......................... 2,000,000 shares
Common Stock offered by the
Selling Stockholder.............. 750,000 shares
Common Stock to be outstanding
after the offering............... 17,759,089 shares(1)
Use of proceeds.................. Working capital and general corporate
purposes; manufacturing, preclinical and
clinical development; research activities,
including investigation of new
technologies; leasing or acquiring
additional facilities; and potential
acquisition of complementary technologies,
product candidates or companies. See "Use
of Proceeds."
Nasdaq National Market
symbol......................... PDLI
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues................................... $8,385 $16,800 $15,209 $17,613 $ 22,600
Total costs and expenses......................... 9,305 22,732 20,425 25,967 34,396
------ ------- ------- ------- --------
Net loss......................................... $ (920) $(5,932) $(5,216) $(8,354) $(11,796)
====== ======= ======= ======= ========
Net loss per share............................... $(0.07) $ (0.47) $ (0.37) $ (0.54) $ (0.76)
====== ======= ======= ======= ========
Common shares used in computation of net loss per
share.......................................... 12,491 12,747 14,060 15,343 15,604
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments................................ $ 99,667 $166,835
Working capital....................................................... 74,221 141,389
Total assets.......................................................... 110,331 177,499
Accumulated deficit................................................... (35,507) (35,507)
Total stockholders' equity............................................ 105,112 172,280
</TABLE>
- ---------------
(1) Based on shares outstanding as of December 31, 1996. Excludes options
outstanding at December 31, 1996, to purchase 1,941,432 shares at a
weighted average exercise price of $18.44, of which options to purchase
774,813 shares were then exercisable.
(2) As adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock being offered hereby at an assumed public offering price of
$35.75 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" as well as those discussed elsewhere in this Prospectus.
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in the Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby. This Prospectus contains
forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as in the Prospectus generally. Actual events
or results may differ materially from those discussed in this Prospectus.
HISTORY OF LOSSES; FUTURE PROFITABILITY UNCERTAIN. The Company has a
history of operating losses and expects to incur substantial additional expenses
with resulting quarterly losses over at least the next several years as it
continues to develop its potential products and to devote significant resources
to preclinical studies, clinical trials, and manufacturing. As of December 31,
1996, the Company had accumulated net losses of approximately $35.5 million. To
date, the Company has not received regulatory approval to distribute any
products. The time and resource commitment required to achieve market success
for any individual product is extensive and uncertain and in some cases
controlled by the Company's collaborators. No assurance can be given that the
Company's, or any of its collaborative partners', product development efforts
will be successful, that required regulatory approvals can be obtained, that
potential products can be manufactured at an acceptable cost and with
appropriate quality, or that any approved products can be successfully marketed.
The Company has not generated any material revenues from product sales or
royalties from licenses to the Company's technology, and potential products that
may be marketed by the Company, if any, are not expected to be approved for
marketing for at least the next several years. The Company's revenues to date
have consisted, and for the near future are expected to consist, principally of
research and development funding, licensing and signing fees and milestone
payments from pharmaceutical companies under collaborative research and
development agreements. These revenues may vary considerably from quarter to
quarter and from year to year, and revenues in any period may not be predictive
of revenues in any subsequent period, and variations may be significant
depending on the terms of the particular agreements. In particular, revenues for
the fourth quarter of 1996, which included several non-recurring payments in
connection with new licensing agreements, may not be indicative of revenues in
future quarters. While the Company historically has received significant revenue
pursuant to certain of its collaborations, the Company has recognized
substantially all of the research and development and milestone revenue due
under these collaborations. Although the Company anticipates entering into new
collaborations from time to time, the Company presently does not anticipate
realizing non-royalty revenue from its new and proposed collaborations at levels
commensurate with the revenue historically recognized under its older
collaborations. Moreover, the Company anticipates that its operating expenses
will continue to increase significantly as the Company increases its research
and development, manufacturing, preclinical, clinical, administrative and patent
activities. Accordingly, in the absence of substantial revenues from new
corporate collaborations, royalties on Zenapax sales or other sources, the
Company expects to incur substantial and increased operating losses in the
foreseeable future as certain of its earlier stage potential products move into
later stage clinical development, as additional potential products are selected
as clinical candidates for further development, as the Company invests in
additional manufacturing facilities or capacity, as the Company defends or
prosecutes its patents and patent applications, and as the Company invests in
research or acquires additional technologies, product candidates or businesses.
The amount of net losses and the time required to reach sustained profitability
are highly uncertain. To achieve sustained profitable operations, the Company,
alone or with its collaborative partners, must successfully discover, develop,
manufacture, obtain regulatory approvals for and market its potential products.
No assurances can be given that the Company will be able to achieve or sustain
profitability, and results are expected to fluctuate from quarter to quarter.
UNCERTAINTY OF CLINICAL TRIAL RESULTS. Before obtaining regulatory
approval for the commercial sale of any of its potential products, the Company
must demonstrate through preclinical studies and clinical trials that the
product is safe and efficacious for use in the clinical indication for which
approval is sought. There can be no assurance that the Company will be permitted
to undertake or continue clinical trials for any of its potential products or,
if permitted, that such products will be demonstrated to be safe and
efficacious. Moreover, the
6
<PAGE> 8
results from preclinical studies and early clinical trials may not be predictive
of results that will be obtained in later-stage clinical trials. Thus there can
be no assurance that the Company's present or future clinical trials will
demonstrate the safety and efficacy of any potential products or will result in
approval to market products.
In advanced clinical development, numerous factors may be involved that may
lead to different results in larger, later-stage trials from those obtained in
earlier stage trials. For example, early stage trials usually involve a small
number of patients and thus may not accurately predict the actual results
regarding safety and efficacy that may be demonstrated with a large number of
patients in a later-stage trial. Also, differences in the clinical trial design
between an early-stage and late-stage trial may cause different results
regarding the safety and efficacy of a product to be obtained. In addition, many
early stage trials are unblinded and based on qualitative evaluations by
clinicians involved in the performance of the trial, whereas later stage trials
are generally required to be blinded in order to provide more objective data for
assessing the safety and efficacy of the product. The Company may at times elect
to aggressively enter potential products into Phase I/II trials to determine
preliminary efficacy in specific indications. In addition, in certain cases the
Company has commenced clinical trials without conducting preclinical animal
testing where an appropriate animal model does not exist. Similarly, the Company
or its partners at times will conduct potentially pivotal Phase II/III or Phase
III trials based on limited Phase I or Phase I/II data. As a result of these and
other factors, the Company anticipates that only some of its potential products
will show efficacy in clinical trials and that the number of products that fail
to show efficacy may be significant.
The Company is conducting a Phase II trial evaluating PROTOVIR for the
prevention of CMV infections in bone marrow transplant recipients based on very
limited and inconclusive data from Phase I trials primarily designed to obtain
safety data. Thus, there can be no assurance that the results of this trial will
be favorable.
The Company and a number of other companies in the biotechnology industry
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier-stage trials. For example, in June 1995, Roche
Holding Ltd and its subsidiary Hoffmann-La Roche Inc. ("Roche") and the Company
announced the results of a Phase II/III clinical trial using the Company's SMART
Anti-Tac Antibody, Zenapax, for the prevention of graft-versus-host disease
("GvHD"). The analysis of this data led Roche to conclude that Zenapax was not
effective in reducing the incidence of GvHD in the patient population studied.
In addition, in August 1996, the Company announced the halt of a Phase II/III
clinical trial using PROTOVIR for treatment of CMV retinitis in AIDS patients
conducted by the National Eye Institute ("NEI SOCA") due to lack of evidence of
efficacy. Based on the findings and actions in the above study, enrollment in a
Phase II clinical trial for treatment of CMV retinitis in AIDS patients
conducted by the National Institute of Allergy and Infectious Disease ("NIAID
ACTG") had been suspended, and the trial was recently terminated.
DEPENDENCE ON COLLABORATIVE PARTNERS. The Company has collaborative
agreements with several pharmaceutical companies to develop, manufacture and
market certain potential products, which include the most advanced products
under development by the Company. The Company granted to its collaborative
partners certain exclusive rights to commercialize the products covered by these
collaborative agreements. In some cases, the Company is relying on its
collaborative partners to conduct clinical trials, to compile and analyze the
data received from such trials, to obtain regulatory approvals and, if approved,
to manufacture and market these licensed products, including Zenapax and the
Company's Human Anti-Hepatitis B Virus Antibody (OST 577). As a result, the
Company often has little or no control over the development of these potential
products and little or no opportunity to review clinical data prior to or
following public announcement.
The Company's collaborative research agreements are generally terminable by
its partners on short notice. Suspension or termination of certain of the
Company's current collaborative research agreements could have a material
adverse effect on the Company's operations and could significantly delay the
development of the affected products. Continued funding and participation by
collaborative partners will depend not only on the timely achievement of
research and development objectives by the Company and the successful
achievement of clinical trial goals, neither of which can be assured, but also
on each collaborative partner's
7
<PAGE> 9
own financial, competitive, marketing and strategic considerations. Such
considerations include, among other things, the commitment of management of the
collaborative partners to the continued development of the licensed products,
the relationships among the individuals responsible for the implementation and
maintenance of the collaborative efforts, the relative advantages of alternative
products being marketed or developed by the collaborators or by others,
including their relative patent and proprietary technology positions, and their
ability to manufacture potential products successfully. In this regard, the
Company has, at times, experienced difficulty in its continuing relationship
with Boehringer Mannheim GmbH ("Boehringer Mannheim") due to a number of
factors, including disagreements regarding the timing of the initiation and
design of certain proposed clinical trials involving the development of certain
products licensed to Boehringer Mannheim, particularly OST 577.
In addition, certain collaborative partners have developed and may be
developing competitive products that may result in delay or a relatively smaller
resource commitment to product launch and support efforts than might otherwise
be obtained if the potentially competitive product were not under development or
being marketed. For example, Roche controls the development of Zenapax, the most
advanced of the Company's products in development, and the Company is dependent
upon the resources and activities of Roche to pursue commercialization of
Zenapax in order for the Company to achieve milestones or royalties from the
development of this product. There can be no assurance that Roche will proceed
to bring this product to market in a rapid and timely manner, if at all, or if
marketed, that other independently developed products of Roche (including its
recently introduced product CellCept) or others will not compete with or prevent
Zenapax from achieving meaningful sales. Also Roche has stated that it plans to
conduct or support other clinical trials of Zenapax in autoimmune indications.
There can be no assurance that Roche will continue or pursue additional clinical
trials in these indications or that, even if the additional clinical trials are
completed, Zenapax will be shown to be safe and efficacious, or that the trials
will result in approval to market Zenapax in these indications. Any adverse
event or announcement related to Zenapax would have a material adverse effect on
the business and financial condition of the Company.
Further, because the Company expects, in some cases, to rely on its
contractual rights to access data collected by its collaborative partners in
various phases of its clinical development efforts, the Company is dependent on
the continued satisfaction by such parties of their contractual obligations to
provide such access and cooperate with the Company in the preparation and
submission of appropriate filings with the FDA and equivalent foreign government
regulatory agencies. The Company currently relies on Boehringer Mannheim for the
manufacturing and clinical development of OST 577. Boehringer Mannheim has
marketing rights to this antibody in countries outside of North America. There
can be no assurance that Boehringer Mannheim will provide timely access to the
manufacturing and clinical data, that the U.S. Food and Drug Administration
("FDA") will permit the Company to rely on that data or that the trials
conducted by Boehringer Mannheim will produce data appropriate for approval by
the FDA. If the Company were unable to rely on the clinical data collected by
Boehringer Mannheim or its other collaborative partners, the Company may be
required to repeat clinical trials or perform supplemental clinical trials in
order to achieve regulatory approval in North America. Compliance with these
requirements could significantly delay commercialization efforts and require
substantially greater investment by the Company, either of which would have a
material adverse effect on the business and financial condition of the Company.
The Company's ability to enter into new collaborations and the willingness
of the Company's existing collaborators to continue development of the Company's
potential products is dependent upon, among other things, the Company's patent
position with respect to such products. In this regard, the Company recently was
issued patents by the U.S. Patent and Trademark Office ("PTO") and European
Patent Office ("EPO") with claims that the Company believes, based on its survey
of the scientific literature, cover most humanized antibodies. Eighteen notices
of opposition to the European patent have been filed with the EPO, and either or
both patents may be further challenged through administrative or judicial
proceedings. The Company has applied for similar patents in Japan and other
countries. The Company recently entered into several new collaborations related
to the humanization of certain antibodies whereby it granted nonexclusive
licenses to its patent rights relating to such antibodies, and the Company
anticipates entering into additional collaborations partially as a result of the
Company's patent and patent applications with respect to humanized antibodies.
As
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a result, the inability of the Company to successfully defend the opposition
proceeding before the EPO or, if necessary, to defend patents granted by the PTO
or EPO or to successfully prosecute the corresponding patent applications in
Japan or other countries could adversely affect the ability of the Company to
enter into additional collaborations and could therefore have a material adverse
effect on the Company's business or financial condition.
LIMITED EXPERIENCE WITH CLINICAL TRIALS; RISK OF DELAY. The Company has
conducted only a limited number of clinical trials to date. There can be no
assurance that the Company will be able to successfully commence and complete
all of its planned clinical trials without significant additional resources and
expertise. In addition, there can be no assurance that the Company will meet its
contemplated development schedule for any of its potential products. The
inability of the Company or its collaborative partners to commence or continue
clinical trials as currently planned, to complete the clinical trials on a
timely basis or to demonstrate the safety and efficacy of its potential
products, would have a material adverse effect on the business and financial
condition of the Company.
The rate of completion of the Company's or its collaborators' clinical
trials is significantly dependent upon, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including, among
others, the size of the patient population, perceived risks and benefits of the
drug under study, availability of competing therapies, access to reimbursement
from insurance companies or government sources, design of the protocol,
proximity of and access by patients to clinical sites, patient referral
practices, eligibility criteria for the study in question and efforts of the
sponsor of and clinical sites involved in the trial to facilitate timely
enrollment in the trial. Delays in the planned rate of patient enrollment may
result in increased costs and expenses in completion of the trial or may require
the Company to undertake additional studies in order to obtain regulatory
approval if the applicable standard of care changes in the therapeutic
indication under study. For example, patient accrual in the Company's ongoing
Phase II/III trial of the SMART M195 Antibody in myeloid leukemia has been
negatively affected by changes in referral patterns, with such patients now more
commonly being treated in local hospitals rather than being referred to tertiary
care hospitals where the Company's trial is being conducted. There can be no
assurance that any actions by the Company to accelerate accrual in this trial
will be successful or, to the extent that they involve modifications in the
design of the trial, will not cause that trial to be considered a Phase II
clinical trial and thereby require one or more additional potentially pivotal
trials to be conducted.
UNCERTAINTY OF PATENTS AND PROPRIETARY TECHNOLOGY; OPPOSITION
PROCEEDINGS. The Company's success is significantly dependent on its ability to
obtain patent protection for its products and technologies and to preserve its
trade secrets and operate without infringing on the proprietary rights of third
parties. PDL files and prosecutes patent applications to protect its inventions.
No assurance can be given that the Company's pending patent applications will
result in the issuance of patents or that any patents will provide competitive
advantages or will not be invalidated or circumvented by its competitors.
Moreover, no assurance can be given that patents are not issued to, or patent
applications have not been filed by, other companies which would have an adverse
effect on the Company's ability to use, manufacture or market its products or
maintain its competitive position with respect to its products. Other companies
obtaining patents claiming products or processes useful to the Company may bring
infringement actions against the Company. As a result, the Company may be
required to obtain licenses from others or not be able to use, manufacture or
market its products. Such licenses may not be available on commercially
reasonable terms, if at all.
Patents in the U.S. are issued to the party that is first to invent the
claimed invention. Since patent applications in the U.S. are maintained in
secrecy until patents issue, PDL cannot be certain that it was the first
inventor of the inventions covered by its pending patent applications or that it
was the first to file patent applications for such inventions. The patent
positions of biotechnology firms generally are highly uncertain and involve
complex legal and factual questions. No consistent policy has emerged regarding
the breadth of claims in biotechnology patents, and patents of biotechnology
products are uncertain so that even issued patents may later be modified or
revoked by the PTO or the courts in proceedings instituted by third parties.
Moreover, the issuance of a patent in one country does not assure the issuance
of a patent with similar claims in another country and claim interpretation and
infringement laws vary among countries, so the extent of any patent protection
may vary in different territories.
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PDL has several patents and has exclusively licensed certain patents from
Novartis. In particular with respect to humanization technology, in June 1996,
PDL was issued a U.S. patent covering Zenapax and certain related antibodies
against the IL-2 receptor. In addition, PDL is currently prosecuting other
patent applications with the PTO and in other countries, including members of
the European Patent Convention, Canada, Japan and Australia. The patent
applications are directed to various aspects of PDL's SMART and human
antibodies, antibody technology and other programs, and include claims relating
to compositions of matter, methods of preparation and use of a number of PDL's
compounds. However, PDL does not know whether any pending applications will
result in the issuance of patents or whether such patents will provide
protection of commercial significance. Further, there can be no assurance that
PDL's patents will prevent others from developing competitive products using
related technology.
In January and December 1996, PDL was issued patents by the EPO and PTO,
respectively. PDL believes the patent claims cover Zenapax and, based on its
review of the scientific literature, most humanized antibodies. The EPO (but not
PTO) procedures provide for a nine-month opposition period in which other
parties may submit arguments as to why the patent was incorrectly granted and
should be withdrawn or limited. The entire opposition process, including
appeals, may take several years to complete, and during this lengthy process,
the validity of the EPO patent will be at issue, which may limit the Company's
ability to negotiate or collect royalties or to negotiate future collaborative
research and development agreements based on this patent. Eighteen notices of
opposition to PDL's European patent were filed during the opposition period,
including oppositions by major pharmaceutical and biotechnology companies, which
cited references and made arguments not considered by the EPO and PTO before
grant of the respective patents. The oppositions currently are being reviewed by
the Company's patent counsel. PDL intends to vigorously defend the European and,
if necessary, the U.S. patent; however, there can be no assurance that the
Company will prevail in the opposition proceedings or any litigation contesting
the validity or scope of these patents. In addition, such proceedings or
litigation, or any other proceedings or litigation to protect the Company's
intellectual property rights or defend against infringement claims by others,
could result in substantial costs and a diversion of management's time and
attention, which could have a material adverse effect on the business and
financial condition of the Company.
A number of companies, universities and research institutions have filed
patent applications or received patents in the areas of antibodies and other
fields relating to PDL's programs. Some of these applications or patents may be
competitive with PDL's applications or contain claims that conflict with those
made under PDL's patent applications or patents. Such conflict could prevent
issuance of patents to PDL, provoke an interference with PDL's patents or result
in a significant reduction in the scope or invalidation of PDL's patents, if
issued. An interference is an administrative proceeding conducted by the PTO to
determine the priority of invention and other matters relating to the decision
to grant patents. Moreover, if patents are held by or issued to other parties
that contain claims relating to PDL's products or processes, and such claims are
ultimately determined to be valid, no assurance can be given that PDL would be
able to obtain licenses to these patents at a reasonable cost, if at all, or to
develop or obtain alternative technology.
The Company is aware that Celltech Limited ("Celltech") has been granted a
patent by the EPO covering certain humanized antibodies, which PDL has opposed,
and Celltech has announced that it has received a notice of allowance of a
corresponding U.S. patent (the "U.S. Adair Patent") and expects the patent to
issue in early 1997. Because U.S. patent applications are maintained in secrecy,
PDL cannot review the scope of the claims in the U.S. Adair Patent. Accordingly,
there can be no assurance that such claims would not cover any of PDL's SMART
antibodies or be competitive with or conflict with claims in PDL's patents or
patent applications. If the U.S. Adair Patent issues and if it is determined to
be valid and to cover any of PDL's SMART antibodies, there can be no assurance
that PDL would be able to obtain a license on commercially reasonable terms, if
at all. If the claims of the U.S. Adair Patent conflict with claims in PDL's
patents or patent applications, there can be no assurance that an interference
would not be declared by the PTO, which could take several years to resolve and
could involve significant expense to the Company. Also, such conflict could
prevent issuance of patents to PDL relating to humanization of antibodies or
result in a significant reduction in the scope or invalidation of PDL's patents,
if issued. Moreover, uncertainty as to the validity or scope of patents issued
to PDL relating generally to humanization of antibodies may limit the
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Company's ability to negotiate or collect royalties or to negotiate future
collaborative research and development agreements based on these patents.
PDL has obtained a nonexclusive license under a patent held by Celltech
(the "Boss Patent") relating to PDL's current process for producing SMART and
human antibodies. An interference proceeding was declared in early 1991 by the
PTO between the Boss Patent and a patent application filed by Genentech, Inc.
("Genentech") to which PDL does not have a license. PDL is not a party to this
proceeding, and the timing and outcome of the proceeding or the scope of any
patent that may be subsequently issued cannot be predicted. If the Genentech
patent application were held to have priority over the Boss Patent, and if it
were determined that PDL's processes and products were covered by a patent
issuing from such patent application, PDL may be required to obtain a license
under such patent or to significantly alter its processes or products. There can
be no assurance that PDL would be able to successfully alter its processes or
products to avoid infringing such patent or to obtain such a license on
commercially reasonable terms, if at all, and the failure to do so could have a
material adverse effect on PDL.
The Company is aware that Lonza Biologics, Inc. has a patent issued in
Europe to which PDL does not have a license (although Roche has advised the
Company that it has a license covering Zenapax), which may cover the process the
Company uses to produce its potential products. If it were determined that PDL's
processes were covered by such patent, PDL may be required to obtain a license
under such patent or to significantly alter its processes or products, if
necessary to manufacture or import its products in Europe. There can be no
assurance that PDL would be able to successfully alter its processes or products
to avoid infringing such patent or to obtain such a license on commercially
reasonable terms, if at all, and the failure to do so could have a material
adverse effect on the business and financial condition of the Company.
Also, Genentech has patents in the U.S. and Europe that relate to chimeric
antibodies. The European patent is currently in the opposition process. If
Genentech were to assert that the Company's SMART antibodies infringe these
patents, PDL may have to choose whether to seek a license or to challenge in
court the validity of such patents or Genentech's claim of infringement. There
can be no assurance that PDL would be successful in either obtaining such a
license on commercially reasonable terms, if at all, or that it would be
successful in such a challenge of the Genentech patents, and the failure to do
so would have a material adverse effect on the business and financial condition
of the Company.
In addition to seeking the protection of patents and licenses, PDL also
relies upon trade secrets, know-how and continuing technological innovation
which it seeks to protect, in part, by confidentiality agreements with
employees, consultants, suppliers and licensees. There can be no assurance that
these agreements will not be breached, that PDL would have adequate remedies for
any breach or that PDL's trade secrets will not otherwise become known or
independently developed by competitors.
ABSENCE OF MANUFACTURING EXPERIENCE; DEPENDENCE ON MANUFACTURING BY
BOEHRINGER MANNHEIM. Of the products developed by the Company which are
currently in clinical development, Roche is responsible for manufacturing
Zenapax and Boehringer Mannheim is responsible for manufacturing OST 577. The
Company intends to manufacture the SMART M195 Antibody, PROTOVIR and some of its
other products in preclinical development. PDL currently leases approximately
45,000 square feet housing its manufacturing facility in Plymouth, Minnesota.
PDL intends to continue to manufacture potential products for use in preclinical
and clinical trials using this manufacturing facility in accordance with
standard procedures that comply with current Good Manufacturing Practices
("cGMP") and appropriate regulatory standards. The manufacture of sufficient
quantities of antibody products in accordance with such standards is an
expensive, time-consuming and complex process and is subject to a number of
risks that could result in delays. For example, PDL has experienced some
difficulties in the past in manufacturing certain potential products on a
consistent basis. Production interruptions, if they occur, could significantly
delay clinical development of potential products, reduce third party or clinical
researcher interest and support of proposed clinical trials, and possibly delay
commercialization of such products and impair their competitive position, which
would have a material adverse effect on the business and financial condition of
the Company.
PDL has no experience in manufacturing commercial quantities of its
potential products and currently does not have sufficient capacity to
manufacture its potential products on a commercial scale. In order to
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obtain regulatory approvals and to expand its capacity to produce its products
for commercial sale at an acceptable cost, PDL will need to improve and expand
its existing manufacturing capabilities, including demonstration to the FDA of
its ability to manufacture its products using controlled, reproducible
processes. Accordingly, the Company is evaluating plans to improve and expand
the capacity of its current manufacturing facility. Such plans, if instituted,
would result in substantial costs to the Company and may require a suspension of
manufacturing operations during construction. There can be no assurance that
construction delays would not occur, and any such delays could impair the
Company's ability to produce adequate supplies of its potential products for
clinical use or commercial sale on a timely basis. There can be no assurance
that PDL will successfully improve and expand its manufacturing capability
sufficiently to obtain necessary regulatory approvals and to produce adequate
commercial supplies of its potential products on a timely basis. Failure to do
so could delay commercialization of such products and impair their competitive
position, which could have a material adverse effect on the business or
financial condition of the Company.
In addition, PDL and Boehringer Mannheim have agreed to negotiate
additional agreements under which each company could manufacture and supply the
other with certain of the antibodies covered by the agreement. There can be no
assurance that the parties will enter into an agreement that will provide for
the Company's potential product requirements to be met in a consistent, timely
and cost effective manner. Specifically, with respect to OST 577, the Company
currently does not manufacture this product and has no alternative manufacturing
sources for this product. In the event that Boehringer Mannheim and the Company
are unable to reach an acceptable agreement, or if material is not supplied in
accordance with such an agreement, there can be no assurance that the Company
could make alternative manufacturing arrangements on a timely basis, if at all,
and the inability to do so could have a material adverse effect on the business
and financial condition of the Company.
UNCERTAINTIES RESULTING FROM MANUFACTURING CHANGES. Manufacturing of
antibodies for use as therapeutics in compliance with regulatory requirements is
complex, time-consuming and expensive. When certain changes are made in the
manufacturing process, it is necessary to demonstrate to the FDA that the
changes have not caused the resulting drug material to differ significantly from
the drug material previously produced, if results of prior preclinical studies
and clinical trials performed using the previously produced drug material are to
be relied upon in regulatory filings. Such changes could include, for example,
changing the cell line used to produce the antibody, changing the fermentation
or purification process or moving the production process to a new manufacturing
plant. Depending upon the type and degree of differences between the newer and
older drug material, various studies could be required to demonstrate that the
newly produced drug material is sufficiently similar to the previously produced
drug material, possibly requiring additional animal studies or human clinical
trials. Manufacturing changes have been made or are likely to be made for the
production of PDL's products currently in clinical development. There can be no
assurance that such changes will not result in delays in development or
regulatory approvals or, if occurring after regulatory approval, in reduction or
interruption of commercial sales. Such delays could have an adverse effect on
the competitive position of those products and could have a material adverse
effect on the business and financial condition of the Company.
Roche has equipped a manufacturing facility that is expected to be used to
produce Zenapax. Phase III trials of Zenapax in kidney transplantation were
conducted using material produced for Roche by a third party contract
manufacturer at a different facility using a different cell line and a different
manufacturing process. Roche has produced Zenapax at its facility using the new
cell line and process and has produced data indicating that the newly produced
material is substantially similar to the material used in the Phase III clinical
trials. However, there can be no assurance that changes in the manufacturing
site or any other manufacturing changes by Roche will not cause delays in the
development or commercialization of Zenapax. Such delays could have an adverse
effect on the competitive position of Zenapax and could have a material adverse
effect on the business and financial condition of the Company.
In addition, with respect to two of the antibodies in clinical development
licensed from Novartis Pharmaceuticals Corporation ("Novartis") (formerly known
as Sandoz Pharmaceuticals Corporation), PROTOVIR and OST 577, the cell lines
developed by PDL for both antibodies and the production processes developed by
PDL for PROTOVIR and Boehringer Mannheim for OST 577 are different from those
utilized by Novartis for the manufacture of the antibody supplies used in
earlier clinical trials. There can be no
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assurance that this new material, when used in humans, will have the same
characteristics or produce results similar to the antibody material originally
developed and used by Novartis in earlier clinical trials. Accordingly,
Boehringer Mannheim or the Company may be required to conduct additional
laboratory or clinical testing, which could result in significant delays and/or
additional expenses and could have a material adverse effect on the competitive
position of these potential products and on the business and financial condition
of the Company.
DEPENDENCE ON SUPPLIERS. The Company is dependent on outside vendors for
the supply of raw materials used to produce its product candidates. The Company
currently qualifies only one or a few vendors for its source of certain raw
materials. Therefore, once a supplier's materials have been selected for use in
the Company's manufacturing process, the supplier in effect becomes a sole or
limited source of such raw materials to the Company due to the extensive
regulatory compliance procedures governing changes in manufacturing processes.
Although the Company believes it could qualify alternative suppliers, there can
be no assurance that the Company would not experience a disruption in
manufacturing if it experienced a disruption in supply from any of these
sources. Any significant interruption in the supply of any of the raw materials
currently obtained from such sources, or the time and expense necessary to
transition a replacement supplier's product into the Company's manufacturing
process, could disrupt its operations and have a material adverse effect on the
business and financial condition of the Company. A problem or suspected problem
with the quality of raw materials supplied could result in a suspension of
clinical trials, notification of patients treated with products or product
candidates produced using such materials, potential product liability claims, a
recall of products or product candidates produced using such materials, and an
interruption of supplies, any of which could have a material adverse effect on
the business or financial condition of the Company.
COMPETITION; RAPID TECHNOLOGICAL CHANGE. The Company's potential products
are intended to address a wide variety of disease conditions, including
autoimmune diseases, inflammatory conditions, cancers and viral infections.
Competition with respect to these disease conditions is intense and is expected
to increase. This competition involves, among other things, successful research
and development efforts, obtaining appropriate regulatory approvals,
establishing and defending intellectual property rights, successful product
manufacturing, marketing, distribution, market and physician acceptance, patient
compliance, price and potentially securing eligibility for reimbursement or
payment for the use of the Company's product. The Company believes its most
significant competitors may be fully integrated pharmaceutical companies with
substantial expertise in research and development, manufacturing, testing,
obtaining regulatory approvals, marketing and securing eligibility for
reimbursement or payment, and substantially greater financial and other
resources than the Company. Smaller companies also may prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical companies. Furthermore, academic institutions, governmental
agencies and other public and private research organizations conduct research,
seek patent protection, and establish collaborative arrangements for product
development, clinical development and marketing. These companies and
institutions also compete with the Company in recruiting and retaining highly
qualified personnel. The biotechnology and pharmaceutical industries are subject
to rapid and substantial technological change. The Company's competitors may
develop and introduce other technologies or approaches to accomplishing the
intended purposes of the Company's products which may render the Company's
technologies and products noncompetitive and obsolete.
In addition to currently marketed competitive drugs, the Company is aware
of potential products in research or development by its competitors that address
all of the diseases being targeted by the Company. These and other products may
compete directly with the potential products being developed by the Company. In
this regard, the Company is aware that potential competitors are developing
antibodies or other compounds for treating autoimmune diseases, inflammatory
conditions, cancers and viral infections. In particular, a number of other
companies have developed and will continue to develop human anti-viral
antibodies and humanized antibodies. In addition, protein design is being
actively pursued at a number of academic and commercial organizations, and
several companies have developed or may develop technologies that can compete
with the Company's SMART and human antibody technologies. There can be no
assurance that competitors will not succeed in more rapidly developing and
marketing technologies and products that are more effective than the products
being developed by the Company or that would render the Company's products or
technology obsolete or noncompetitive. Further, there can be no assurance that
the Company's
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collaborative partners will not independently develop products competitive with
those licensed to such partners by the Company, thereby reducing the likelihood
that the Company will receive revenues under its agreements with such partners.
Any potential product that the Company succeeds in developing and for which
it gains regulatory approval must then compete for market acceptance and market
share. For certain of the Company's potential products, an important factor will
be the timing of market introduction of competitive products. Accordingly, the
relative speed with which the Company and competing companies can develop
products, complete the clinical testing and approval processes, and supply
commercial quantities of the products to the market is expected to be an
important determinant of market success. Other competitive factors include the
capabilities of the Company's collaborative partners, product efficacy and
safety, timing and scope of regulatory approval, product availability, marketing
and sales capabilities, reimbursement coverage, the amount of clinical benefit
of the Company's products relative to their cost, method of administration,
price and patent protection. There can be no assurance that the Company's
competitors will not develop more efficacious or more affordable products, or
achieve earlier product development completion, patent protection, regulatory
approval or product commercialization than the Company. The occurrence of any of
these events by the Company's competitors could have a material adverse effect
on the business and financial condition of the Company.
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. The primary purposes of
the offering are to increase the Company's working capital and funds available
for general corporate purposes, manufacturing, preclinical and clinical
development, research activities, including investigations of new technologies,
leasing or acquiring additional facilities and potential acquisition of
complementary technologies, product candidates or businesses. The Company has
not designated specific amounts of the net proceeds for particular purposes and
expects that the funds generated from operations, if any, will contribute to
meeting the Company's capital needs. Management of the Company will have broad
discretion with respect to the use of the proceeds derived from the offering.
NO ASSURANCE OF REGULATORY APPROVAL; GOVERNMENT REGULATION. The
manufacturing, testing and marketing of PDL's products are subject to regulation
by numerous governmental authorities in the U.S. and other countries based upon
their safety and efficacy. In the U.S., pharmaceutical products are subject to
rigorous FDA regulation. The federal Food, Drug and Cosmetic Act ("FD&C Act"),
Public Health Service Act ("PHS Act") and other federal, state and local
regulations govern the manufacture, testing, labeling, storage, record keeping,
clinical and nonclinical studies to assess safety and efficacy, approval,
advertising and promotion of pharmaceutical products. The process of developing
and obtaining approval for a new pharmaceutical product within this regulatory
framework requires a number of years and the expenditure of substantial
resources. There can be no assurance that necessary approvals will be obtained
on a timely basis, if at all.
In addition to the requirement for FDA approval of each pharmaceutical
product, each pharmaceutical product manufacturing facility must be registered
with, and approved by, the FDA. The manufacturing and quality control procedures
must conform to cGMP in order to receive FDA approval. Pharmaceutical product
manufacturing establishments are subject to inspections by the FDA and local
authorities as well as inspections by authorities of other countries. To supply
pharmaceutical products for use in the U.S., foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection by
the FDA or by corresponding regulatory agencies in such countries under
reciprocal agreements with the FDA. Moreover, pharmaceutical product
manufacturing facilities may also be regulated by state, local and other
authorities.
For marketing of pharmaceutical products outside the U.S., PDL is subject
to foreign regulatory requirements governing marketing approval, and FDA and
other U.S. export provisions should the pharmaceutical product be manufactured
in the U.S. Requirements relating to the manufacturing, conduct of clinical
trials, product licensing, promotion, pricing and reimbursement vary widely in
different countries. Difficulties or unanticipated costs or price controls may
be encountered by PDL or its licensees or marketing partners in their respective
efforts to secure necessary governmental approvals to market the potential
pharmaceutical products, which could delay or preclude PDL or its licensees or
its marketing partners from marketing their potential pharmaceutical products.
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The basic steps required by the FDA before a new pharmaceutical product for
human use may be marketed in the U.S. include (i) preclinical laboratory and
animal tests, (ii) submission to the FDA of an application for an
Investigational New Drug ("IND") which must be reviewed by the FDA before
clinical trials may begin, (iii) completion of adequate and well-controlled
human clinical trials to establish the safety and efficacy of the pharmaceutical
product for its intended use, (iv) as of May 1996 for therapeutic monoclonal
antibodies, submission of a Biologics License Application ("BLA") to the FDA,
and (v) FDA approval of the BLA prior to any commercial sale or shipment of the
pharmaceutical product.
The FDA reviews the results of the trials and may discontinue them at any
time for safety reasons or other reasons if they were deemed to be non-compliant
with FDA regulations. There can be no assurance that Phase I, II or III clinical
trials will be completed successfully within any specific time period, if at
all, with respect to any of the Company's or its collaborators' pharmaceutical
products, each of which is subject to such testing requirements.
Both before and after approval is obtained, a pharmaceutical product, its
manufacturer and the holder of the BLA for the pharmaceutical product are
subject to comprehensive regulatory oversight. The FDA may deny a BLA if
applicable regulatory criteria are not satisfied, require additional testing or
information or require postmarketing testing and surveillance to monitor the
safety or efficacy of the pharmaceutical product. Moreover, even if regulatory
approval is granted, such approval may be subject to limitations on the
indicated uses for which the pharmaceutical product may be marketed. Further,
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems with the pharmaceutical product occur following
approval. Among the conditions for BLA approval is the requirement that the
manufacturer of the pharmaceutical product comply with cGMP. In addition, under
a BLA, the manufacturer continues to be subject to facility inspection and the
applicant must assume responsibility for compliance with applicable
pharmaceutical product and establishment standards. Violations of regulatory
requirements at any stage may result in various adverse consequences, including
FDA refusal to accept a license application, total or partial suspension of
licensure, delay in approving or refusal to approve the pharmaceutical product
or pending marketing approval applications, warning letters, fines, injunctions,
withdrawal of the previously approved pharmaceutical product or marketing
approvals and/or the imposition of criminal penalties against the manufacturer
and/or BLA holders. In addition, later discovery of previously unknown problems
may result in new restrictions on such pharmaceutical product, manufacturer
and/or BLA holders, including withdrawal of the pharmaceutical product or
marketing approvals and pharmaceutical product recalls or seizures.
LIMITED SALES AND MARKETING EXPERIENCE. The Company intends to market and
sell certain of its products, if successfully developed and approved, through a
direct sales force in the U.S. and through sales and marketing partnership
arrangements outside the U.S. However, PDL does not expect to establish a direct
sales capability for at least the next few years. The Company has no history or
experience in sales, marketing or distribution. To market its products directly,
the Company must either establish a marketing group and direct sales force or
obtain the assistance of another company. There can be no assurance that the
Company will be able to establish sales and distribution capabilities or succeed
in gaining market acceptance for its products. If the Company enters into
co-promotion or other marketing or licensing arrangements with established
pharmaceutical companies, the Company's revenues will be subject to the payment
provisions of such arrangements and dependent on the efforts of third parties.
There can be no assurance that the Company will be able to successfully
establish a direct sales force or that its collaborators will effectively market
any of the Company's potential products, and the inability of the Company or its
collaborators to do so could have a material adverse effect on the business and
financial condition of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's success is dependent to a
significant degree on its key management personnel. To be successful, the
Company will have to retain its qualified clinical, manufacturing, scientific
and management personnel. The Company faces competition for personnel from other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Company will be successful in hiring or
retaining qualified personnel, and its failure to do so could have a material
adverse effect on the business and financial condition of the Company.
15
<PAGE> 17
PRODUCT LIABILITY AND INSURANCE. The Company faces an inherent business
risk of exposure to product liability claims in the event that the use of
products during research and development efforts or after commercialization
results in adverse effects. There can be no assurance that the Company will
avoid significant product liability exposure. The Company maintains product
liability insurance for clinical trials. However, there can be no assurance that
such coverage will be adequate or that adequate insurance coverage for future
clinical trials or commercial activities will be available at an acceptable
cost, if at all, or that a product liability claim would not materially
adversely affect the business or financial condition of the Company.
POTENTIAL VOLATILITY OF STOCK PRICE. The market for the Company's
securities is volatile and investment in these securities involves substantial
risk. The market prices for securities of biotechnology companies (including the
Company) have been highly volatile, and the stock market from time to time has
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. Factors such as results of
clinical trials, delays in manufacturing or clinical trial plans, fluctuations
in the Company's operating results, disputes or disagreements with collaborative
partners, market reaction to announcements by other biotechnology or
pharmaceutical companies, announcements of technological innovations or new
commercial therapeutic products by the Company or its competitors, initiation,
termination or modification of agreements with collaborative partners, failures
or unexpected delays in manufacturing or in obtaining regulatory approvals or
FDA advisory panel recommendations, developments or disputes as to patent or
other proprietary rights, loss of key personnel, litigation, public concern as
to the safety of drugs developed by the Company, regulatory developments in
either the U.S. or foreign countries (such as opinions, recommendations or
statements by the FDA or FDA advisory panels, health care reform measures or
proposals), and general market conditions could result in the Company's failure
to meet the expectations of securities analysts or investors. In such event, or
in the event that adverse conditions prevail or are perceived to prevail with
respect to the Company's business, the price of PDL's common stock would likely
drop significantly. In the past, following significant drops in the price of a
company's common stock, securities class action litigation has often been
instituted against such a company. Such litigation against the Company could
result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on the Company's business
and financial condition.
FUTURE REQUIREMENTS FOR SIGNIFICANT ADDITIONAL CAPITAL. The Company's
operations to date have consumed substantial amounts of cash. Negative cash flow
from operations is expected to increase significantly beyond current levels over
at least the next two years as the Company expects to spend substantial funds in
conducting clinical trials, to expand its research and development programs and
to develop and expand its manufacturing capability. The Company's future capital
requirements will depend on numerous factors, including, among others, the
progress of the Company's product candidates in clinical trials; the continued
or additional support by collaborative partners or other third parties of
research and clinical trials; enhancement of research and development programs;
the time required to gain regulatory approvals; the resources the Company
devotes to self-funded products, manufacturing methods and advanced
technologies; third party manufacturing commitments; the ability of the Company
to obtain and retain funding from third parties under collaborative agreements;
the development of internal marketing and sales capabilities; the demand for the
Company's potential products, if and when approved; potential acquisitions of
technology, product candidates or businesses by the Company; and the costs of
defending or prosecuting any patent opposition or litigation necessary to
protect the Company's proprietary technology. In order to develop and
commercialize its potential products, the Company may need to raise substantial
additional funds following this offering through equity or debt financings,
collaborative arrangements, the use of sponsored research efforts or other
means. No assurance can be given that such additional financing will be
available on acceptable terms, if at all, and such financing may only be
available on terms dilutive to existing stockholders. The inability of the
Company to secure adequate funds on a timely basis could result in the delay or
cancellation of programs that the Company might otherwise pursue and, in any
event, could have a material adverse effect on the business and financial
condition of the Company.
ENVIRONMENTAL REGULATION. The Company is subject to federal, state and
local laws and regulations governing the use, generation, manufacture, storage,
discharge, handling and disposal of certain materials and
16
<PAGE> 18
wastes used in its operations, some of which are classified as "hazardous."
There can be no assurance that the Company will not be required to incur
significant costs to comply with environmental laws, the Occupational Safety and
Health Act, and state, local and foreign counterparts to such laws, rules and
regulations as its manufacturing and research activities are increased or that
the operations, business and future profitability of the Company will not be
adversely affected by current or future laws, rules and regulations. The risk of
accidental contamination or injury from hazardous materials cannot be
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. In any event, the cost of defending claims arising from such
contamination or injury could be substantial. In addition, the Company cannot
predict the extent of the adverse effect on its business or the financial and
other costs that might result from any new government requirements arising out
of future legislative, administrative or judicial actions.
UNCERTAINTY RELATED TO HEALTH CARE INDUSTRY. The health care industry is
subject to changing political, economic and regulatory influences that may
significantly affect the purchasing practices and pricing of human therapeutics.
Cost containment measures, whether instituted by health care providers or
enacted as a result of government health administration regulators or new
regulations, such as pricing limitations or formulary eligibility for
dispensation by medical providers, could result in greater selectivity in the
availability of treatments. Such selectivity could have an adverse effect on the
Company's ability to sell its products and there can be no assurance that
adequate third-party coverage will be available for the Company to maintain
price levels sufficient to generate an appropriate return on its investment in
product development. Third-party payors are increasingly focusing on the
cost-benefit profile of alternative therapies and prescription drugs and
challenging the prices charged for such products and services. Also, the trend
towards managed health care in the U.S. and the concurrent growth of
organizations such as health maintenance organizations, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices or reduced markets for the
Company's products. The cost containment measures that health care providers and
payors are instituting and the effect of any health care reform could adversely
affect the Company's ability to sell its products and may have a material
adverse effect on the Company. To date, the Company has conducted limited
marketing studies on certain of its potential products and has not undertaken
any pharmacoeconomic analysis with respect to its products under development.
The cost containment measures and reforms that government institutions and third
party payors are considering instituting could result in significant and
unpredictable changes to the marketing, pricing and reimbursement practices of
biopharmaceutical companies such as the Company. The adoption of any such
measures or reforms could have a material adverse effect on the business and
financial condition of the Company.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Future sales of
shares by certain existing stockholders could adversely affect the market price
of the Company's Common Stock. Based on shares held on December 31, 1996, after
giving effect to the offering, directors, officers, Roche and Corange
International Limited ("Corange"), an affiliated company of Boehringer Mannheim,
will hold approximately 25.3% of the outstanding shares of the Company's Common
Stock. See "Business -- Collaborative and Licensing Arrangements" and "Principal
and Selling Stockholders." These outstanding shares are all freely tradable,
subject to restrictions imposed by Rule 144 under the Securities Act of 1933, as
amended, with respect to sales by affiliates and sales of restricted stock.
Except under certain limited circumstances, the Company and its officers and
directors have agreed not to sell or otherwise dispose of any of their shares
for a period of 90 days after the effective date of the offering without the
consent of Oppenheimer & Co., Inc. ("Oppenheimer"), and, subject to Corange's
selling 750,000 shares in this offering, Corange has agreed not to sell or
otherwise dispose of any of its shares for a period of 365 days after the
effective date without the prior written consent of Oppenheimer and the Company.
Oppenheimer may, in its sole discretion (except with respect to shares held by
Corange, which also requires the consent of the Company) and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. In addition, Roche and, subject to their respective lock-up
agreements, Laurence Jay Korn, Cary L. Queen, and Corange have certain
registration rights with respect to their shares of the Company's Common Stock.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby are estimated to be approximately $67.2 million ($81.1
million if the Underwriter's over-allotment option is exercised in full) at an
assumed offering price of $35.75 per share. The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholder. See
"Principal and Selling Stockholders."
The Company intends to use the proceeds of this offering for working
capital and general corporate purposes; manufacturing, preclinical and clinical
development; research activities, including investigation and support of new
technologies; and leasing or acquiring additional facilities. Proceeds may also
be used to acquire technologies, product candidates or companies that complement
the business of the Company. While the Company from time to time engages in
preliminary discussions with respect to such transactions, the Company is not a
party to any agreements, understandings or commitments with respect to such
acquisitions.
The amounts and timing of expenditures for each purpose may vary
significantly depending on the terms of any collaborative arrangements entered
into by the Company, the progress and focus of the Company's research and
development programs, the progress and results of the Company's clinical trials
and preclinical studies, regulatory approvals and technological advances,
determinations as to the commercial potential of PDL's products, the success of
the Company's manufacturing efforts, the need for additional capital equipment,
the need for additional manufacturing capabilities or facilities, potential
oppositions or litigation related to the Company's proprietary rights, the
status of competitive products, the establishment of sales and marketing
capabilities, and the availability of other financing. The Company believes that
its available cash resources, the net proceeds from the offering and the
interest thereon will be adequate to satisfy its capital needs for at least the
next three years.
Pending application of the proceeds as described above, the Company intends
to invest the net proceeds of this offering primarily in investment grade,
interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "PDLI". The following table presents quarterly information on the price
range of the Company's Common Stock on the Nasdaq National Market since January
1, 1995. This information indicates the high and low sale prices reported by the
Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1995
- ----------------------------------------------------------------------------
First Quarter............................................................... $22.25 $13.88
Second Quarter.............................................................. 26.75 19.25
Third Quarter............................................................... 20.63 13.13
Fourth Quarter.............................................................. 24.00 14.63
1996
- ----------------------------------------------------------------------------
First Quarter............................................................... 28.38 20.38
Second Quarter.............................................................. 30.00 22.00
Third Quarter............................................................... 27.25 12.00
Fourth Quarter.............................................................. 38.38 21.75
1997
- ----------------------------------------------------------------------------
First Quarter (through January 30, 1997).................................... 38.00 31.75
</TABLE>
On January 30, 1997, the closing price of the Common Stock as reported by
the Nasdaq National Market was $35.75 per share. As of December 31, 1996, there
were approximately 224 holders of record of the Common Stock. The market for the
Company's securities is volatile. See "Risk Factors -- Potential Volatility of
Stock Price."
DIVIDEND POLICY
The Company has not paid any dividends since inception and does not
anticipate paying any dividends on its Common Stock in the foreseeable future.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996, and as adjusted to reflect the sale of 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $35.75 per share and the receipt of the estimated net proceeds therefrom. See
"Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred stock, par value $0.01 per share, 10,000,000 shares
authorized; no shares issued and outstanding.................... $ -- $ --
Common stock, par value $0.01 per share, 40,000,000 shares
authorized; 15,759,089 issued and outstanding actual, 17,759,089
shares outstanding as adjusted(1)............................... 158 178
Additional paid-in capital......................................... 140,328 207,476
Accumulated deficit................................................ (35,507) (35,507)
Unrealized gains (losses) on investments........................... 133 133
---------- ----------
Total stockholders' equity................................. 105,112 172,280
---------- ----------
Total capitalization.................................. $105,112 $172,280
========== ==========
</TABLE>
- ---------------
(1) Excludes options outstanding at December 31, 1996 to purchase 1,941,432
shares at a weighted average exercise price of $18.44, of which options to
purchase 774,813 shares were then exercisable.
19
<PAGE> 21
DILUTION
As of December 31, 1996, the net tangible book value of the Company's
Common Stock was $105,112,000 or $6.67 per share of Common Stock. "Net tangible
book value" per share represents the amount of total tangible assets of the
Company reduced by the total liabilities and divided by the number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of
2,000,000 shares of Common Stock offered hereby, less underwriting discounts and
commissions and estimated offering expenses payable by the Company, the
Company's pro forma net tangible book value as of December 31 1996, would have
been $172,280,000, or $9.70 per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $3.03 per share to
existing holders of Common Stock and an immediate dilution per share of $26.05
to new investors purchasing shares of Common Stock in this offering. "Dilution
per share to new investors" represents the difference between the price per
share of Common Stock paid for the shares issued in this offering and the pro
forma net tangible book value per share at December 31, 1996, as adjusted to
give effect to this offering.
<TABLE>
<S> <C> <C>
Assumed public offering price per share (1)........................ $35.75
Pro forma net tangible book value per share before offering...... $ 6.67
Increase per share attributable to new investors................. 3.03
-----
Pro forma net tangible book value per share after offering......... 9.70
--------
Dilution per share to new investors...................... $26.05
========
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
At December 31, 1996, a total of 1,941,432 shares of Common Stock were
subject to outstanding options, at a weighted average exercise price of $18.44
per share. Any exercise of such options may result in further dilution to new
investors.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1996 are derived from audited financial statements of PDL. The data should be
read in conjunction with the financial statements, related notes, and other
financial information incorporated herein by reference.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Research and development revenue under
collaborative agreements -- related
parties..................................... $ 3,400 $ 14,233 $ 10,233 $ 10,408 $ 11,500
Research and development revenue -- other...... 2,746 456 1,627 1,000 5,000
Interest and other income...................... 2,239 2,111 3,349 6,205 6,100
------- ------- -------- -------- --------
Total revenues......................... 8,385 16,800 15,209 17,613 22,600
Costs and expenses:
Research and development....................... 7,264 12,329 16,367 20,803 28,795
Purchase of in-process technology.............. -- 7,725 -- -- --
General and administrative..................... 1,997 2,653 4,051 5,163 5,601
Interest expense............................... 44 25 7 1 --
------- ------- -------- -------- --------
Total costs and expenses............... 9,305 22,732 20,425 25,967 34,396
------- ------- -------- -------- --------
Net loss......................................... $ (920) $ (5,932) $ (5,216) $ (8,354) $(11,796)
======= ======= ======== ======== ========
Net loss per share............................... $ (0.07) $ (0.47) $ (0.37) $ (0.54) $ (0.76)
======= ======= ======== ======== ========
Shares used in computation of net loss per
share.......................................... 12,491 12,747 14,060 15,343 15,604
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments.................................... $ 50,904 $ 72,732 $113,245 $107,065 $ 99,667
Working capital.................................. 18,188 29,843 95,450 43,522 74,221
Total assets..................................... 55,623 80,294 121,054 116,412 110,331
Accumulated deficit.............................. (4,209) (10,141) (15,357) (23,711) (35,507)
Total stockholders' equity....................... 53,534 77,921 117,783 112,856 105,112
</TABLE>
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" as well as those discussed elsewhere in this Prospectus.
OVERVIEW
Since the Company's founding in 1986, a primary focus of its operations has
been research and development. Achievement of successful research and
development and commercialization of products derived from such efforts is
subject to high levels of risk and significant resource commitments. The Company
has a history of operating losses and expects to incur substantial additional
expenses over at least the next few years, as it continues to develop its
proprietary products and devote significant resources to preclinical studies,
clinical trials, and manufacturing. The Company's revenues to date have
consisted, and for the near future are expected to consist, principally of
research and development funding, licensing and signing fees and milestone
payments from pharmaceutical companies under collaborative research and
development and licensing agreements. These revenues may vary considerably from
quarter to quarter and from year to year and revenues in any period may not be
predictive of revenues in any subsequent period, and variations may be
significant depending on the terms of the particular agreements. In particular,
revenues for the fourth quarter of 1996, which included several non-recurring
payments in connection with new licensing agreements, may not be indicative of
revenues in future quarters.
While the Company historically has received significant revenue pursuant to
certain of its research and development agreements, the Company has recognized
substantially all of the research and development and milestone revenue due
under these collaborations. Although the Company anticipates entering into new
collaborations from time to time, the Company presently does not anticipate
realizing non-royalty revenue from its new and proposed collaborations at levels
commensurate with the non-royalty revenue historically recognized under its
older collaborations. Moreover, the Company anticipates that its operating
expenses will continue to increase significantly as the Company increases its
research and development, manufacturing, preclinical and clinical activity, and
administrative and patent activities. Accordingly, in the absence of substantial
revenues from new corporate collaborations or licensing agreements, royalties on
Zenapax sales, if any, or other sources, the Company expects to incur
substantial and increased operating losses in the foreseeable future as certain
of its earlier stage potential products move into later stage clinical
development, as additional potential products are selected as clinical
candidates for further development, as the Company invests in additional
manufacturing facilities or capacity, as the Company defends or prosecutes its
patents and patent applications and as the Company invests in research or
acquires additional technologies or businesses.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. For example, certain of the Company's accrued liabilities
with respect to clinical trials represent management's estimates of the timing
and expenses associated with patient accrual and the termination or winding down
of the Company's clinical trials. These estimates and assumptions could differ
significantly from the amounts which may actually be realized.
Nonrefundable signing or licensing fee payments that are not dependent on
future performance under collaborative agreements are recognized as revenue when
received. Payments for research and development performed by the Company under
contractual arrangements are recognized as revenue ratably over the quarter in
which the payment is received and the related work is performed. Revenue from
achievement of milestone events is recognized when the funding party agrees that
the scientific or clinical results stipulated in the agreement have been met.
Deferred revenue arises principally due to timing of cash payments received
under research and development contracts.
22
<PAGE> 24
RESULTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
The Company's total revenues were $22.6 million in 1996 as compared to
$17.6 million in 1995 and $15.2 million in 1994. Total research and development
revenues represented $16.5 million, $11.4 million and $11.9 million of total
revenues in 1996, 1995 and 1994, respectively. Interest and other income were
$6.1 million in 1996, $6.2 million in 1995, and $3.3 million in 1994.
The increase in total research and development revenues in 1996 over the
prior years was primarily attributable to an increase in up-front licensing and
signing fees, and receipt of a milestone payment from Boehringer Mannheim in
January 1996. Increased funding during 1995 and 1994 from Boehringer Mannheim
was partially offset by reduced funding from Roche, whose funding arrangement
ended in January 1995. Reimbursement funding under the agreement with Boehringer
Mannheim ended in October 1996. The Company received $5.0 million in up-front
licensing and signing fees in 1996, compared to $1.0 million and $2.5 million in
1995 and 1994 respectively. Of the amounts spent by the Company for research and
development, $10.0 million in 1996, $10.4 million in 1995 and $9.2 million in
1994 represented third-party funded research and development activities (not
including licensing fees, milestone payments and product sales).
Interest and other income of $6.1 million in 1996 was comparable to $6.2
million in 1995. The increase in 1995 from $3.3 million in 1994 was attributable
primarily to higher cash and investment balances in 1995 resulting from the sale
of stock to Corange, an affiliate of Boehringer Mannheim, in December 1994.
Total costs and expenses increased to $34.4 million in 1996 from $26.0
million in 1995 and $20.4 million in 1994. The increase in costs and expenses in
1996 compared to 1995 and 1994 was due primarily to increases in research and
development expenses in each of those periods.
Research and development expenses in 1996 increased to $28.8 million from
$20.8 million in 1995 and $16.4 million in 1994, primarily as a result of the
Company's conducting additional development efforts independently and under its
agreements with its collaborative partner, Boehringer Mannheim. These expenses
included the addition of staff, the initiation and continuation of clinical
trials, costs of conducting preclinical tests, expansion of pharmaceutical
development capabilities including support for both clinical development and
manufacturing process development, and higher costs in the expanded operation of
the manufacturing facility.
General and administrative expenses for 1996 increased to $5.6 million from
$5.2 million in 1995 and $4.1 million in 1994. These increases were primarily
the result of increased staffing and associated expenses necessary to manage and
support the Company's expanding operations.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has financed its operations primarily through public
and private placements of equity, research and development revenue, capital
lease financing and interest income on invested capital. At December 31, 1996,
the Company had cash, cash equivalents and investments in the aggregate of $99.7
million, compared to $107.1 million at December 31, 1995 and $113.2 million at
December 31, 1994. Pursuant to the agreement with Boehringer Mannheim, the
Company may be required to reimburse Boehringer Mannheim up to $2.0 million for
Phase II studies and up to $8.8 million for Phase III studies of OST 577 in the
event certain conditions are met.
Net cash used in operating activities was approximately $7.0 million for
the year ended December 31, 1996 compared to approximately $7.1 million in 1995
and $1.9 million in 1994.
The Company's future capital requirements will depend on numerous factors,
including, among others, the progress of the Company's product candidates in
clinical trials; the continued or additional support by collaborative partners
or other third parties of research and clinical trials; enhancement of research
and development programs; the time required to gain regulatory approvals; the
resources the Company devotes to self-funded products, manufacturing methods and
advanced technologies; third party manufacturing commit-
23
<PAGE> 25
ments; the ability of the Company to obtain and retain funding from third
parties under collaborative agreements; the development of internal marketing
and sales capabilities; the demand for the Company's potential products, if and
when approved; potential acquisitions of technology, product candidates or
businesses by the Company; and the costs of defending or prosecuting any patent
opposition or litigation necessary to protect the Company's proprietary
technology. In order to develop and commercialize its potential products the
Company may need to raise substantial additional funds following this offering
through equity or debt financings, collaborative arrangements, the use of
sponsored research efforts or other means. No assurance can be given that such
additional financing will be available on acceptable terms, if at all, and such
financing may only be available on terms dilutive to existing stockholders. The
Company believes that the proceeds received from this offering, together with
existing capital resources, will be adequate to satisfy its capital needs for at
least the next three years. See "Risk Factors -- History of Losses;
Profitability Uncertain."
24
<PAGE> 26
BUSINESS
OVERVIEW
PDL is a leader in the development of humanized and human monoclonal
antibodies for the prevention and treatment of a variety of disease conditions,
including autoimmune diseases, inflammatory conditions, cancers and viral
infections. The Company uses proprietary computer software and other
technologies to develop its SMART humanized antibodies for potential use as
effective pharmaceuticals without the limitations of mouse-derived (murine)
antibodies. PDL believes that its technologies are broadly applicable to a
variety of diseases, as demonstrated by the Company's diverse product
development pipeline and its collaborative arrangements with eight
pharmaceutical companies. The Company and its collaborative partners currently
have four product candidates in multiple clinical trials and numerous additional
product candidates in preclinical studies. The Company's most advanced potential
product, Zenapax, has successfully completed two multinational Phase III
clinical trials for the prevention of kidney transplant rejection. In 1996, PDL
received U.S. and European patents that the Company believes cover most
humanized antibodies, and that may lead to additional corporate partnering,
patent licensing and other revenue opportunities.
Antibodies have long had promise as therapeutic compounds to treat a
variety of disease conditions. Murine antibodies, however, have significant
drawbacks which in most cases prevent them from becoming effective therapeutics.
The most important of these is the human anti-mouse antibody ("HAMA") response,
whereby the murine antibody is recognized by the body's immune system as being
foreign and is rapidly neutralized and rendered ineffective. PDL's antibodies
are designed to avoid these drawbacks, including the HAMA response. PDL's SMART
antibodies are predominantly human antibodies that incorporate the structural
information from the binding region of promising murine antibodies. By applying
its proprietary SMART antibody technology, the Company is able to create such
recombinant antibodies with molecular structures that are approximately 90%
human and 10% murine. The Company also has technologies to produce fully human
antibodies to treat additional diseases using antibody therapy.
PDL's business strategy is to leverage its technologies, research expertise
and intellectual property in the field of antibodies to become a profitable,
research-based biopharmaceutical company that manufactures and, in North
America, markets its own products. Key aspects of PDL's strategy are to: (i)
expand the Company's product portfolio to provide multiple product candidates to
treat a variety of diseases and conditions; (ii) establish collaborative
relationships with pharmaceutical companies to reduce development costs and
risks and to enhance commercial opportunities; (iii) leverage its patent
position by licensing certain rights in exchange for near-term revenues and
future royalty opportunities; and (iv) retain and obtain North American
marketing or co-promotion rights to certain products to provide for greater
revenue opportunities.
The Company actively seeks partnerships with pharmaceutical companies. The
breadth of the Company's antibody technology and its patent position are key
assets in attracting other companies to enter into such collaborative
relationships with the Company. In one type of collaborative arrangement, the
Company licenses certain marketing rights to one or more potential products
developed by PDL in return for a licensing fee, research funding and milestone
payments, and royalties on potential product sales. In another type of
arrangement, PDL uses its proprietary technology to develop a SMART antibody
based on a promising murine antibody developed by its corporate partner. In such
cases, PDL typically receives a licensing fee and other payments, royalties on
potential sales and, in some cases, an option to co-promote in North America.
25
<PAGE> 27
PRODUCTS UNDER DEVELOPMENT
The Company believes it is a leader in the development of antibody-based
therapeutics and has one of the broadest product pipelines in this area. The
Company has four product candidates under clinical development and a number of
product candidates in preclinical development for the treatment of a variety of
disease conditions, including autoimmune diseases, inflammatory conditions,
cancers and viral infections.
CLINICAL PRODUCT CANDIDATES
The following table summarizes the potential therapeutic indications,
development status and commercial rights for the four PDL products that have
entered clinical trials. The development and commercialization of the Company's
clinical product candidates are subject to numerous risks and uncertainties. See
"Risk Factors."
<TABLE>
<CAPTION>
POTENTIAL THERAPEUTIC COMMERCIAL
PRODUCT INDICATIONS DEVELOPMENT STATUS RIGHTS(1)
- --------------------- ----------------------------- ---------------------- ----------------
<S> <C> <C> <C>
Zenapax (SMART Organ transplant rejection Completed two Phase Roche
Anti-Tac Antibody) III trials (kidney)
Certain autoimmune diseases
Tropical spastic paraparesis Phase I/II
Uveitis Phase I/II
Psoriasis Phase I/II planned
Certain blood cancers Phase II
SMART M195 Antibody Acute myelogenous leukemia Phase II/III PDL and Kanebo
Acute promyelocytic leukemia Phase II
Myeloid leukemia Phase I (Japan)
OST 577 (Human CHB Phase II PDL, Boehringer
Anti-Hepatitis B Liver transplantation Completed Phase I/II Mannheim and
Antibody) due to CHB Novartis
PROTOVIR (Human CMV infections in BMT Phase II PDL, Boehringer
Anti-Cytomegalovirus Mannheim and
Antibody) Novartis
</TABLE>
- ---------------
(1) The development and marketing rights for each of these products differ. See
"-- Collaborative and Licensing Arrangements."
ZENAPAX (SMART ANTI-TAC ANTIBODY). Zenapax is a humanized antibody,
developed by PDL and licensed exclusively to Roche, which binds to the IL-2
receptor on T cells. IL-2 is a lymphokine which stimulates T cells to divide and
participate in an immune response. By blocking the binding of IL-2 to its
receptor, Zenapax inhibits the proliferation of activated T cells, and thus
could be useful in preventing or treating organ transplant rejection or certain
autoimmune diseases. Such an agent might be more specific and less toxic than
current immunosuppressive drugs such as cyclosporine or OKT3, because it would
suppress only activated T cells involved in an immune response rather than all T
cells and possibly other unrelated cells.
Organ transplantation. In September 1996, the Company's partner, Roche,
announced results from two multinational Phase III studies of Zenapax for the
prevention of acute rejection episodes in a total of 535 cadaveric kidney
transplant recipients. As set forth in the following table, a preliminary
analysis of the data by Roche indicated that, when administered with a standard
immunosuppressive regimen, Zenapax is effective in reducing the incidence of
acute rejection episodes within six months of transplant, the primary endpoint.
In the double therapy trial, in which all patients received a background therapy
of cyclosporine and prednisone, acute rejection episodes were reduced by 40% in
patients treated with Zenapax. In the triple therapy trial, in
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which all patients received background therapy of cyclosporine, prednisone and
azathioprine, the incidence of acute rejection episodes was reduced by 37% in
patients treated with Zenapax.
<TABLE>
<CAPTION>
INCIDENCE OF KIDNEY REJECTION EPISODES
----------------------------------------------------
WITHOUT WITH REDUCTION WITH
TRIAL ZENAPAX ZENAPAX ZENAPAX P VALUE
- ------------------------------------------------- ------------ ------- ---------------- --------
<S> <C> <C> <C> <C>
Double Therapy................................... 47% 28% 40% 0.001
Triple Therapy................................... 35% 22% 37% 0.03
</TABLE>
Roche also noted that secondary endpoints of reduction in the total number
of rejection episodes per patient and increase in the time to first rejection
episode were achieved with Zenapax in both clinical trials. The addition of
Zenapax to the standard immunosuppressive regimen did not result in an increase
in drug-related serious adverse events.
Based on these trials, Roche stated that it intends to file in the first
half of 1997 for regulatory approval to market Zenapax in the U.S., Canada and
Europe.
In addition to the studies described above, Roche has completed enrollment
in a controlled pharmacokinetics/safety study with 61 evaluable patients to
assess Zenapax in combination with CellCept in kidney transplant patients.
CellCept, marketed by Roche, is used to prevent kidney transplant rejection.
Roche also plans to conduct a study of Zenapax in pediatric kidney
transplantation.
According to industry sources, approximately 20,000 solid organs are
transplanted into patients in the U.S. each year, with kidney transplants
accounting for about 12,000 of the total. A comparable number of kidney
transplants are performed outside of the U.S. The majority of kidney transplant
patients receive cadaveric kidneys.
Roche previously evaluated Zenapax in a Phase II/III trial for the
prevention of graft-versus-host disease ("GvHD"), a complication of bone marrow
transplants. Analysis of the trial results led Roche to conclude that Zenapax
was not effective in reducing the incidence of GvHD in the patient population
studied. The reason for this lack of efficacy of Zenapax in GvHD despite its
effectiveness in kidney transplantation is unknown. However, Roche stated that
Zenapax was found to be safe and well-tolerated in the GvHD trial.
Autoimmune disease. Because of the ability of Zenapax to inhibit the
proliferation of T cells, the Company believes that Zenapax may have potential
for the treatment of certain autoimmune diseases. Investigators at the National
Institutes of Health ("NIH") are evaluating Zenapax in a preliminary clinical
trial in patients with tropical spastic paraparesis, a rare autoimmune disease
of the nerves considered by these investigators to be a model for multiple
sclerosis. In addition, proof-of-concept clinical trials of Zenapax have
commenced for uveitis and are planned for psoriasis.
Cancer. The Company believes that Zenapax may also have potential for the
treatment of certain blood cancers, because the IL-2 receptor is present on
these types of cancer cells. The murine anti-Tac antibody has been tested at NIH
in patients with adult T-cell leukemia, and several of the patients experienced
remissions, especially when the antibody was linked to a radioisotope. A pilot
Phase I clinical trial of Zenapax for the treatment of certain cancers was
completed in 1993 at the National Cancer Institute ("NCI") of NIH, and a Phase
II trial of a radiolabeled form of Zenapax for certain blood cancers is in
progress at NCI.
There can be no assurance that Roche will file for or receive regulatory
approval to market Zenapax for use in preventing kidney transplant rejections in
a timely manner, if at all, or that it will pursue or continue clinical trials
in autoimmune diseases or other indications.
SMART M195 ANTIBODY. The SMART M195 Antibody is a humanized antibody that
binds to the cancer cells of most patients with myeloid leukemia. Myeloid
leukemia, the major form of leukemia in adults, is classified into two
types -- acute myelogenous leukemia ("AML") and chronic myelogenous leukemia
("CML"). There are at least 11,000 new cases of myeloid leukemia in the U.S.
each year, of which more than half are AML. Currently, the survival rate of
myeloid leukemia patients is very low, despite aggressive chemotherapy and
multiple, expensive hospitalizations.
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<PAGE> 29
PDL has adopted strategies designed to achieve improved efficacy of
antibodies in certain cancers. First, PDL's anti-cancer antibodies are
humanized, which allows for longer term treatment by minimizing the HAMA
response, and potentially makes the antibodies more effective in killing cancer
cells. Second, the Company is initially focusing on treatment of blood cancers,
such as myeloid leukemia, which may be more susceptible to antibody therapy than
solid tumors because the cancer cells are more readily accessible. Third, PDL
will often conduct trials of its antibodies in combination with, or following,
other chemotherapeutic agents.
PDL is conducting a randomized Phase II/III trial of the SMART M195
Antibody for AML, which was initiated in June 1994. Patients in the trial first
receive a specific regimen of chemotherapy. Those patients entering clinical
remission are randomized either to observation or to receive 20 doses of SMART
M195 given over an eight month period. The primary clinical endpoint is the
median duration of disease-free survival, which in the absence of SMART M195
therapy has historically been about eight months. The study is planned to
evaluate 112 patients in remission, but a substantially larger number will need
to receive chemotherapy in order to reach that number of patients in remission.
The study is currently expected to require several additional years to complete.
The Company is exploring the addition of other U.S. or foreign medical centers
and other actions to accelerate patient accrual in the study. See "Risk
Factors -- Limited Experience with Clinical Trials; Risk of Delay."
SMART M195 is also being studied in a Phase II trial under a
physician-sponsored IND at the Memorial Sloan-Kettering Cancer Center
("Sloan-Kettering"), in patients with acute promyelocytic leukemia ("APL"), one
of several types of AML. This trial is designed to examine whether SMART M195
alone can eliminate minimal residual leukemia that remains after treatment with
retinoic acid, a drug recently approved to treat APL. The effectiveness is
measured by elimination of cells having the characteristic genetic mutation
found in APL to below detectable levels ("molecular remission"). Four of seven
evaluable newly diagnosed patients have entered complete molecular as well as
clinical remission after therapy with retinoic acid and SMART M195 prior to
receiving chemotherapy. In the more difficult relapsed setting, one of seven APL
patients entered molecular remission. Normally, one to three rounds of expensive
and toxic chemotherapy are required to bring newly diagnosed APL patients into
molecular remission after therapy with retinoic acid. More patients and
longer-term follow-up are necessary to evaluate the significance of the observed
remissions. While these results suggest that SMART M195 may be biologically
active in APL, the Company currently has no plans to conduct pivotal clinical
trials in this subpopulation of AML patients.
A Phase I clinical trial of the SMART M195 Antibody linked to Bismuth-213,
an alpha particle-emitting isotope, was initiated in 1996 under a
physician-sponsored IND at Sloan-Kettering in advanced myeloid leukemia
patients. The Company is supporting this trial to obtain preliminary evidence of
the safety and potential efficacy of SMART M195-Bismuth-213 used as a single
agent to induce remissions of advanced myeloid leukemia. Generators to produce
the Bismuth-213 isotope are being supplied by PharmActinium Inc. and associated
companies. The Company believes that this study is the first clinical trial of
an antibody combined with an alpha-emitting isotope. In previous clinical trials
of radiolabeled antibodies, the antibodies have been linked to radioisotopes
that emit beta or gamma particles. Alpha particles release more energy over a
shorter path than beta or gamma particles and, therefore, may be more effective
in destroying the targeted cancer cells without damaging nearby normal cells.
Exclusive development and marketing rights for therapeutic uses of SMART
M195 in Asia have been licensed to PDL's collaborative partner, Kanebo, which is
currently conducting a Phase I trial in Japan in patients with AML.
OST 577 (HUMAN ANTI-HEPATITIS B ANTIBODY). OST 577 is a human antibody,
developed using the trioma technology and licensed by PDL from Novartis. OST 577
binds to the major protein present on hepatitis B virus ("HBV"), the hepatitis B
surface antigen. Infection with HBV is a common cause of liver disease. In most
cases of infection, the patient's immune response is sufficient to ultimately
eliminate the virus. However, an estimated 2% to 10% of HBV-infected patients
become chronic carriers of the virus, and about one-fourth of these patients
develop chronic hepatitis B ("CHB"), which is characterized by progressive liver
damage and often cirrhosis and liver cancer. In the U.S. there are an estimated
one million
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<PAGE> 30
chronic carriers of HBV, with 300,000 new HBV infections and more than 10,000
patients hospitalized due to HBV infections each year. While interferon-alpha is
approved in the U.S. for treatment of CHB, only 30-40% of treated patients
respond to this treatment, which must be given over four months and has
significant side effects.
In patients receiving liver transplants due to end-stage CHB, the virus
remaining after the transplant usually will rapidly infect and in many cases
destroy the new liver. An initial Phase I/II clinical trial of OST 577 enrolled
five patients receiving liver transplants due to end-stage CHB. In the clinical
trial, each patient received doses of OST 577 for up to 18 months after
transplantation. Three of the five treated patients showed no evidence of viral
recurrence more than one year after transplantation. The other two patients did
develop recurrence but remained asymptomatic for four years, after which one of
them developed symptoms.
A Phase I/II clinical trial of OST 577 has also been completed in 12
patients with CHB. OST 577 was well tolerated by patients treated at the two
lower dose levels, but some reversible side effects were seen at the highest
level. Key markers for HBV infection decreased at least temporarily by 50% or
more in many of the patients during treatment. Specifically, such reductions
were seen in 5 of 10 patients for liver enzyme levels; in 10 of 12 for hepatitis
B surface antigen; and in 5 of 9 for viral DNA levels. Results obtained in early
clinical trials may not be predictive of results in larger, later-stage trials.
See "Risk Factors -- Uncertainty of Clinical Trial Results."
PDL's development partner, Boehringer Mannheim, which has development and
marketing rights for therapeutic applications to OST 577 outside of North
America, has primary clinical development responsibility for this potential
product. In 1996, Boehringer Mannheim initiated a multinational, controlled
Phase II trial in patients with CHB, and has stated that it is designing a Phase
II/III trial in patients receiving liver transplants for end-stage liver disease
due to CHB. The Phase II trial in CHB is planned to enroll 200 patients and will
evaluate OST 577 both as a single agent and in combination with
interferon-alpha. PDL is considering the possibility of conducting independent
clinical trials with designs complementary to the Boehringer Mannheim trials. In
addition, Novartis has certain rights to co-promote or co-market this antibody
in North America or to receive royalties on product sales. See "-- Collaborative
and Licensing Arrangements -- Novartis."
PROTOVIR (HUMAN ANTI-CMV ANTIBODY). PROTOVIR is a human antibody, derived
using the trioma technology, that binds to all tested strains of human
cytomegalovirus ("CMV"). CMV is an important cause of morbidity and death in
patients with suppressed immune systems, such as AIDS patients and recipients of
solid organ and bone marrow transplants ("BMT").
Bone marrow transplantation. In BMT patients, CMV can cause often fatal
infections, such as pneumonia. Many transplant centers treat patients with
pooled human immunoglobulin preparations in an attempt to prevent CMV infection,
despite the high cost and limited efficacy of this treatment. The Company has
completed enrollment in a randomized, placebo-controlled, double-blinded Phase
II trial to assess the potential safety and efficacy of PROTOVIR for the
prevention of CMV infections in allogeneic (non-self) bone marrow transplant
patients. The study is comparing two dose levels of PROTOVIR against placebo in
approximately 168 evaluable patients. The primary endpoint of this study is the
incidence of CMV infections during the 100 days following the BMT. Historically,
such infections occur in 50-60% of these patients. Results of the study are
expected to be available in the first half of 1997 but there can be no assurance
that the results of the trial will be favorable. See "Risk
Factors -- Uncertainty of Clinical Trial Results."
CMV retinitis. The potential safety and efficacy of PROTOVIR was evaluated
in a Phase II/III clinical trial conducted by NEI SOCA for the treatment of CMV
retinitis, a common ophthalmic condition in AIDS patients that often leads to
blindness. In August 1996, NEI SOCA, acting on the recommendation of an
independent data and safety monitoring board, halted the study based on lack of
evidence of efficacy. Concurrently with the NEI SOCA trial, PROTOVIR also was
being evaluated in a Phase II clinical trial being conducted by NIAID ACTG for
treatment of CMV retinitis. Based on the NEI SOCA findings and actions,
enrollment in the Phase II trial had been suspended, and the trial was recently
terminated.
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<PAGE> 31
Exclusive rights for the therapeutic application of this antibody outside
of North America and Asia have been licensed to Boehringer Mannheim. In
addition, Novartis, from whom PDL licensed the antibody, has certain rights to
co-promote or co-market this antibody in North America and Asia or to receive
royalties on product sales. See "-- Collaborative and Licensing Arrangements."
PRECLINICAL PRODUCT CANDIDATES
The following table summarizes the potential therapeutic indications and
commercial rights for certain of PDL's preclinical product candidates.
"Preclinical" development includes in vitro testing, efficacy and toxicology
testing in animals, process development and manufacturing scale-up prior to
initiation of clinical trials. The Company has other compounds in development in
addition to those described in the table below and is conducting research in
other areas. The development and commercialization of the Company's preclinical
product candidates are subject to numerous risks and uncertainties. See "Risk
Factors."
<TABLE>
<CAPTION>
PRODUCT POTENTIAL THERAPEUTIC INDICATIONS COMMERCIAL RIGHTS(1)
- ---------------------- -------------------------------------------- ----------------------
<S> <C> <C>
AUTOIMMUNE AND INFLAMMATORY CONDITIONS
SMART Anti-L-Selectin Trauma, adult respiratory distress syndrome PDL and Boehringer
Antibody ("ARDS"), reperfusion injury Mannheim
SMART Anti-E/P- Stroke, trauma, certain autoimmune diseases PDL
Selectin Antibody (e.g., psoriasis), asthma
SMART Anti-CD3 Organ transplant rejection and certain PDL
Antibody autoimmune diseases
SMART Anti-Gamma Certain autoimmune diseases (e.g., PDL
Interferon Antibody inflammatory bowel disease)
CANCER
SMART 1D10 Antibody B-cell lymphoma PDL
SMART ABL 364 Antibody Certain epithelial cell cancers including PDL and Novartis
breast, lung and colon
VIRAL INFECTIONS
Human Anti-Varicella Shingles (herpes zoster) PDL and Novartis
Zoster Antibody
Human Anti-Herpes Neonatal and genital herpes PDL and Novartis
Antibody
</TABLE>
- ---------------
(1) The development and marketing rights for each of these products differ. See
"-- Collaborative and Licensing Arrangements."
AUTOIMMUNE DISEASE AND INFLAMMATION. Recent discoveries in immunology have
made possible a new therapeutic approach to inflammation resulting from such
causes as injury or autoimmune disease. Certain proteins called adhesion
molecules, located on the surface of various types of cells, play a key role in
inflammation by directing the movement of white blood cells from the bloodstream
into the sites of tissue inflammation. In laboratory experiments conducted by
PDL and others, antibodies have been shown to block the function of these
adhesion molecules, and in animal models these anti-adhesion antibodies have
been shown to be effective at reducing many types of inflammation.
PDL has developed several SMART antibodies against adhesion molecules. One
of these antibodies, the SMART Anti-L-Selectin Antibody, binds to L-selectin, an
adhesion molecule on the surface of white blood cells. The Company believes that
potential indications for this antibody may include trauma, ARDS, reperfusion
injury (e.g., due to myocardial infarction or stroke) and possibly certain
autoimmune diseases. In studies conducted by independent investigators,
treatment with the SMART Anti-L-Selectin Antibody resulted in a statistically
significant improvement in survival in a primate model that simulates severe
trauma.
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Boehringer Mannheim, which has licensed rights to this antibody outside of North
America and Asia from PDL, plans to begin clinical trials of the antibody in
1997, with an initial indication of trauma.
PDL's SMART Anti-E/P-Selectin Antibody binds to two different adhesion
molecules, E- and P-selectin, that occur on the surface of the cells on the
inner lining of blood vessels. The Company believes that potential indications
for such an antibody may include stroke, trauma, certain autoimmune diseases,
psoriasis and asthma. The Company is developing additional forms of the SMART
Anti-E/P-Selectin Antibody, from which it intends to select the final form.
PDL's SMART Anti-CD3 Antibody binds to the CD3 antigen, a key receptor for
stimulation of T cells. The Company believes that potential indications for this
antibody may include treatment of organ transplant rejection and certain
autoimmune diseases.
PDL's SMART Anti-Gamma-Interferon Antibody binds to and neutralizes gamma
interferon, a lymphokine that stimulates several types of white blood cells. The
Company believes that potential indications for this antibody may include
inflammatory bowel disease, multiple sclerosis, and other autoimmune diseases.
CANCER. B-cell lymphomas, like leukemias, are a type of blood cancer that
the Company believes may be accessible to antibody-based treatments. PDL has
developed the SMART 1D10 Antibody, which binds to many malignant B cells, and is
currently evaluating it in preclinical studies. The Company is also evaluating a
bispecific antibody that incorporates the SMART 1D10 Antibody. To date
bispecific antibodies developed by PDL have not been tested in humans.
PDL's SMART ABL 364 Antibody has potential for the treatment of many solid
tumors, including colon, lung and breast cancer. Initial laboratory tests have
shown that the SMART ABL 364 Antibody, in conjunction with other components of
the immune system, can kill cancer cells.
VIRAL INFECTIONS. Varicella zoster virus ("VZV") is the virus responsible
for causing chickenpox and shingles (herpes zoster). Shingles, a painful
blistering condition of the skin, results from reactivation of the latent VZV
that initially infected the patient years earlier. In the U.S., 10-20% of the
population will develop shingles, with the incidence and severity increasing
with age. A significant percentage of patients with shingles experience
post-herpetic neuralgia, a very painful nerve condition which may last from
weeks to years in some patients. Current anti-viral therapies are moderately
effective in treating shingles, but have little or no effect on post-herpetic
neuralgia. PDL's Human Anti-Varicella Zoster Antibody effectively neutralizes
all tested strains of VZV in in vitro studies.
Herpes simplex virus ("HSV") causes a painful recurring genital infection.
The virus also causes neonatal herpes, an uncommon but very serious disease of
newborn infants. PDL's Human Anti-Herpes Antibody binds to and effectively
neutralizes all strains of HSV tested, and is well-tolerated and non-immunogenic
in primates. In animal studies sponsored by the National Institute of Allergy
and Infectious Disease Collaborative Antiviral Studies Group ("NIAID-CASG"), the
antibody effectively protected mice from a lethal herpes infection when
administered up to 72 hours after the virus. The Company believes that
competition from antiviral drugs and the present reimbursement environment may
limit the market opportunities for the Human Anti-Herpes Antibody in treating
genital herpes. The Company is currently exploring the possibility of providing
the antibody to NIAID-CASG under a Cooperative Research and Development
Agreement primarily for studies in neonatal herpes.
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<PAGE> 33
PDL TECHNOLOGIES
BACKGROUND ON ANTIBODIES. Antibodies are protective proteins released by
the immune system's B cells, a type of white blood cell, in response to the
presence of a foreign substance in the body, such as a virus. B cells produce
millions of different kinds of antibodies, which have slightly different shapes
that enable them to bind to and thereby inactivate different targets. Antibodies
of identical molecular structure that bind to a specific target are called
monoclonal antibodies. Typically mice have been used to produce monoclonal
antibodies to a wide variety of molecular targets, including targets to which
the human body does not normally produce antibodies. In particular, many murine
antibodies have been developed as potential therapeutics to neutralize viruses,
destroy cancer cells or inhibit immune function.
Although murine monoclonal antibodies are relatively easy to generate, they
have significant drawbacks as therapeutics. Murine antibodies have a relatively
short half-life in human patients, requiring them to be administered frequently.
Moreover, murine antibodies are not adapted to work effectively with the human
immune system and therefore often have limited ability to destroy the target,
such as cancer cells. Most importantly, when injected into human patients, a
murine antibody is usually recognized by the body's immune system as being
foreign. The immune system therefore responds with a HAMA response, which
rapidly neutralizes the murine antibody and renders it ineffective for further
therapy. These problems have largely prevented murine antibodies from fulfilling
their promise as therapeutics.
More recently, improved forms of antibodies, such as humanized and chimeric
antibodies, have been developed using recombinant DNA technology. These new
antibodies can minimize or avoid many of the problems associated with murine
antibodies and have led to a resurgence of interest in antibody therapeutics by
the pharmaceutical and biotechnology industries. As a result of these advances,
many recombinant antibodies are now progressing into clinical trials. In a list
of biotechnology medicines under clinical development published in 1996 by the
Pharmaceutical Research and Manufacturers of America, antibodies comprised the
single largest category, representing 78 of 284 products listed. In particular,
PDL is aware of more than twenty recombinant antibodies in clinical trials,
including several antibodies addressing large markets that are being developed
by major pharmaceutical companies. Furthermore, ReoPro, a recombinant antibody
fragment developed by Centocor for reducing complications in patients undergoing
angioplasty is being marketed by Eli Lilly.
PDL'S SMART ANTIBODY TECHNOLOGY. PDL believes that its patented SMART
antibody technology has positioned the Company as a leader in the development of
therapeutic antibodies that overcome the problems associated with murine
antibodies. PDL's SMART antibodies are human-like antibodies designed using
structural information from promising murine antibodies to capture the benefits
of such antibodies while overcoming many of their limitations in treating
humans. Clinical trials and preclinical studies have shown that PDL's SMART
antibodies generally avoid a HAMA response and have a longer half-life than
murine antibodies.
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<PAGE> 34
Every antibody contains two regions, a variable domain that binds to the
target and a constant domain that interacts with other portions of the immune
system. The variable domain is composed of the complementarity determining
regions ("CDRs") that directly bind to the target and the framework region that
holds the CDRs in position and helps maintain their required shape (see figure
below). Researchers have used genetic engineering to construct "humanized"
antibodies that consist of the CDRs from a murine antibody with the framework
region and constant domain from a human antibody. However, when the CDRs from
the murine antibody are combined with the framework of the human antibody, the
human framework often distorts the shape of the CDRs so they no longer bind well
to the target. Therefore, it is usually necessary to substitute one or more
amino acids from the murine antibody into the framework of the humanized
antibody for it to maintain the binding ability of the murine antibody.
[COMPUTER-GENERATED SPACE-FILLING MODEL OF A HUMANIZED ANTIBODY]
A SMART antibody is a humanized antibody designed by using PDL's
proprietary computer technology to guide the choice of substitutions of amino
acids from the murine antibody into the human antibody framework, based on
structural information derived from the murine antibody. The construction of a
SMART antibody starts with the identification of a murine antibody that has
demonstrated favorable results in laboratory, animal or human studies. A model
of the murine antibody is generated using proprietary computer modeling software
that predicts the shapes of antibodies and eliminates the need for more
time-consuming laboratory techniques. The resulting model is carefully analyzed
to identify the few key amino acids in the framework most responsible for
maintaining the shape of the CDRs. Software developed at PDL as well as the
experience of the Company's computational chemists is important in this
analysis. These few key murine amino acids are substituted into the human
framework of the SMART antibody along with the murine CDRs in order to maintain
their ability to bind well to the target. The resulting SMART antibody retains
most or all of the binding ability of the murine antibody, but is about 90%
human.
In 1996, the Company was issued U.S. and European patents which cover, in
most circumstances, humanized antibodies that contain amino acid substitutions
from the murine antibody in their framework. The Company believes that most
humanized antibodies require such amino acid substitutions in order to maintain
high binding ability. The patents also cover pharmaceutical compositions
containing such humanized antibodies and other aspects of PDL's SMART antibody
technology. PDL has filed similar patent applications in Japan and other
countries. See "-- Patents and Proprietary Technology."
OTHER PDL TECHNOLOGIES. In addition to its SMART antibody technology, PDL
employs additional antibody-based drug development technologies to overcome
shortcomings of murine antibodies. The Company is also pursuing a rational drug
design program that leverages its computer expertise to potentially develop new
drug candidates.
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<PAGE> 35
Human Antibodies. The use of fully human monoclonal antibodies is another
approach to avoiding many of the problems associated with murine antibodies. In
April 1993, PDL exclusively licensed from Novartis its patented "trioma"
technology to generate certain human antibodies, along with four human anti-
viral antibodies. Two of these human antibodies, OST 577 and PROTOVIR, are in
clinical development. The trioma technology is used to produce fully human
antibodies against viruses and potentially other organisms which infect humans.
A key aspect of the technology is the use of a mouse-human hybrid cell line as
the fusion partner to immortalize human antibody-producing B cells. Trioma cell
lines generated in this manner often stably produce human antibodies. As with
SMART antibodies, clinical trials and preclinical studies have shown that PDL's
human antibodies generally avoid a HAMA response and have a longer half-life
than murine antibodies. See "-- Collaborative and Licensing
Arrangements -- Novartis."
New Technologies. The Company is pursuing a rational drug design program
focusing on small molecules by extending the Company's computer modeling tools
originally developed for its SMART antibody program. Rational drug design
utilizes computer models of proteins and their interactions with smaller
molecules in order to accelerate discovery and optimization of new drug
compounds. Although PDL's technology is at an early stage, the Company believes
that this application of its modeling algorithms may ultimately be used to
develop non-antibody drug candidates. In addition, the Company plans to extend
its research activities into other new areas, potentially including the
development of novel classes of antibiotics for treating infections.
BUSINESS STRATEGY
PDL's objective is to leverage its research expertise and intellectual
property in the field of antibodies to become a profitable, research-based
biopharmaceutical company that manufactures and, in North America, markets its
own products. PDL's strategy to achieve this objective involves the following
elements:
Expand Product Portfolio. The Company believes that its SMART antibody
technology is capable of converting essentially any promising murine antibody
into a humanized antibody better suited for therapeutic use. As a result, the
Company has been able to rapidly develop a broad portfolio of product candidates
with potential applications to the prevention and treatment of autoimmune and
inflammatory conditions, cancers, viral infections, and other diseases. This
diverse product pipeline enhances commercial opportunities and reduces the
Company's reliance on individual products.
Establish Collaborative Arrangements. The Company actively seeks corporate
partnerships with pharmaceutical companies, and to date has entered into
partnerships with eight such companies. Typically, the Company receives a
licensing fee, research funding and/or milestone payments, and royalties on
potential product sales in return for certain marketing rights to one or more
potential products developed at PDL. These revenues help to defray PDL's own
product development expenses, while the partner typically bears significant
direct responsibility for certain product development activities and expenses.
Leverage Patent Position. An important new aspect of PDL's business
strategy is to obtain both near-term revenues and potential royalties by
licensing limited rights under its issued humanized antibody patents and
corresponding patent applications to other companies developing humanized
antibodies. In December 1996, PDL entered into its first such licensing
agreement, with Sankyo Co., Ltd. ("Sankyo"). The Company's patents are also
helpful in inducing other companies to enter into collaborative relationships
with the Company, in which PDL uses its proprietary technology to develop SMART
antibodies based on promising murine antibodies developed by the other
companies. PDL has entered into six such relationships, including four since
December 1995. In addition to paying PDL license and other fees, in some cases
the other companies have granted PDL options to obtain North American
co-promotion rights.
Retain and Obtain North American Marketing Rights. Where appropriate, PDL
retains and obtains North American marketing or co-promotion rights to many of
its potential products. This strategy provides the Company with future
opportunities to generate greater revenues.
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COLLABORATIVE AND LICENSING ARRANGEMENTS
Roche. In 1989, PDL entered into agreements with Roche to collaborate on
the research and development of SMART antibodies against the IL-2 receptor,
including Zenapax. Under these agreements, Roche has exclusive, worldwide rights
to manufacture, market and sell Zenapax. The arrangement provides for research
and development funding, milestone and bonus payments and future royalties that
could be received by PDL under the agreements. Most of such milestone and bonus
payments have already been received from Roche, and Roche has completed its
research funding to PDL under these agreements, although Roche will continue to
fund its own clinical development activities.
In October 1996, PDL entered into a collaborative agreement with Roche
providing for the humanization by PDL of a murine antibody that has potential
for treating rheumatoid arthritis. PDL received a licensing and signing fee and
can earn milestone payments and royalties on potential product sales of this
compound by Roche.
Corange/Boehringer Mannheim. In October 1993, PDL and Corange entered into
a collaborative arrangement providing for the grant of exclusive marketing
rights in certain territories for a number of products in development. In
consideration for these rights, Corange paid to PDL a $10 million licensing and
signing fee and $30 million in research and development funding over three years
and agreed to certain milestone payments and the payment of royalties on future
product sales. As part of this arrangement, PDL and Corange further committed to
negotiate additional agreements under which each company would manufacture and
supply the other with certain of the antibodies covered by the collaborative
arrangement for use in clinical trials and potential future product sales. As
part of this collaborative arrangement, PDL and Corange also entered into a
stock purchase agreement, a standstill agreement and a registration rights
agreement pursuant to which Corange invested an aggregate of $75 million in PDL
through the purchase of approximately 2.433 million newly issued shares of
common stock in December 1993 and 1994. Product rights and duties under this
arrangement were subsequently assigned and delegated to Corange's subsidiary,
Boehringer Mannheim.
In 1994 and 1995, the parties amended certain of the agreements in this
collaborative arrangement. As part of these amendments, the parties agreed to
terminate Boehringer Mannheim's rights to certain preclinical products. As a
result, Boehringer Mannheim currently has exclusive marketing rights outside of
North America and Asia for PROTOVIR and the SMART Anti-L-Selectin Antibody,
exclusive marketing rights outside of North America for OST 577, and North
American co-promotion rights and exclusive marketing rights outside of North
America for an additional antibody to an undisclosed cardiovascular target. The
parties further agreed to allocate primary responsibility for clinical
development and manufacturing of PDL's Human Anti-Hepatitis B Antibody to
Boehringer Mannheim and for clinical development and manufacturing of PROTOVIR
to PDL. In addition, as part of these amendments, Boehringer Mannheim agreed to
provide certain clinical material manufactured by Boehringer Mannheim to PDL
without charge for PDL's use in preclinical and clinical research. The amendment
also provides that Boehringer Mannheim will assume the development and
manufacturing expenses related to the OST 577 Human Anti-Hepatitis B Antibody,
subject to reimbursement of certain clinical trial expenses by PDL of up to $2
million toward Phase II studies and up to $8.8 million for Phase III studies, if
certain conditions are met. As a result of these amendments, PDL is no longer
eligible to receive milestone payments with respect to OST 577 and PROTOVIR. In
the first quarter of 1996, Boehringer Mannheim made a milestone payment to PDL
with respect to the SMART Anti-L-Selectin Antibody.
Yamanouchi. In February 1991, PDL and Yamanouchi Pharmaceutical Co., Ltd
("Yamanouchi") entered into a collaborative agreement providing for the
humanization of a murine anti-platelet (anti-gpIIb/IIIa) antibody developed by
Yamanouchi for potentially treating certain cardiovascular disorders. PDL has
completed humanization of the antibody and Yamanouchi is currently in the
preclinical stage of development with this humanized antibody. Yamanouchi has
exclusive, worldwide rights to the resulting SMART antibody and is responsible
for all clinical trials and for obtaining necessary government regulatory
approvals. The agreement provides for milestone payments, all of which have been
received, and royalties on future product sales.
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Kanebo. In February 1992, PDL and Kanebo, Ltd. ("Kanebo") entered into a
product licensing agreement whereby Kanebo received an exclusive license to the
SMART M195 Antibody for therapeutic uses in certain Asian countries including
Japan in exchange for a licensing and signing fee, research funding, milestone
payments and royalties on future product sales. The research funding period
under the agreement expired in September 1993. Also in September 1993 and May
1995, PDL entered into purchase agreements with Kanebo pursuant to which PDL
sold Kanebo preclinical and clinical quantities of the SMART M195 Antibody.
Kanebo is currently conducting a Phase I clinical trial of the SMART M195
Antibody in Japan.
Novartis. In April 1993, PDL and Novartis entered into agreements
providing for the grant of exclusive licenses to PDL of four human anti-viral
antibodies and other related technology and antibodies from Novartis. The human
monoclonal antibodies target cytomegalovirus, the hepatitis B virus, herpes
simplex viruses, and varicella zoster virus. In addition, PDL received an
exclusive license to the SMART ABL 364 Antibody, an antibody previously
humanized by PDL for Novartis, and the related murine antibody, ABL 364, of
Novartis. This arrangement also included exclusive licenses to the Novartis
trioma human antibody technology and patents as well as the purchase of certain
antibody supplies and related manufacturing equipment. In consideration for the
licenses and assets transferred, PDL initially paid Novartis $5 million and
agreed to provide up to an additional $5 million in future milestone payments in
the event of certain product approvals under the agreements.
Under the terms of the Novartis agreements, PDL has the right to
manufacture and market the antibodies acquired from Novartis throughout the
world. Novartis retained certain co-promotion and co-marketing rights, and
rights to royalties on sales by PDL of licensed products in countries where
Novartis does not sell these antibodies with PDL under the co-promotion and
co-marketing arrangements. In November 1993, PDL paid Novartis an additional
$2.75 million to amend the April 1993 agreement relating to the human antibodies
in order to terminate certain of Novartis' co-promotion and co-marketing rights
in countries outside of the U.S., Canada and Asia and to reduce royalties
Novartis may earn from the sale of human antibody products in countries outside
of the U.S., Canada and Asia.
Mochida. In December 1995, PDL and Mochida Pharmaceutical Co., Ltd,
("Mochida") entered into a collaborative agreement providing for the
humanization by PDL of a murine antibody that has potential for treating certain
infectious diseases. To date, PDL has received a licensing and signing fee and
milestone payment and can earn a further milestone payment and royalties on
potential product sales of this compound by Mochida. In addition, PDL has an
option to co-promote the compound in North America.
Japanese Collaborator. In September 1996, PDL entered into a collaborative
agreement with another Japanese company providing for the humanization by PDL of
a murine antibody that has potential for treating cancer. PDL received a
licensing and signing fee and can earn milestone payments and royalties on
potential product sales of this compound by the Japanese company. PDL also has
an option to co-promote the compound in North America. The name of the Japanese
company has not been disclosed.
Sankyo. In December 1996, PDL entered into a patent license agreement with
Sankyo pursuant to which PDL granted a worldwide, nonexclusive license under its
humanized antibody patents to that company for an antibody to a specific target
antigen. PDL received a $1 million licensing and signing fee and will receive
royalties on future product sales. The name of the antibody target has not been
disclosed.
Genetics Institute. In December 1996, PDL and Genetics Institute, Inc.
("Genetics Institute"), a wholly-owned subsidiary of American Home Products,
entered into a collaborative agreement pursuant to which PDL will initially
develop three humanized monoclonal antibodies based on murine antibodies
developed by Genetics Institute that modulate the immune co-stimulatory pathway.
In addition, Genetics Institute received a worldwide, nonexclusive license for
those antibodies under PDL's humanized antibody patents. PDL received a $2.5
million licensing and signing fee and is entitled to receive milestone payments
and royalties on potential product sales. In addition, PDL received an option to
co-promote the products in North America (U.S. and Canada). The agreement
contemplates that PDL may collaborate with Genetics Institute to humanize
additional antibodies in the field.
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For a discussion of certain risks related to the Company's collaborations,
see "Risk Factors -- Dependence on Collaborative Partners."
Molecular Applications Group. PDL has licensed from Molecular Applications
Group exclusive rights to certain protein modeling software. PDL uses this
software in designing its SMART antibodies. PDL paid an initial license fee upon
execution of this license and is obligated to pay an additional fixed fee each
year, subject to certain adjustments.
Certain Patent Licenses. In July 1989, PDL obtained a nonexclusive license
under certain patents from the Medical Research Council of the United Kingdom
("MRC License") to an antibody "reshaping" process, which allows the exchange of
complementarity determining regions from different antibodies. PDL paid an
initial license fee upon execution of the MRC License and is obligated to pay
royalties on sales of products covered by the licensed patents. Each of PDL's
SMART antibody products may be within the scope of the MRC License. In addition,
the MRC License includes a sublicense to the Boss Patent held by Celltech
relating to PDL's current process for producing SMART antibodies. In October
1994, PDL obtained a non-exclusive license from Celltech to the Boss Patent
relating to PDL's current process for producing certain other PDL potential
products, including OST 577 and PROTOVIR.
MANUFACTURING
PDL currently leases approximately 45,000 square feet housing its
manufacturing facility in Plymouth, Minnesota. The Company intends to
manufacture the SMART M195 Antibody, PROTOVIR, if clinical trials warrant
continued development, and some of its other products in preclinical
development. PDL intends to continue to manufacture potential products for use
in preclinical studies and clinical trials using this manufacturing facility in
accordance with standard procedures that comply with cGMP and appropriate
regulatory standards. Roche is responsible for manufacturing Zenapax and
Boehringer Mannheim is responsible for manufacturing OST 577.
In order to obtain regulatory approvals and to expand its capacity to
produce its products for commercial sale at an acceptable cost, PDL will need to
improve and expand its existing manufacturing capabilities and demonstrate to
the FDA its ability to manufacture its products using controlled, reproducible
processes. Accordingly, the Company is evaluating plans to improve and expand
the capacity of its current facility. Such plans, if instituted, would result in
substantial costs to the Company and may require a suspension of manufacturing
operations during construction. See "Risk Factors -- Absence of Manufacturing
Experience; Dependence on Manufacturing by Boehringer Mannheim" and
"-- Uncertainties Resulting From Manufacturing Changes."
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success is significantly dependent on its ability to obtain
patent protection for its products and technologies and to preserve its trade
secrets and operate without infringing on the proprietary rights of third
parties. PDL files and prosecutes patent applications to protect its inventions.
No assurance can be given that the Company's pending patent applications will
result in the issuance of patents or that any patents will provide competitive
advantages or will not be invalidated or circumvented by its competitors.
Moreover, no assurance can be given that patents are not issued to, or patent
applications have not been filed by, other companies which would have an adverse
effect on the Company's ability to use, manufacture or market its products or
maintain its competitive position with respect to its products. Other companies
obtaining patents claiming products or processes useful to the Company may bring
infringement actions against the Company. As a result, the Company may be
required to obtain licenses from others or not be able to use, manufacture or
market its products. Such licenses may not be available on commercially
reasonable terms, if at all.
PDL has several patents and has exclusively licensed certain patents
regarding the trioma technique and related antibodies from Novartis. In
particular with respect to humanization technology, in June 1996, PDL was issued
a U.S. patent covering Zenapax and certain related antibodies against the IL-2
receptor. In addition, PDL is currently prosecuting other patent applications
with the PTO and in other countries, including members of the European Patent
Convention, Canada, Japan and Australia. The patent applications
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are directed to various aspects of PDL's SMART and human antibodies, antibody
technology and other programs, and include claims relating to compositions of
matter, methods of preparation and use of a number of PDL's compounds. However,
PDL does not know whether any pending applications will result in the issuance
of patents or whether such patents will provide protection of commercial
significance. Further, there can be no assurance that PDL's patents will prevent
others from developing competitive products using related technology.
Patents in the U.S. are issued to the party that is first to invent the
claimed invention. Since patent applications in the U.S. are maintained in
secrecy until patents issue, PDL cannot be certain that it was the first
inventor of the invention covered by its pending patent applications or patents
or that it was the first to file patent applications for such inventions. The
patent positions of biotechnology firms generally are highly uncertain and
involve complex legal and factual questions. No consistent policy has emerged
regarding the breadth of claims in biotechnology patents, and patents of
biotechnology products are uncertain, so that even issued patents may later be
modified or revoked by the PTO or the courts. Moreover, the issuance of a patent
in one country does not assure the issuance of a patent with similar claims in
another country, and claim interpretation and infringement laws vary among
countries, so the extent of any patent protection may vary in different
territories.
In January and December 1996, PDL was issued patents by the EPO and PTO,
respectively. PDL believes the patent claims cover Zenapax and, based on its
review of the scientific literature, most humanized antibodies. The EPO patent
applies in the United Kingdom, Germany, France, Italy and eight other Western
European countries. The EPO (but not PTO) procedures provide for a nine-month
opposition period in which other parties may submit arguments as to why the
patent was incorrectly granted and should be withdrawn or limited. The entire
opposition process, including appeals, may take several years to complete, and
during this lengthy process, the validity of the EPO patent will be at issue,
which may limit the Company's ability to negotiate or collect royalties or to
negotiate future collaborative research and development agreements based on this
patent. Eighteen notices of opposition to PDL's European patent were filed
during the opposition period, including oppositions by major pharmaceutical and
biotechnology companies, which cited references and made arguments not
considered by the EPO and PTO before grant of the respective patents. The
oppositions currently are being reviewed by the Company's patent counsel. PDL
intends to vigorously defend the European and, if necessary, the U.S. patent;
however there can be no assurance that the Company will prevail in the
opposition proceedings or any litigation contesting the validity or scope of
these patents. In addition, such proceedings or litigation, or any other
proceedings or litigation to protect the Company's intellectual property rights
or defend against infringement claims by others, could result in substantial
costs and a diversion of management's time and attention, which could have a
material adverse effect on the business and financial condition of the Company.
A number of companies, universities and research institutions have filed
patent applications or received patents in the areas of antibodies and other
fields relating to PDL's programs. Some of these applications or patents may be
competitive with PDL's applications or contain claims that conflict with those
made under PDL's patent applications or patents. Such conflict could prevent
issuance of patents to PDL, provoke an interference with PDL's patents or result
in a significant reduction in the scope or invalidation of PDL's patents, if
issued. An interference is an administrative proceeding conducted by the PTO to
determine the priority of invention and other matters relating to the decision
to grant patents. Moreover, if patents are held by or issued to other parties
that contain claims relating to PDL's products or processes, and such claims are
ultimately determined to be valid, no assurance can be given that PDL would be
able to obtain licenses to these patents at a reasonable cost, if at all, or to
develop or obtain alternative technology.
The Company is aware that Celltech has been granted a patent by the EPO
covering certain humanized antibodies, which PDL has opposed, and Celltech has
announced that it has received a notice of allowance of a corresponding U.S.
patent (the "U.S. Adair Patent") and expects the patent to issue in early 1997.
Because U.S. patent applications are maintained in secrecy, PDL cannot review
the scope of the claims in the U.S. Adair Patent. Accordingly, there can be no
assurance that such claims would not cover any of PDL's SMART antibodies or be
competitive with or conflict with claims in PDL's patents or patent
applications. If the U.S. Adair Patent issues and if it is determined to be
valid and to cover any of PDL's SMART antibodies, there can
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be no assurance that PDL would be able to obtain a license on commercially
reasonable terms, if at all. If the claims of the U.S. Adair Patent conflict
with claims in PDL's patents or patent applications, there can be no assurance
that an interference would not be declared by the PTO, which could take several
years to resolve and could involve significant expense to the Company. Also,
such conflict could prevent issuance of patents to PDL relating to humanization
of antibodies or result in a significant reduction in the scope or invalidation
of PDL's patents, if issued. Moreover, uncertainty as to the validity or scope
of patents issued to PDL relating generally to humanization of antibodies may
limit the Company's ability to negotiate or collect royalties or to negotiate
future collaborative research and development agreements based on this patent.
PDL has obtained a nonexclusive license under a patent held by Celltech
(the "Boss Patent") relating to PDL's current process for producing SMART and
human antibodies. An interference proceeding was declared in early 1991 by the
PTO between the Boss Patent and a patent application filed by Genentech to which
PDL does not have a license. PDL is not a party to the interference proceeding,
and the timing and outcome of the proceeding or the scope of any patent that may
be subsequently issued cannot be predicted. If the Genentech patent application
were held to have priority over the Boss Patent, and if it were determined that
PDL's processes and products were covered by a patent issuing from such patent
application, PDL may be required to obtain a license under such patent or to
significantly alter its processes or products. There can be no assurance that
PDL would be able to successfully alter its processes or products to avoid
infringing such patent or to obtain such a license on commercially reasonable
terms, if at all, and the failure to do so could have a material adverse effect
on PDL.
The Company is aware that Lonza Biologics, Inc. has a patent issued in
Europe to which PDL does not have a license (although Roche has advised the
Company that it has a license covering Zenapax), which may cover the process the
Company uses to produce its potential products. If it were determined that PDL's
processes were covered by such patent, PDL may be required to obtain a license
under such patent or to significantly alter its processes or products, if
necessary to manufacture or import its products in Europe. There can be no
assurance that PDL would be able to successfully alter its processes or products
to avoid infringing such patent or to obtain such a license on commercially
reasonable terms, if at all, and the failure to do so could have a material
adverse effect on the business and financial condition of the Company.
Also, Genentech has patents in the U.S. and Europe that relate to chimeric
antibodies. The European patent is currently in the opposition process. If
Genentech were to assert that the Company's SMART antibodies infringe these
patents, PDL may have to choose whether to seek a license or to challenge in
court the validity of such patents or Genentech's claim of infringement. There
can be no assurance that PDL would be successful in either obtaining such a
license on commercially reasonable terms, if at all, or that it would be
successful in such a challenge of the Genentech patents, and the failure to do
so would have a material adverse effect on the business and financial condition
of the Company.
In addition to seeking the protection of patents and licenses, PDL also
relies upon trade secrets, know-how and continuing technological innovation
which it seeks to protect, in part, by confidentiality agreements with employees
consultants, suppliers and licensees. There can be no assurance that these
agreements will not be breached, that PDL would have adequate remedies for any
breach or that PDL's trade secrets will not otherwise become known or
independently developed by competitors.
GOVERNMENT REGULATION
The manufacturing, testing and marketing of PDL's products are subject to
regulation by numerous governmental authorities in the U.S. and other countries
based upon their safety and efficacy. In the U.S., pharmaceutical (biologic)
products are subject to rigorous FDA regulation. The federal Food, Drug and
Cosmetic Act ("FD&C Act"), Public Health Service Act ("PHS Act") and other
federal, state and local regulations govern the manufacture, testing, labeling,
storage, record keeping, clinical and nonclinical studies to assess safety and
efficacy, approval, advertising and promotion of pharmaceutical products. The
process of developing and obtaining approval for a new pharmaceutical product
within this regulatory framework requires a number of years and the expenditure
of substantial resources. There can be no assurance that necessary approvals
will be obtained on a timely basis, if at all.
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In addition to the requirement for FDA approval of each pharmaceutical
product, each pharmaceutical product manufacturing facility must be registered
with, and approved by, the FDA. The manufacturing and quality control procedures
must conform to cGMP in order to receive FDA approval. Pharmaceutical product
manufacturing establishments are subject to inspections by the FDA and local
authorities as well as inspections by authorities of other countries. To supply
pharmaceutical products for use in the U.S., foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection by
the FDA or by corresponding regulatory agencies in such countries under
reciprocal agreements with the FDA. Moreover, pharmaceutical product
manufacturing facilities may also be regulated by state, local and other
authorities.
For marketing of pharmaceutical products outside the U.S., PDL is subject
to foreign regulatory requirements governing marketing approval, and FDA and
other U.S. export provisions should the pharmaceutical product be manufactured
in the U.S. Requirements relating to the manufacturing, conduct of clinical
trials, product licensing, promotion, pricing and reimbursement vary widely in
different countries. Difficulties or unanticipated costs or price controls may
be encountered by PDL or its licensees or its marketing partners in their
respective efforts to secure necessary governmental approvals to market the
potential pharmaceutical products, which could delay or preclude PDL or its
licensees or its marketing partners from marketing their potential
pharmaceutical products.
The basic steps required by the FDA before a new pharmaceutical product for
human use may be marketed in the U.S. include (i) preclinical laboratory and
animal tests, (ii) submission to the FDA of an application for an
Investigational New Drug ("IND") which must be reviewed by the FDA before
clinical trials may begin, (iii) completion of adequate and well-controlled
human clinical trials to establish the safety and efficacy of the pharmaceutical
product for its intended use, (iv) as of May 1996 for therapeutic monoclonal
antibodies, submission of a Biologics License Application ("BLA") to the FDA,
and (v) FDA approval of the BLA prior to any commercial sale or shipment of the
pharmaceutical product.
Preclinical tests for safety are conducted in the laboratory and in animals
in compliance with FDA good laboratory practices regulations and other
additional tests are conducted to assess the potential safety and biological
activity of the pharmaceutical product in order to support a sponsor's
contention that it is reasonably safe to conduct proposed clinical
investigations. The results of these studies are submitted to the FDA as part of
an IND. Testing in humans may begin 30 days after filing an IND unless the FDA
requests additional information or raises questions or concerns that must be
resolved before the FDA will permit the study to proceed. In such cases, there
can be no assurance that resolution will be achieved in a timely manner, if at
all.
Clinical trials are conducted in accordance with good clinical practices
based on regulations promulgated by the FDA and under protocols that include
detail on the objectives of the trial, the parameters to be used to monitor
safety, and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of an IND. Further, each clinical trial must be
reviewed and approved by an independent institutional review board ("IRB") at
each of the medical institutions at which the trial will be conducted. There can
be no assurance that submission of a protocol to an IRB or an IND to the FDA
will result in the initiation or completion of a clinical investigation.
Clinical trials are typically conducted in three sequential phases, although the
phases may overlap. In Phase I, the pharmaceutical product is typically tested
in a small number of healthy people or patients to initially determine safety,
dose tolerance (including side effects associated with increasing doses),
metabolism, distribution and excretion. Phase II usually involves studies in a
limited patient population to obtain a preliminary determination of efficacy, to
identify an optimal dose and to further identify safety risks. Phase III trials
are larger, multi-center trials undertaken to provide further confirmation of
efficacy and provide additional safety information in a specific patient
population. The FDA reviews the results of the trials and may discontinue them
at any time for safety reasons or other reasons if they were deemed to be
non-compliant with FDA regulations. There can be no assurance that Phase I, II
or III clinical trials will be completed successfully within any specific time
period, if at all, with respect to any of the Company's or its collaborators'
pharmaceutical products, each of which is subject to such testing requirements.
Recently, the FDA has been engaged in regulatory reform efforts aimed at
reducing the regulatory burden on manufacturers of certain biotechnology
products. For example, in May 1996, the FDA issued regulations that eliminate
the previous requirement of a separate establishment license application, in
addition
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to the product license application, for certain categories of biotechnology
products, including the pharmaceutical products of the Company. Furthermore, the
FDA has announced its intention to adopt a single approval application for all
pharmaceutical products. There can be no assurance, however, that implementation
of these changes will benefit the Company or otherwise reduce the regulatory
requirements applicable to the Company or that these changes will not result in
the imposition of other, more burdensome obligations on the Company in
connection with regulatory review of the Company's products. In any event, the
results of the preclinical and clinical trials and a description of the
manufacturing process and tests to control the quality of the pharmaceutical
product must be submitted to the FDA in a BLA for approval. The approval process
is likely to require substantial time and resource commitment by an applicant.
Approval is influenced by a number of factors, including the severity of the
disease being treated, availability of alternative treatments, and the risks and
benefits of the proposed therapeutic as demonstrated in the clinical trials.
Additional data or clinical trials may be requested by the FDA and may delay
approval. There is no assurance that FDA approval will be granted on a timely
basis, if at all. After FDA approval for the initial indications and dosage
forms, further studies may be required by the FDA to gain approval for labeling
of the pharmaceutical product for other disease indications or dosage forms, or
to monitor for adverse effects. Both before and after approval is obtained, a
pharmaceutical product, its manufacturer and the holder of the BLA for the
pharmaceutical product are subject to comprehensive regulatory oversight. The
FDA may deny a BLA if applicable regulatory criteria are not satisfied, require
additional testing or information or require postmarketing testing and
surveillance to monitor the safety or efficacy of the pharmaceutical product.
Moreover, even if regulatory approval is granted, such approval may be subject
to limitations on the indicated uses for which the pharmaceutical product may be
marketed. Further, approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems with the pharmaceutical product occur
following approval. Among the conditions for BLA approval is the requirement
that the manufacturer of the pharmaceutical product comply with cGMP. In
addition, under a BLA, the manufacturer continues to be subject to facility
inspection and the applicant must assume responsibility for compliance with
applicable pharmaceutical product and establishment standards. Violations of
regulatory requirements at any stage may result in various adverse consequences,
including FDA refusal to accept a license application, total or partial
suspension of licensure, delay in approving or refusal to approve the
pharmaceutical product or pending marketing approval applications, warning
letters, fines, injunctions, withdrawal of the previously approved
pharmaceutical product or marketing approvals and/or the imposition of criminal
penalties against the manufacturer and/or BLA holders. In addition, later
discovery of previously unknown problems may result in new restrictions on such
pharmaceutical product, manufacturer and/or BLA holders, including withdrawal of
the pharmaceutical product or marketing approvals and pharmaceutical product
recalls or seizures.
In addition to regulations enforced by the FDA, the Company is subject to
federal, state and local laws and regulations governing the use, generation,
manufacture, storage, discharge, handling and disposal of certain materials and
wastes used in its operations, some of which are classified as "hazardous."
There can be no assurance that the Company will not be required to incur
significant costs to comply with environmental laws, the Occupational Safety and
Health Act, and state, local and foreign counterparts to such laws, rules and
regulations as its manufacturing and research activities are increased or that
the operations, business and future profitability of the Company will not be
adversely affected by current or future laws, rules and regulations.
Although the Company believes that its safety processes and procedures and
its handling and disposing of materials and wastes comply with applicable laws,
rules and regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company. In addition, the Company cannot predict the
extent of the adverse effect on its business or the financial and other costs
that might result from any new government requirements arising out of future
legislative, administrative or judicial actions. Compliance with such laws,
rules and regulations does not have, nor is such compliance presently expected
to have, a material adverse effect on its business. However, the Company cannot
predict the extent of the adverse effect on its business or the financial and
other costs that might result from any new government requirements arising out
of future legislative, administrative or judicial actions.
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COMPETITION
The Company's potential products are intended to address a wide variety of
disease conditions, including autoimmune diseases, inflammatory conditions,
cancers and viral infections. Competition with respect to these disease
conditions is intense and is expected to increase. This competition involves,
among other things, successful research and development efforts, obtaining
appropriate regulatory approvals, establishing and defending intellectual
property rights, successful product manufacturing, marketing, distribution,
market and physician acceptance, patient compliance, price and potentially
securing eligibility for reimbursement or payment for the use of the Company's
product. The Company believes its most significant competitors may be fully
integrated pharmaceutical companies with substantial expertise in research and
development, manufacturing, testing, obtaining regulatory approvals, marketing
and securing eligibility for reimbursement or payment, and substantially greater
financial and other resources than the Company. Smaller companies also may prove
to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical companies. Furthermore, academic institutions,
governmental agencies and other public and private research organizations
conduct research, seek patent protection, and establish collaborative
arrangements for product development, clinical development and marketing. These
companies and institutions also compete with the Company in recruiting and
retaining highly qualified personnel. The biotechnology and pharmaceutical
industries are subject to rapid and substantial technological change. The
Company's competitors may develop and introduce other technologies or approaches
to accomplishing the intended purposes of the Company's products which may
render the Company's technologies and products noncompetitive and obsolete.
In addition to currently marketed competitive drugs, the Company is aware
of potential products in research or development by its competitors that address
all of the diseases being targeted by the Company. These and other products may
compete directly with the potential products being developed by the Company. In
this regard, the Company is aware that potential competitors are developing
antibodies or other compounds for treating autoimmune diseases, inflammatory
conditions, cancers and viral infections. In particular, a number of other
companies have developed and will continue to develop human antibodies and
humanized antibodies. In addition, protein design is being actively pursued at a
number of academic and commercial organizations, and several companies have
developed or may develop technologies that can compete with the Company's SMART
and human antibody technologies. There can be no assurance that competitors will
not succeed in more rapidly developing and marketing technologies and products
that are more effective than the products being developed by the Company or that
would render the Company's products or technology obsolete or noncompetitive.
Further, there can be no assurance that the Company's collaborative partners
will not independently develop products competitive with those licensed to such
partners by the Company, thereby reducing the likelihood that the Company will
receive revenues under its agreements with such partners.
Any potential product that the Company succeeds in developing and for which
it gains regulatory approval must then compete for market acceptance and market
share. For certain of the Company's potential products, an important factor will
be the timing of market introduction of competitive products. Accordingly, the
relative speed with which the Company and competing companies can develop
products, complete the clinical testing and approval processes, and supply
commercial quantities of the products to the market is expected to be an
important determinant of market success. Other competitive factors include the
capabilities of the Company's collaborative partners, product efficacy and
safety, timing and scope of regulatory approval, product availability, marketing
and sales capabilities, reimbursement coverage, the amount of clinical benefit
of the Company's products relative to their cost, method of administration,
price and patent protection. There can be no assurance that the Company's
competitors will not develop more efficacious or more affordable products, or
achieve earlier product development completion, patent protection, regulatory
approval or product commercialization than the Company. The occurrence of any of
these events by the Company's competitors could have a material adverse effect
on the business and financial condition of the Company.
HUMAN RESOURCES
As of December 31, 1996, PDL had 208 full-time employees, of whom 25 hold
Ph.D. or M.D. degrees. Of the total, 72 employees were engaged in research and
development, 35 in quality assurance and
42
<PAGE> 44
compliance, 17 in clinical and regulatory, 55 in manufacturing and 29 in general
and administrative functions. PDL's scientific staff members have diversified
experience and expertise in molecular and cell biology, biochemistry, virology,
immunology, protein chemistry, computational chemistry and computer modeling.
PDL's success will depend in large part on its ability to attract and retain
skilled and experienced employees. None of PDL's employees are covered by a
collective bargaining agreement, and PDL considers its relations with its
employees to be good.
FACILITIES
The Company leases approximately 43,000 square feet of laboratory and
office space in Mountain View, California. The Company's lease will terminate on
December 31, 2000. The Company has also leased an additional 10,000 square feet
of office space located adjacent to its current facility in Mountain View,
California through May 31, 1998. The Company believes that it will need to
obtain additional laboratory and office space in 1997 to supplement or replace
the facilities at its Mountain View site.
The Company also leases approximately 45,000 square feet of manufacturing,
laboratory and office space in Plymouth, Minnesota. The Company's lease will
terminate on February 29, 2004, subject to the Company's options to extend the
lease for two additional five year terms. Although these facilities currently
leased by the Company are sufficient for its present manufacturing operations,
the Company believes that it may have to obtain additional manufacturing space
in the future and may lease or acquire additional space as required.
43
<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information with respect to the executive officers and directors of the
Companies as of December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- ---- ---------------------------------------
<S> <C> <C>
Laurence Jay Korn, Ph.D................ 47 Chief Executive Officer and Chairperson
of the Board of Directors
Jon S. Saxe............................ 60 President and Director
Cary L. Queen, Ph.D.................... 46 Senior Vice President, Vice President,
Research and Director
Christine Booker....................... 55 Vice President, Quality and Compliance
Douglas O. Ebersole.................... 40 Vice President, Licensing and Corporate
Services, General Counsel and
Secretary
Fred Kurland........................... 46 Vice President and Chief Financial
Officer
Daniel J. Levitt, M.D., Ph.D........... 49 Senior Vice President, Clinical and
Regulatory Affairs
Mark D. Young, Ph.D.................... 46 Vice President, Technical Operations
Stanley Falkow, Ph.D.(1)............... 62 Distinguished Investigator (consultant)
and Director
George M. Gould(1)(2).................. 59 Director
Max Link, Ph.D.(2)..................... 56 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Laurence Jay Korn, Ph.D., has served as a director and Chairperson of the
Board since July 1986 and Chief Executive Officer since January 1987.
Previously, Dr. Korn headed a research laboratory and served on the faculty of
the Department of Genetics at the Stanford University School of Medicine from
March 1981 to December 1986. Dr. Korn received his Ph.D. from Stanford
University and was a Helen Hay Whitney Postdoctoral Fellow at the Carnegie
Institution of Washington and a Staff Scientist at the MRC Laboratory of
Molecular Biology in Cambridge, England, before becoming an Assistant Professor
at Stanford.
Jon S. Saxe has been a director of the Company since March 1989 and has
served as President of the Company since January 1995. Mr. Saxe was a consultant
to the Company from June 1993 to December 1994. He has served as President of
Saxe Associates, a biotechnology consulting firm, since May 1993. Mr. Saxe
served as the President, Chief Executive Officer and a director of Synergen,
Inc., a biopharmaceutical company, from October 1989 to April 1993. Mr. Saxe
served as Vice President, Licensing & Corporate Development for Roche from
August 1984 through September 1989, and Head Patent Law from September 1978
through September 1989. Mr. Saxe is also a director of InSite Vision
Incorporated, Microcide Pharmaceuticals, Inc., Incyte Pharmaceuticals Inc. and
ID Biomedical Corporation. Mr. Saxe received his J.D. from George Washington
University School of Law and his LL.M. from New York University School of Law.
Cary L. Queen, Ph.D., has served as a director since January 1987, as Vice
President, Research, since April 1989 and as Senior Vice President since June
1993. Previously, Dr. Queen held positions at the National Institutes of Health
from 1983 to 1986, where he studied the regulation of genes involved in the
synthesis of antibodies. Dr. Queen received his Ph.D. in Mathematics from the
University of California at Berkeley and subsequently served as an Assistant
Professor of Mathematics at Cornell University.
44
<PAGE> 46
Christine Booker has served as the Company's Vice President, Quality and
Compliance since February 1996. Prior to joining the Company, from February 1995
through January 1996, Ms. Booker served as a consultant to the Company. Since
August 1994, Ms. Booker has served as the principal consultant for Booker
Associates. From March 1992 to October 1994, Ms. Booker served as Director,
Quality Assurance for Synergen, Inc. From October 1980 to February 1992, Ms.
Booker served in various positions at Genentech, Inc., including Associate
Director, Technical Operations. Ms. Booker received her B.S. in Chemistry from
DePaul University.
Douglas O. Ebersole has served as the Company's Vice President, Licensing,
General Counsel and Secretary since July 1992 and in April 1996 was appointed to
the additional position of Vice President, Corporate Services. Prior to joining
the Company, he served first as Associate General Counsel and later as General
Counsel at NeXT Computer, Inc. Prior to joining NeXT in 1989, he was a partner
in the corporate department of the law firm Ware & Freidenrich (now known as
Gray Cary Ware & Freidenrich). Mr. Ebersole received his J.D. from Stanford Law
School.
Fred Kurland has served as the Company's Vice President and Chief Financial
Officer since February 1996. Prior to joining the Company, from May 1995 to
January 1996, Mr. Kurland served as the Vice President, Chief Financial Officer
and Secretary of Applied Immune Sciences, Inc., a biotechnology company. From
February 1991 to April 1995, Mr. Kurland served as Vice President and Controller
of Syntex Corporation, a pharmaceutical company ("Syntex"). From 1981 to
February 1991, Mr. Kurland served in various senior financial positions in
corporate and operations functions at Syntex. Mr. Kurland received his J.D. and
M.B.A. degrees from the University of Chicago.
Daniel J. Levitt, M.D., Ph.D., has served as Senior Vice President,
Clinical and Regulatory Affairs of the Company since November 1996. From
February 1995 to October 1996 he served as Vice President of Drug Development
and Chief Medical Officer of Geron Corporation, a biotechnology company. From
1990 until January 1995, Dr. Levitt held various positions at Sandoz Pharma Ltd.
(now known as Novartis Pharma Ltd.), a pharmaceutical company, most recently as
Worldwide Head of Oncology Clinical Research and Development. From 1986 to 1990,
Dr. Levitt held various positions with Roche, including Director of Clinical
Oncology and Immunology. He received post-graduate training at Yale-New Haven
Hospital and the University of Chicago Pritzker School of Medicine. Dr. Levitt
holds an M.D. and Ph.D. from the University of Chicago Pritzker School of
Medicine.
Mark D. Young, Ph.D., has served as the Company's Vice President, Technical
Operations since September 1995. From February 1995 through August 1995, Dr.
Young served as acting Head of Manufacturing of the Company. From 1989 through
January 1995, Dr. Young served in various senior management positions at
Synergen Inc. and its successor Amgen, a biotechnology company, including Vice
President, Process Development and Executive Vice President, Technical
Operations. Dr. Young has over 20 years experience in fermentation and
biotechnology-based pharmaceutical process development and manufacturing. Dr.
Young received his Ph.D. in Chemical Engineering from the University of Michigan
and his M.S. in Chemical Engineering from Columbia University.
Stanley Falkow, Ph.D., has been a director of the Company since December
1991, a consultant to the Company since 1987 and a Distinguished Investigator
for the Company since 1991. Dr. Falkow has served as a Professor of
Microbiology, Immunology and Medicine at the Stanford University School of
Medicine since 1981. Dr. Falkow is a recipient of the Paul Erlich Prize from the
German Federal Republic and the Squibb Award of the Infectious Diseases Society
of America and is a member of the U.S. National Academy of Sciences and the
American Academy of Arts and Sciences. Dr. Falkow is also a director of GalaGen
Inc.
George M. Gould has been a director of the Company since October 1989. Mr.
Gould is of counsel to the law firm Crummy, Del Deo, Dolan, Griffinger &
Vecchione. From May 1996 to December 1996, Mr. Gould was a Senior Vice President
of PharmaGenics, Inc., a biotechnology company. Prior to that time Mr. Gould
served as Vice President of Licensing & Corporate Development and Chief Patent
Counsel for Roche from October 1989 to May 1996.
45
<PAGE> 47
Max Link, Ph.D., has been a director of the Company since June 1993. Dr.
Link served as the Chief Executive Officer of Boehringer
Mannheim -- Therapeutics from October 1993 to May 1994 and as the Chief
Executive Officer of Corange Ltd. from May 1993 to May 1994. Dr. Link served as
the Chairman of Sandoz Pharma Ltd. (now known as Novartis Pharma Ltd.) from
April 1992 to April 1993. Dr. Link served in various management positions at
Sandoz Ltd. (now known as Novartis Ltd.) and Sandoz Pharmaceuticals Corporation
(now known as Novartis Pharmaceuticals Corporation) from October 1971 to April
1992. Dr. Link is also a director of Access Pharmaceuticals, Inc., Alexion
Pharmaceutical Inc., CytRx Corp., Human Genome Sciences, Inc. and Procept, Inc.
46
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996, and as adjusted
to reflect the sale of shares offered by this Prospectus by (i) each person who
is known by the Company, based on the records of the Company's transfer agent
and relevant documents filed with the Commission, to own beneficially more than
5% of the outstanding shares of the Company's Common Stock, (ii) each member of
the Company's Board of Directors, (iii) the Chief Executive Officer and the five
other most highly compensated executive officers of the Company for the year
ended December 31, 1996, (iv) all members of the Board of Directors and
executive officers of the Company as a group, and (v) the Selling Stockholder.
Except as set forth below, the address of each named individual is the address
of the Company.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
NAME OF BENEFICIAL OWNER OR GROUP AND ----------------- NUMBER OF -------------------
NATURE OF BENEFICIAL OWNERSHIP(1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------------------------------------- --------- ----- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Corange International Limited................. 2,432,877 15.44% 750,000 1,682,877 9.48%
22 Church Street
P.O. Box HM2026
Hamilton HM HX, Bermuda
LGT Asset Management, Inc.(2)................. 1,989,500 12.62 -- 1,989,500 11.20
Chancellor LGT Asset Management, Inc.
Chancellor LGT Trust Company
50 California St., 27th Floor
San Francisco, CA 94111
Hoffmann-La Roche Inc......................... 1,321,418 8.39 -- 1,321,418 7.44
340 Kingsland Street
Nutley, NJ 07110
FMR Corp.(2).................................. 860,300 5.46 -- 860,300 4.84
82 Devonshire Street
Boston, MA 02109
Cary L. Queen, Ph.D.(3)....................... 881,750 5.54 -- 881,750 4.92
Laurence Jay Korn, Ph.D.(4)................... 853,949 5.36 -- 853,949 4.76
Jon S. Saxe(5)................................ 127,688 * -- 127,688 *
Stanley Falkow, Ph.D.(6)...................... 70,167 * -- 70,167 *
Douglas O. Ebersole(7)........................ 64,069 * -- 64,069 *
Mark D. Young, Ph.D.(8)....................... 36,228 * -- 36,228 *
George M. Gould(9)............................ 22,666 * -- 22,666 *
Max Link, Ph.D.(10)........................... 18,333 * -- 18,333 *
Paul I. Nadler, M.D.(11)...................... 250 * -- 250 *
All directors and executive officers as a
group
(11 persons)(3),(4),(5),(6),(7),(8),
(9),(10),(12)............................... 2,089,642 12.76% -- 2,089,642 11.37%
</TABLE>
- ---------------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option. Except as
indicated in the footnotes to this table, the persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property
laws where applicable.
(2) Based solely on information provided in Schedule 13G as filed with the
Commission.
(3) Includes 145,000 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996. Also includes 1,600 shares
held in trusts for the benefit of certain of Dr. Queen's relatives with
respect to which Dr. Queen disclaims beneficial ownership.
47
<PAGE> 49
(4) Includes 181,250 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996. Also includes 12,067
shares held as separate property by Dr. Korn's spouse with respect to which
Dr. Korn disclaims beneficial ownership.
(5) Includes 111,000 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996.
(6) Includes 25,167 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996.
(7) Includes 62,708 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996.
(8) Includes 35,000 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996.
(9) Includes 1,000 shares held for the benefit of Mr. Gould's daughter, with
respect to which Mr. Gould disclaims beneficial ownership. Also includes
21,666 shares issuable upon the exercise of options that were exercisable
within 60 days of December 31, 1996.
(10) Includes 2,500 shares issuable upon the exercise of options that were
exercisable within 60 days of December 31, 1996.
(11) Dr. Nadler resigned as an officer and employee of the Company effective as
of November 1, 1996.
(12) Includes all directors and officers who served in that capacity as of
December 31, 1996 and includes 611,791 shares issuable upon the exercise of
options beneficially owned by those directors and officers that were
exercisable within 60 days of December 31, 1996.
48
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below for whom Oppenheimer & Co., Inc. ("Oppenheimer"),
Lehman Brothers Inc. and PaineWebber Incorporated (collectively, the
"Representatives") are acting as Representatives, have severally agreed to
purchase from the Company and the Selling Stockholder, and the Company and the
Selling Stockholder have agreed to sell to each Underwriter, the respective
number of shares of Common Stock set forth opposite the name of each Underwriter
below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Oppenheimer & Co., Inc. ..........................................................
Lehman Brothers Inc. .............................................................
PaineWebber Incorporated..........................................................
-----------
Total................................................................... 2,750,000
===========
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The Company has granted to the Underwriters an option, exercisable for up
to 30 days after the date of this Prospectus, to purchase up to an aggregate of
412,500 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them bears to the
2,750,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby.
The Company and the Selling Shareholder have agreed to indemnify the
Representatives and the several Underwriters against certain liabilities,
including, without limitations, liabilities under the Securities Act, and to
contribute to certain payments that the Underwriters may be required to make in
respect thereof.
In connection with the offering, the Underwriters may engage in passive
market making transactions in the Company's Common Stock on the Nasdaq National
Market immediately prior to the commencement of the sale of shares in the
offering, in accordance with Rule 10b-6A under the Exchange Act. Passive market
making consists of displaying bids on the Nasdaq National Market limited by the
bid prices of market makers not connected with the offering and purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited in amount to 30% of the passive
market maker's average daily trading volume in the Common Stock during a period
of two months prior to the filing with the Commission of the Registration
Statement of which this Prospectus is a part and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
49
<PAGE> 51
The Company's executive officers and directors and Corange, who after
giving effect to the offering will collectively own an aggregate of
approximately 3,160,728 shares of Common Stock, have agreed that they will not
directly or indirectly, sell, offer, contract to sell, make a short sale, pledge
or otherwise dispose of any shares of Common Stock (or any securities
convertible into or exchangeable or exercisable for any other rights to purchase
or acquire Common Stock other than shares of Common Stock issuable upon exercise
of outstanding options) owned by them, for specified periods after the date of
this Prospectus (90 days for officers and directors and 365 days for Corange,
subject to its sale of 750,000 shares in this offering), without the prior
written consent of Oppenheimer, subject to certain limited exceptions. The
Company has also agreed not to issue, sell or register with the Commission, or
otherwise dispose of, directly or indirectly, any equity securities of the
Company (or any securities convertible into or exercisable or exchangeable for
equity securities of the Company) for a period of 90 days after the date of this
Prospectus, without the prior written consent of Oppenheimer, subject to certain
limited exceptions. Oppenheimer may, in its sole discretion (except with respect
to shares held by Corange, which also requires the consent of the Company,) and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares offered hereby to any
account over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gray Cary Ware & Freidenrich, A Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Cooley Godward LLP, Palo Alto, California. As of the
date of this Prospectus, attorneys of Gray Cary Ware & Freidenrich participating
in this matter beneficially own an aggregate of 250 shares of Common Stock of
the Company.
EXPERTS
The financial statements of Protein Design Labs, Inc. appearing in the
Protein Design Labs, Inc. Annual Report (Form 10-K) for the year ended December
31, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
50
<PAGE> 52
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; on the Internet at
http://www.sec.gov; and at the Commission's following regional offices: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, Seven World Trade Center, New York, New York
10048. Copies of such material can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The Common Stock of the Company is quoted on the
Nasdaq National Market. Reports, proxy statements and other information
concerning the Company may also be inspected at the National Association of
Securities Dealers, Inc., 1735 K. Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules thereto, which may be inspected without charge at, and
copies thereof may be obtained at prescribed rates from, the Public Reference
Section of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission under the Exchange Act,
are hereby incorporated by reference into this Prospectus: (a) The Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996; and (b)
The description of the Company's Common Stock which is contained in its
Registration Statement on Form 8-A filed under the Exchange Act on December 23,
1991, including any amendment or reports filed for the purpose of updating such
description. All documents filed with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in any document incorporated by
reference herein shall be deemed modified or superseded, for purposes of this
Prospectus, to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person, including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein (other
than exhibits to such documents which are not specifically incorporated by
reference into such documents). Such requests should be directed to the
Director, Corporate Communications at the Company's principal executive offices
at 2375 Garcia Avenue, Mountain View, California 94043, (415) 903-3700.
51
<PAGE> 53
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
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, THE SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS
FURNISHED.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 18
Price Range of Common Stock................ 18
Dividend Policy............................ 18
Capitalization............................. 19
Dilution................................... 20
Selected Financial Data.................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 25
Management................................. 44
Principal and Selling Stockholders......... 47
Underwriting............................... 49
Legal Matters.............................. 50
Experts.................................... 50
Available Information...................... 51
Incorporation of Certain Documents by
Reference................................ 51
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,750,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
OPPENHEIMER & CO., INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration and listing and
filing fees.
<TABLE>
<CAPTION>
TO BE PAID
BY THE
REGISTRANT
----------
<S> <C>
Securities and Exchange Commission registration fee............................... $ 33,905
Nasdaq National Market Additional Listing Fee..................................... 17,500
NASD filing fee................................................................... 11,689
Accounting fees and expenses...................................................... 45,000
Printing and engraving expenses................................................... 130,000
Transfer agent and registrar fees and expenses.................................... 5,000
Blue Sky fees and expenses (including counsel fees)............................... 10,000
Legal fees and expenses........................................................... 125,000
Miscellaneous expenses............................................................ 21,906
--------
Total................................................................... $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In 1986 Delaware enacted legislation which authorizes corporations to
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach or alleged breach of such
directors' fiduciary "duty of care." Prior to enactment of this legislation,
directors were accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Numerous complaints alleging breach of directors' duty of care have
been filed in connection with corporate mergers and acquisitions, and although
the new statute does not change directors' duty of care, it enables corporations
to limit available relief to equitable remedies such as injunction or
rescission. The legislation has no effect on directors' (1) duty of loyalty, (2)
acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law, (3) illegal payment of dividends or (4) approval of
any transaction from which a director derives an improper personal benefit. The
validity and scope of the new statute has not been interpreted to any
significant extent by the Delaware courts. The statute has no effect on claims
arising under the federal securities laws.
The Company's Restated Certificate of Incorporation includes the provision
authorized by the statute to eliminate the personal liability of its directors
for monetary damages for breach or alleged breach of their duty of care. The
Company's Bylaws provide that the Company shall indemnify its directors,
officers, employees and agents to the full extent permitted by the Delaware
General Corporation Law, including in circumstances in which indemnification is
otherwise discretionary under such law. In addition, with the approval of the
Board of Directors and the stockholders, the Company has entered into separate
indemnification agreements with its directors, officers, and certain employees
which require the Company, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from a breaches of their confidentiality agreements entered
into with the Company or liabilities arising from willful misconduct of a
culpable nature) and to obtain directors' and officers' insurance, if available
on reasonable terms.
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons, under certain circumstances, for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
II-1
<PAGE> 55
ITEM 16. EXHIBITS.
(a) The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
4.1* -- Registration Rights Agreement between the Company and certain holders of Preferred
Stock and Common Stock, dated August 21, 1986. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-44562 effective January 28, 1992.)
4.2* -- Amendment to Registration Rights Agreement between the Company and certain holders
of Preferred Stock and Common Stock, dated March 16, 1989. (Incorporated by
reference to Exhibit 4.2 to Registration Statement No. 33-44562 effective January
28, 1992.)
4.3* -- Registration Rights Agreement between the Company and Hoffmann-La Roche Inc., dated
March 16, 1989. (Incorporated by reference to Exhibit 4.3 to Registration Statement
No. 33-44562 effective January 28, 1992.)
4.4* -- Standstill Agreement between the Company and Hoffmann-La Roche Inc., dated March
16, 1989. (Incorporated by reference to Exhibit 4.4 to Registration Statement No.
33-44562 effective January 28, 1992.)
4.5* -- Registration Rights Agreement between the Company and Corange International
Limited, dated October 28, 1993. (Incorporated by Reference to Exhibit 4.5 to
Annual Report on Form 10-K filed March 31, 1994.)
4.6* -- Standstill Agreement between the Company and Corange International Limited, dated
October 28, 1993. (Incorporated by Reference to Exhibit 4.5 to Annual Report on
Form 10-K filed March 31, 1994.)
4.7* -- Amendment No. 1 to Stock Purchase Agreement, Registration Rights Agreement and
Joint Development, Marketing and Licensing Agreement. (Incorporated by Reference to
Exhibit 5.2 to Current Report on Form 8-K filed December 15, 1994.)
4.8* -- Restated Certificate of Incorporation. (Incorporated by reference from Exhibit 3.1
to Annual Report on Form 10-K filed March 31, 1993).
4.9* -- Amended and Restated Bylaws. (Incorporated by reference from Exhibit 3.1 to Annual
Report on Form 10-K filed March 31, 1995).
5.1* -- Opinion and Consent of Gray Cary Ware & Freidenrich, A Professional Corporation.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2* -- Consent of Gray Cary Ware & Freidenrich, A Professional Corporation. Reference is
made to Exhibit 5.1.
24.1* -- Power of Attorney (see signature page).
27.1* -- Financial Data Schedule (available in EDGAR format only) (For SEC Use Only).
</TABLE>
- ---------------
* Previously filed.
All Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE> 56
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Mountain View, State of California, on February
13, 1997.
PROTEIN DESIGN LABS, INC.
(Registrant)
By: /s/ JON S. SAXE
------------------------------------
Jon S. Saxe,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -------------------
<C> <S> <C>
LAURENCE JAY KORN* Chief Executive Officer and February 13, 1997
- --------------------------------------------- Chairperson of the Board of
(Laurence Jay Korn) Directors (Principal
Executive Officer)
FRED KURLAND* Vice President and Chief February 13, 1997
- --------------------------------------------- Financial Officer
(Fred Kurland) (Principal Financial and
Accounting Officer)
CARY L. QUEEN* Director February 13, 1997
- ---------------------------------------------
(Cary L. Queen)
/s/ JON S. SAXE Director February 13, 1997
- ---------------------------------------------
(Jon S. Saxe)
STANLEY FALKOW* Director February 13, 1997
- ---------------------------------------------
(Stanley Falkow)
GEORGE M. GOULD* Director February 13, 1997
- ---------------------------------------------
(George M. Gould)
MAX LINK* Director February 13, 1997
- ---------------------------------------------
(Max Link)
*By: /s/ JON S. SAXE
- ---------------------------------------------
(Jon S. Saxe, Attorney-in-fact)
</TABLE>
II-4
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ --------------------------------------------------------------------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement............................................
4.1* -- Registration Rights Agreement between the Company and certain holders of
Preferred Stock and Common Stock, dated August 21, 1986. (Incorporated by
reference to Exhibit 4.1 to Registration Statement No. 33-44562 effective
January 28, 1992.)........................................................
4.2* -- Amendment to Registration Rights Agreement between the Company and certain
holders of Preferred Stock and Common Stock, dated March 16, 1989.
(Incorporated by reference to Exhibit 4.2 to Registration Statement No.
33-44562 effective January 28, 1992.).....................................
4.3* -- Registration Rights Agreement between the Company and Hoffmann-La Roche
Inc., dated March 16, 1989. (Incorporated by reference to Exhibit 4.3 to
Registration Statement No. 33-44562 effective January 28, 1992.)..........
4.4* -- Standstill Agreement between the Company and Hoffmann-La Roche Inc., dated
March 16, 1989. (Incorporated by reference to Exhibit 4.4 to Registration
Statement No. 33-44562 effective January 28, 1992.).......................
4.5* -- Registration Rights Agreement between the Company and Corange
International Limited, dated October 28, 1993. (Incorporated by Reference
to Exhibit 4.5 to Annual Report on Form 10-K filed March 31, 1994.).......
4.6* -- Standstill Agreement between the Company and Corange International
Limited, dated October 28, 1993. (Incorporated by Reference to Exhibit 4.5
to Annual Report on Form 10-K filed March 31, 1994.)......................
4.7* -- Amendment No. 1 to Stock Purchase Agreement, Registration Rights Agreement
and Joint Development, Marketing and Licensing Agreement. (Incorporated by
Reference to Exhibit 5.2 to Current Report on Form 8-K filed December 15,
1994.)....................................................................
4.8* -- Restated Certificate of Incorporation. (Incorporated by reference from
Exhibit 3.1 to Annual Report on Form 10-K filed March 31, 1993)...........
4.9* -- Amended and Restated Bylaws. (Incorporated by reference from Exhibit 3.1
to Annual Report on Form 10-K filed March 31, 1995).......................
5.1* -- Opinion and Consent of Gray Cary Ware & Freidenrich, A Professional
Corporation...............................................................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors........................
23.2* -- Consent of Gray Cary Ware & Freidenrich, A Professional Corporation.
Reference is made to Exhibit 5.1..........................................
24.1* -- Power of Attorney (see signature page)....................................
27.1* -- Financial Data Schedule (available in EDGAR format only) (For SEC Use
Only).....................................................................
</TABLE>
*Previously filed.
<PAGE> 1
Form of
Underwriting Agreement
Exhibit 1.1
PROTEIN DESIGN LABS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
______________, 1997
Oppenheimer & Co., Inc.
Lehman Brothers
PaineWebber Incorporated
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
PROTEIN DESIGN LABS, INC., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions contained herein, to sell to you
and the other underwriters named on Schedule I to this Agreement (the
"Underwriters"), for whom you are acting as Representatives (the
"Representatives"), an aggregate of 2,000,000 shares and Corange International
Limited (the "Selling Securityholder") proposes, subject to the terms and
conditions contained herein, to sell to the Underwriters an aggregate of 750,000
shares (together with the shares to sold by the Company, the "Firm Shares") of
the Company's Common Stock, $.01 par value per share (the "Common Stock"). The
respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedules I and II hereto.
The Company also proposes to grant to the Underwriters an option to purchase up
to an additional 412,500 shares of Common Stock (the "Option Shares") for the
purpose of covering over-allotments in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are together called the "Shares."
1. SALE AND PURCHASE OF THE SHARES. On the basis of the representations,
warranties and covenants contained in, and subject to the terms and conditions
of, this Agreement:
(a) The Company agrees to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company, at
a price of $__________ per share (the "Initial Price"), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I to this
Agreement, subject to adjustment in accordance with
<PAGE> 2
Section 11 hereof. The Selling Securityholder agrees to sell to the
Underwriters, and each Underwriter agrees severally and not jointly, to purchase
from the Selling Securityholder, at the Initial Price, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule II to this
Agreement, subject to adjustment in accordance with Section 11 hereof.
(b) The Company grants to the several Underwriters an option to
purchase all or any part of the Option Shares at the Initial Price. The number
of Option Shares to be purchased by each Underwriter shall be the same
percentage (adjusted by the Representatives to eliminate fractions) of the total
number of Option Shares to be purchased by the Underwriters as such Underwriter
is purchasing of the Firm Shares. Such option may be exercised only to cover
over-allotments in the sales of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time on or before 12:00 noon, New York City
time, on the business day two days before the Firm Shares Closing Date (as
defined below), and only once thereafter within 30 days after the date of this
Agreement, upon written or telegraphic notice, or verbal or telephonic notice
confirmed by written or telegraphic notice, by the Representatives to the
Company no later than 12:00 noon, New York City time, on the business day two
days before the Firm Shares Closing Date or at least two business days before
the Option Shares Closing Date (as defined below), as the case may be, setting
forth the number of Option Shares to be purchased and the time and date (if
other than the Firm Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company and the Selling
Securityholder of the Firm Shares to the Representatives for the respective
accounts of the Underwriters, and payment of the purchase price by either wire
transfer or certified or official bank check or checks payable in same-day funds
drawn to the order of the Company for the shares purchased from the Company and
to the Selling Securityholder (or in the discretion of the Underwriters, to the
Custodian) for the shares purchased from the Selling Securityholder, against
delivery of the respective certificates therefor to the Representatives for the
several accounts of the Underwriters, shall take place at the offices of
Oppenheimer & Co., Inc., at Oppenheimer Tower, World Financial Center, New York,
New York 10281, at 10:00 a.m., New York City time, (a) on the third full
business day following the first day that the Shares are traded, (b) if this
Agreement is executed and delivered after 4:30 p.m. New York City Time, on the
fourth business day following the date of this Agreement, or (c) at such other
time or date, but not later than the fourth full business day following the
Effective Date (as hereinafter defined), as shall be agreed upon by the Company,
the Selling Securityholder and the Representatives (such time and date of
delivery and payment are called the "Firm Shares Closing Date").
In the event the option with respect to the Option Shares is exercised,
delivery by the Company of the Option Shares to the Representatives for the
respective accounts of the Underwriters and payment of the purchase price by
certified or official bank check or checks or wire transfers payable in same day
funds to the order of the Company shall take place at the offices of Oppenheimer
& Co., Inc. specified above at the time and on the date (which may be the same
date as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Section l(b) (such time and date of
delivery and payment are called the "Option Shares Closing Date"). The Firm
Shares Closing Date and the Option Shares Closing Date are called, individually,
a "Closing Date" and, together, the "Closing Dates."
2.
<PAGE> 3
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or, in the case of Option
Shares, on the day of notice of exercise of the option as described in Section
l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the Firm
Shares Closing Date (or the Option Shares Closing Date in the case of the Option
Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The Company has
prepared in conformity with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the published rules and regulations
thereunder (the "Rules") adopted by the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-20941), including a
preliminary prospectus relating to the Shares, and has filed with the Commission
the Registration Statement (as hereinafter defined) and such amendments thereof
as may have been required to the date of this Agreement. The number of executed
copies requested by you of such Registration Statement (including all amendments
thereof) and of the related preliminary prospectus have heretofore been
delivered by the Company to you. The term "preliminary prospectus" means any
preliminary prospectus (as described in Rule 430 of the Rules), including the
documents incorporated by reference therein, included at any time as a part of
the Registration Statement. The Registration Statement, as amended at the time
and on the date it became effective (the "Effective Date"), including all
documents incorporated by reference therein and all exhibits and information, if
any, deemed to be part of the Registration Statement pursuant to Rule 424(b),
Rule 430A, Rule 434 and Rule 462(b) of the Rules, is called the "Registration
Statement." The term "Prospectus" means the prospectus, including the documents
incorporated by reference therein, in the form first used to confirm sales of
the Shares (whether such prospectus was included in the Registration Statement
at the time of effectiveness or was subsequently filed with the Commission
pursuant to Rule 424(b) of the Rules).
The Company and the Selling Securityholder understand that the
Underwriters propose to make a public offering of the Shares, as set forth in
and pursuant to the Prospectus, as soon after the Effective Date and the date of
this Agreement as the Representatives deem advisable. The Company and the
Selling Securityholder hereby confirm that the Underwriters and dealers have
been authorized to distribute or cause to be distributed each preliminary
prospectus and are authorized to distribute the Prospectus (as from time to time
amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement complied, and
on the date of the Prospectus, on the date any post-effective amendment to the
Registration Statement shall become effective, on the date any supplement or
amendment to the Prospectus is filed with the Commission and on each Closing
Date, the Registration Statement and the Prospectus (and any amendment thereof
or supplement thereto) will comply in all material respects with the applicable
provisions of the Securities Act and the Rules and the Securities Exchange Act
of
3.
<PAGE> 4
1934, as amended (the "Exchange Act") and the rules and regulations of the
Commission thereunder; the Registration Statement did not, as of the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and on the other dates referred to above
neither the Registration Statement nor the Prospectus, nor any amendment thereof
or supplement thereto, will contain any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the Registration Statement or any amendment thereto or pursuant to Rule
424(a) of the Rules) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus as amended or
supplemented complied in all material respects with the applicable provisions of
the Securities Act and the Rules and the Exchange Act and the rules and
regulations of the Commission thereunder and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this paragraph 4(a)
shall apply to statements in, or omissions from, the Registration Statement or
the Prospectus made in reliance upon, and in conformity with, information herein
or otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus. With
respect to the preceding sentence, the only information furnished in writing by
the Representatives on behalf of the several Underwriters specifically for
inclusion in the Registration Statement, any preliminary prospectus or the
Prospectus is the last paragraph on the cover page, the paragraphs with respect
to stabilization and passive market making on the inside front cover page of the
Prospectus and to paragraphs 1, 2 and 5 under the caption "Underwriting" in the
Prospectus. Notwithstanding the foregoing, if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Underwriters for such use.
(b) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and Prospectus present
fairly the financial position, the results of operations, the statements of cash
flows and the statements of stockholders' equity and the other information
purported to be shown therein of the Company at the respective dates and for the
respective periods to which they apply and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. The summary and selected
financial data included in the Prospectus present fairly the information shown
therein as at the respective dates and for the respective periods specified, and
the summary and selected financial data have been presented on a basis
consistent with the financial statements so set forth in the Prospectus and
other financial information.
4.
<PAGE> 5
(c) To the knowledge of the Company, Ernst & Young LLP, whose
reports are filed with the Commission as a part of the Registration Statement,
are and, during the periods covered by their reports, were independent public
accountants as required by the Securities Act and the Rules.
(d) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has no
subsidiary or subsidiaries and does not control, directly or indirectly, any
corporation, partnership or joint venture. The Company is duly qualified as a
foreign corporation in each jurisdiction in which the character or location of
its assets or properties (owned, leased or licensed) or the nature of its
business makes such qualification necessary except for such jurisdictions where
the failure to so qualify would not have a material adverse effect on the assets
or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company (a "Material Adverse Effect"). The
Company has all requisite corporate power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and permits
of and from all governmental or regulatory bodies or any other person or entity,
to own, lease and license its assets and properties and conduct its businesses
as now being conducted and as described in the Registration Statement and the
Prospectus except for such authorizations, approvals, consents, orders,
licenses, certificates and permits the failure of which to obtain would not have
a Material Adverse Effect.
(e) To the best of the Company's knowledge, the Company owns, or
possesses adequate and enforceable rights to use, each of the patents listed in
the Registration Statement and each preliminary prospectus under the caption
"Business -- Patents and Proprietary Technology" (the "Patents") and, except as
disclosed in the Registration Statement and the Prospectus, owns or possesses
adequate and enforceable rights to use all trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications, licenses,
know-how and other similar rights and proprietary knowledge (collectively with
the Patents, the "Intangibles") necessary for the conduct of its business as
described and as contemplated in the Registration Statement and the Prospectus.
Except as disclosed in the Registration Statement and the Prospectus, to the
best of the Company's knowledge, the Company has not infringed, nor is it
infringing on, nor has it received any notice of, any infringement of or
conflict with asserted rights of others with respect to any Intangibles which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(f) The Company has good and marketable title to each of the items
of personal property which are reflected in the financial statements referred to
in Section 4(b) or are referred to in the Registration Statement and the
Prospectus as being owned by it and valid and enforceable leasehold interests in
each of the items of real and personal property which are referred to in the
Registration Statement and the Prospectus as being leased by it, in each case
free and clear of all liens, encumbrances, claims, security interests and
defects, other than those described in the Registration Statement and the
Prospectus and those which do not and will not have a Material Adverse Effect.
5.
<PAGE> 6
(g) Except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, pending or, to the Company's
best knowledge, threatened (and the Company does not know of any basis therefor)
against, or involving the assets, properties or business of, the Company (i)
which is required to be disclosed in the Prospectus or (ii) which is reasonably
likely to have a Material Adverse Effect.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change in the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise), of the Company, whether or not arising from transactions in the
ordinary course of business; (ii) the Company has not sustained any material
loss or interference with its assets, businesses or properties (whether owned or
leased) from fire, explosion, earthquake, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree which would have a Material
Adverse Effect; and (iii) since the date of the latest balance sheet included in
the Registration Statement and the Prospectus, except as reflected therein, the
Company has not (1) issued any securities other than the issuance of securities
pursuant to the exercise of options granted under stock option plans or
agreements existing prior to the date of the latest balance sheet included in
the Registration Statement and Prospectus or incurred any liability or
obligation, direct or contingent, for borrowed money, except such liabilities or
obligations incurred in the ordinary course of business, (2) entered into any
material transaction not in the ordinary course of business or (3) declared or
paid any dividend or made any distribution on any shares of its capital stock or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its capital stock.
(i) There is no document or contract of a character required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. Each agreement described in the Registration Statement and the
Prospectus or listed in the Exhibits to the Registration Statement is in full
force and effect and is valid and enforceable by the Company in accordance with
its terms, assuming the due authorization, execution and delivery thereof by
each of the other parties thereto except (i) as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles and (ii) to the extent that rights to indemnity or
contribution thereunder may be limited by Federal and state securities laws or
the public policy underlying such laws.. Neither the Company nor, to the
Company's knowledge, any other party is in default in the observance or
performance of any term or obligation to be performed by it under any such
agreement, and no event has occurred which with notice or lapse of time or both
would constitute such a default, in any such case where such default or event
would have a Material Adverse Effect. No default exists, and no event has
occurred which with notice or lapse of time or both would constitute a default,
in the due performance and observance of any term, covenant or condition, by the
Company of any other agreement or instrument to which the Company is a party or
by which it or its properties or business may be bound or affected where such
default or event would have a Material Adverse Effect.
6.
<PAGE> 7
(j) The Company is not in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a Material Adverse Effect or of any
term or provision of its Certificate of Incorporation or Bylaws.
(k) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale by the
Company of the Shares) will give rise to a right to terminate or accelerate the
due date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or an event which with notice
or lapse of time or both would constitute a default) under, or require any
consent or waiver under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company pursuant to
the terms of, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party or by which it or any of its
properties or businesses is bound, or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation applicable to the Company or violate
any provision of the Certificate of Incorporation or Bylaws of the Company,
except for such consents or waivers which have already been obtained and are in
full force and effect and except for applicable requirements under the
Securities Act and state Blue Sky laws.
(l) The Company has authorized, and, at December 31, 1996 had
outstanding, capital stock as set forth in the Registration Statement and
Prospectus under the heading "Capitalization"; there have been no changes in the
outstanding capital stock of the Company since that date except to the extent
that certain outstanding options and warrants set forth in the footnotes thereto
may have been exercised. The certificates evidencing the Shares to be sold by
the Company are in due and proper legal form and have been duly authorized for
issuance by the Company. Except as set forth in the Registration Statement and
any Prospectus, all of the issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable and
none of them was issued in violation of any preemptive or other similar right.
The Shares to be sold by the Company, when issued and sold pursuant to this
Agreement, will be duly authorized and validly issued and fully paid and
nonassessable. Except as set forth in the Registration Statement and the
Prospectus, there are no preemptive rights or other similar rights to subscribe
for or to purchase, or any restriction upon the voting or transfer of the Shares
to be sold by the Company or any of the Common Stock of the Company pursuant to
the Company's Certificate of Incorporation, Bylaws or other governing documents
or any agreement or other instrument to which the Company is a party or by which
it may be bound. No further approval or authority will be required on behalf of
the Company or pursuant to agreements by which it is bound for the transfer and
sale of the Shares to be sold by the Selling Securityholder. Except as disclosed
in the Registration Statement and the Prospectus, there is no outstanding
option, warrant or other right calling for the issuance of, and there is no
commitment, plan or arrangement to issue, any shares of the Common Stock of the
Company or any security convertible into, or exercisable or exchangeable for
Common Stock of the Company.
7.
<PAGE> 8
(m) There are no holders of securities of the Company who, by reason
of the filing of the Registration Statement under the Securities Act or the
execution by the Company of this Agreement, have the right, not previously
satisfied or waived, to request or demand that the Company register under the
Securities Act such securities held by them. Each director and executive officer
of the Company, holding in the aggregate ______________ shares of Common Stock
and options to purchase __________________ shares of Common Stock have delivered
to the Representatives his or her enforceable written agreement that he or she
will not, directly or indirectly, for a period of 90 days, after the date of
this Agreement, sell, offer, contract to sell, make a short sale, pledge or
otherwise dispose of any shares of Common Stock (or any securities convertible
into or exchangeable or exercisable for any other rights to purchase or acquire
Common Stock owned by him or her, without the prior written consent of the
Oppenheimer & Co., Inc.; and (ii) the Selling Securityholder has delivered to
the Representatives its written agreement that it will not, directly or
indirectly, for a period of 365 days after the date of this Agreement sell,
offer, contract to sell, make a short sale, pledge or otherwise dispose of any
shares of Common Stock (or any securities convertible into or exchangeable or
exercisable for any other rights to purchase or acquire Common Stock) owned by
it, without the prior written consent of the Representatives. The written
agreements referred to in (i) and (ii) hereof are herein collectively referred
to as the "Lock-Up Agreements".
(n) All necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares by the Company. This Agreement
has been duly and validly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (ii) to the extent that rights
to indemnity or contribution under this Agreement may be limited by Federal and
state securities laws or the public policy underlying such laws.
(o) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is threatened; and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its principal
suppliers or contractors which would have a Material Adverse Effect.
(p) No transaction has occurred between or among the Company and any
of its officers or directors or any affiliate or affiliates of any such officer
or director that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(q) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Common Stock of the Company.
8.
<PAGE> 9
(r) The Company has filed all federal, state, local and foreign tax
returns which were required to be filed to the date hereof, or has received
extensions thereof, and such returns are each true, correct and complete in all
material respects, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due, and there are no tax audits or investigations pending.
(s) The books, records and accounts of the Company accurately and
fairly reflect, in reasonable detail, the transactions in, and dispositions of,
the assets of, and the results of operations of, the Company. The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(t) Neither the Company nor any director, officer or employee of the
Company has, in the course of such person's actions for, or on behalf of, the
Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity or made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; and neither the Company, nor to the
Company's knowledge, any director, officer, employee, agent or other person
acting on behalf of the Company, has, in the course of his actions for, or on
behalf of, the Company violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977 or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(u) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated required to be obtained or performed by the Company (except such
additional steps as may be required by the National Association of Securities
Dealers, Inc. (the "NASD") or may be necessary to qualify the Shares for public
offering by the Underwriters under the Securities Act or state securities or
Blue Sky laws has been obtained or made and is in full force and effect.
(v) The Shares have been duly authorized for quotation on the Nasdaq
National Market.
(w) Except for FMR Corp., there are no affiliations with the NASD
among the Company's officers, directors or, any 5% or greater shareholder of the
Company.
(x) (i) The Company is in compliance in all material respects with
all rules, laws and regulation relating to the use, treatment, storage and
disposal of toxic substances and
protection of health or the environment ("Environmental Laws") which are
applicable to its
9.
<PAGE> 10
business, (ii) the Company has not received any notice from any governmental
authority or third party of an asserted claim under Environmental Laws, (iii)
except with respect to the improvement or expansion of its manufacturing
or laboratory facilities, to the Company's knowledge, no facts currently exist
that will require the Company to make future material capital expenditures to
comply with Environmental Laws, and (iv) no property which is or has been owned,
leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.
(y) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company Act").
(z) The Company has complied, and at all times will comply, with all
provisions of Section 517.075 and further, as of such Closing Date, neither the
Company nor any of its affiliates does business with the government of Cuba or
with any person or affiliate located in Cuba.
5. ADDITIONAL REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE SELLING
SECURITYHOLDER. The Selling Securityholder represents and warrants and covenants
to each Underwriter as follows:
(a) The Selling Securityholder has good and marketable title to the
Shares to be sold by such Selling Securityholder hereunder, free and clear of
all liens, encumbrances, equities, security interests and claims whatsoever,
with full right and authority to deliver the same hereunder, subject, in the
case of each Selling Securityholder, to the rights of Chase Mellon Shareholder
Services, as Custodian (the "Custodian"), and that upon the delivery of and
payment for such Shares hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(b) Certificates in negotiable form for the Shares to be sold by the
Selling Securityholder have been placed in custody under a Custody Agreement for
delivery under this Agreement with the Custodian; the Selling Securityholder
specifically agrees that the Shares represented by the certificates so held in
custody for the Selling Securityholder are subject to the interests of the
several Underwriters pursuant to the Custody Agreement, that the arrangements
made by the Selling Securityholder for such custody, including the Power of
Attorney provided for in such Custody Agreement, are to that extent irrevocable,
and that the obligations of the Selling Securityholder shall not be terminated
by any act of the Selling Securityholder or by operation of law, the dissolution
or liquidation of the Selling Securityholder or the occurrence of any other
event; if any such dissolution, liquidation or other such event should occur
before the delivery of such Shares, certificates for the Shares shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
dissolution, liquidation or other event.
10.
<PAGE> 11
(c) The Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although the Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of the Selling
Securityholder that would lead the Selling Securityholder to believe that (i) on
the Effective Date, the Registration Statement contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, (ii) on the Effective Date the Prospectus contained and, on the Closing
Date contains, any untrue statement of a material fact or omitted or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(d) All information in the Registration Statement or the Prospectus,
or any amendment or supplement thereto, relating to the Selling Securityholder
(including, without limitation, the information relating to the Selling
Securityholder which is set forth in the Prospectus under the caption "Principal
Selling Stockholders") such information being deemed to have been provided to
the Company pursuant to the Registration Rights Agreement, as amended, between
the Company and the Selling Securityholder, and all representations and
warranties of the Selling Securityholder in the Custody Agreement are true and
correct in all respects and do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the information in the light of the circumstances under which
they were made not misleading. The sale of the Shares by the Selling
Securityholder pursuant hereto is not prompted by the Selling Securityholder's
knowledge of any material information concerning the Company which is not set
forth in the Prospectus or the documents incorporated by reference therein.
(e) The Selling Securityholder has full power and authority to enter
into this Agreement and the Custody Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of the Selling
Securityholder and the form of such Custody Agreement has been delivered to you.
(f) The making and performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by the Selling Securityholder
of any of the terms or provisions of, or constitute a default by the Selling
Securityholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which the Selling Securityholder is a party or by
which the Selling Securityholder or any of its properties is bound, any statute,
or any judgment, decree, order, rule or regulation of any court or governmental
agency or body applicable to the Selling Securityholder or any of its
properties.
(g) The Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
11.
<PAGE> 12
(h) The Selling Securityholder has no actual knowledge that any
representation or warranty of the Company set forth in Section 4 above is untrue
or inaccurate in any material respect.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) Notification that the Registration Statement has become
effective shall have been received by the Representatives, and the Prospectus
shall have been timely filed with the Commission in accordance with Section
7(a)(i) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for such purpose shall be pending before or threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Representatives.
(c) The representations and warranties of the Company and the
Selling Securityholder contained in this Agreement and in the certificates
delivered pursuant to Section 6(d) hereof shall be true and correct in all
material respects when made and on and as of each Closing Date as if made on
such date and the Company and the Selling Securityholder shall have performed
all covenants and agreements and satisfied all the conditions in all material
respects contained in this Agreement required to be performed or satisfied by
them at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date, from
each of (a) the chief executive officer and the chief financial officer of the
Company and (b) the Managing Director of the Selling Securityholder to the
effect that (i) the signers of each such certificate have examined the
Registration Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company or the Selling Securityholder, as
the case may be, in this Agreement are true and correct in all material respects
on and as of such Closing Date with the same effect as if made on such Closing
Date and the Company and the Selling Securityholder, as the case may be, have
performed all covenants and agreements and satisfied all conditions contained in
this Agreement in all material respects required to be performed or satisfied by
them at or prior to such Closing Date, and (ii) no stop order suspending the
effectiveness of the Registration Statement has been issued and to the best of
their knowledge, no proceedings for that purpose have been instituted or are
pending under the Act.
(e) The Representatives shall have received from Ernst & Young LLP,
on the date this Agreement is executed and on each Closing Date, a letter dated
such date, in form and substance satisfactory to the Representatives, to the
effect that they are independent public
12.
<PAGE> 13
accountants with respect to the Company within the meaning of the Securities Act
and the Rules and that:
(i) in their opinion the audited financial statements and the
related financial statement schedules, if any, included in the Registration
Statement and the Prospectus and covered by their reports therein comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the heading "Summary Financial
Data" and "Selected Financial Data" carrying out certain procedures (but not an
audit in accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the comments set
forth in such letter, a reading of the minutes of the meetings of the
stockholders and directors of the Company, and inquiries of certain officials of
the Company who have responsibility for financial and accounting matters of the
Company as to transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the Registration Statement
and the Prospectus, nothing came to their attention which caused them to believe
that:
(A) the amounts in "Summary Financial Data" and "Selected
Financial Data" included in the Registration Statement and the Prospectus do not
agree with the corresponding amounts in the audited and unaudited financial
statements from which such amounts were derived; or
(B) with respect to the Company there were, at a specified
date not more than five business days prior to the date of the letter, any
change in the capital stock of the Company (other than from the exercise of
stock options), increase in long-term debt of the Company or decreases in net
current assets of the Company or decreases in the stockholders' equity of the
Company, as compared with the amounts shown on the Company's audited December
31, 1996 balance sheet included in the Registration Statement.
(iii) they have performed certain other procedures as may be
permitted under Generally Acceptable Auditing Standards as a result of which
they determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the Company) set
forth in the Registration Statement and the Prospectus and reasonably specified
by the Representatives agrees with the accounting records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented as of the date
of the letter.
(f) The Representatives shall have received on each Closing Date
from Gray Cary Ware & Freidenrich, counsel for the Company, an opinion,
addressed to the Representatives and dated such Closing Date, stating in effect
that:
13.
<PAGE> 14
(i) The Company was duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware. To the best of
such counsel's knowledge, the Company has no subsidiary and does not control,
directly or indirectly, any corporation, partnership, joint venture, association
or other business organization. The Company is duly qualified and in good
standing as a foreign corporation in all United States jurisdictions in which
it is required to qualify as a foreign corporation, except where the failure to
qualify would have a Material Adverse Effect.
(ii) The Company has the corporate power and corporate
authority under its Certificate of Incorporation and the Delaware General
Corporation Law, as amended (the "DGCL"), to own, lease, license and operate its
assets and properties and conduct its business as described in the Prospectus
and to enter into, deliver and perform this Agreement and to issue and sell the
Shares to be sold by the Company.
(iii) The Company has authorized and outstanding capital stock
as of the date of the Capitalization table in the Prospectus as set forth in the
Prospectus under the heading "Capitalization"; the form of certificate
evidencing the Shares complies with the requirements of Section 158 of the DGCL;
all of the outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and, assuming receipt of the consideration
therefor as provided in resolutions of the Company's Board of Directors
authorizing issuance thereof, are fully paid and nonassessable under the DGCL.
Except as set forth in the Registration Statement, there are no preemptive or
other similar rights to subscribe for or to purchase any shares of Common Stock
of the Company pursuant to the Company's Certificate of Incorporation or Bylaws,
or any agreement known to such counsel. The Shares to be sold by the Company,
when issued and sold pursuant to this Agreement, will be validly issued, fully
paid and nonassessable under the DGCL. To such counsel's knowledge, except as
disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of any
shares of Common Stock of the Company or any security convertible into or
exercisable or exchangeable for shares of Common Stock of the Company.
(iv) To such counsel's knowledge, no holders of securities of
the Company have rights, which have not been waived or complied with, to the
registration of shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company or the offering contemplated
hereby.
(v) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and performance of
this Agreement. This Agreement has been duly and validly authorized, executed
and delivered by the Company and this Agreement constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with their respective terms except (A) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable
14.
<PAGE> 15
principles and (B) to the extent that rights to indemnity or contribution under
this Agreement may be limited by Federal or state securities laws or the public
policy underlying such laws.
(vi) The execution, delivery and performance as of the date
hereof of this Agreement by the Company do not (i) violate the DGCL or the
Certificate of Incorporation or the Bylaws of the Company or (ii) breach or
constitute a default under any contract or agreement known to such counsel.
(vii) No consent, approval, authorization or order of any
governmental or regulatory body is required for the performance of this
Agreement by the Company as of the date of such opinion, except such as have
been obtained.
(viii) To such counsel's knowledge, no default exists, and
no event has occurred which with notice or lapse of time, or both, would
constitute a default, in the due performance and observance of any term,
covenant or condition by the Company of any contract or agreement included as an
Exhibit to the Registration Statement where the consequences of such default
would have a material and adverse effect on the assets, properties, business,
results of operations, or condition (financial or otherwise) of the Company.
(ix) To such counsel's knowledge, except as disclosed in
the Registration Statement, there is no litigation or governmental or other
proceeding or investigation, before any court or before or by any public body or
board pending or threatened against, or involving the assets, properties or
businesses of, the Company which would have a material adverse effect upon the
assets or properties, business, results of operations, or condition (financial
or otherwise) of the Company.
(x) The Registration Statement, all preliminary prospectuses
and the Prospectus and each amendment or supplement thereto (except as to patent
matters and for the financial statements and supporting schedules and other
financial and statistical data included therein or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Securities Act and the Rules.
(xi) The Registration Statement has become effective under the
Securities Act; and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus has been issued and no proceedings for that purpose have been
instituted or are threatened under the Securities Act; any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules
has been made in the manner and within the time period required by such Rule
424(b).
(xii) All contracts and other agreements to which the Company
is a party described in the Registration Statement are fairly described in the
Registration Statement, and to the knowledge of such counsel, there are no
contracts or documents of a character required to be described in the
Registration Statement or to be filed as exhibits to the Registration Statement
or the Prospectus that are not described or referred to therein or so filed.
15.
<PAGE> 16
(xiii) The description of the Common Stock of the Company
contained in the Company's Form 8-A filed with the Commission is accurate, and
complete.
(xiv) The statements in the Prospectus and Registration
Statement under the caption "Business - Licensing and Collaborative Agreements"
have been reviewed by such counsel and are accurate in all material respects and
fairly present the information disclosed therein.
(xv) To such counsel's knowledge, the Shares have been
approved for quotation on the Nasdaq National Market System.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of the counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of Delaware or the Federal laws of the United States; provided that
such counsel shall state that in their opinion the Underwriters and they are
justified in relying on such other opinions. Copies of such certificates and
other opinions shall be furnished to the Representatives and counsel for the
Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives, and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and does
not assume any responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except as specified in the foregoing
opinion), on the basis of the foregoing, no facts have come to the attention of
such counsel which lead such counsel to believe that the Registration Statement
at the time it became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the Prospectus
as of its date and as of the Closing Date contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) The Representatives shall have received on each Closing Date
from Bryan, Cave LLP, counsel for the Selling Securityholder, an opinion
addressed to the Representatives and dated such Closing Date substantially in
the form attached hereto as Annex A.
(h) The Representatives shall have received on each Closing Date
from Townsend and Townsend and Crew, patent counsel for the Company, an opinion
addressed to the Representatives and dated such Closing Date, and stating in
effect that:
(i) The statements with respect to patent matters in the
Prospectus and Registration Statement under the captions "Risk Factors -
Uncertainty of Patents and Proprietary
16.
<PAGE> 17
Technology; Opposition Proceedings," "Business - Patents, and Proprietary
Technology" have been reviewed by such patent counsel and are accurate in all
material respects and fairly present the information disclosed therein.
(ii) To such patent counsel's knowledge, such patent counsel
believes the statements in the Registration Statement and the Prospectus under
the captions "Risk Factors - Uncertainty of Patents and Proprietary Technology"
and "Business - Patents and Proprietary Technology" do not contain any untrue
statement of material fact, or do not omit to state any material fact which
would be required to be stated in the Registration Statement and the Prospectus
or are necessary to make the statements therein not misleading.
(iii) Except as set forth in the Registration Statement and
the Prospectus, to such patent counsel's knowledge, there is no claim or action
by any person pertaining to, or proceeding, pending or threatened, which
challenges the rights of the Company with respect to the Company's patents or
intellectual property licenses.
(i) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their counsel, and
the Underwriters shall have received from Cooley Godward LLP, counsel for the
Underwriters, an opinion, addressed to the Representatives and dated such
Closing Date, with respect to the Shares, the Registration Statement and the
Prospectus, and such other related matters, as the Representatives may
reasonably request, and the Company shall have furnished to Cooley Godward LLP
such documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
(j) The Representatives shall have received copies of the Lock-up
Agreements executed by each person described in Section 4(m).
(k) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives, and dated such Closing Date, of
an executive officer of the Selling Securityholder to the effect that the signer
of such certificate has reviewed and understands the provisions of Section
517.075 of the Florida Statutes, and represents that the Selling Securityholder
has complied, and at all times will comply, with all provisions of Section
517.075 and further, that as of such Closing Date, neither the Selling
Securityholder nor any of its affiliates does business with the government of
Cuba or with any person or affiliate located in Cuba.
7. COVENANTS OF THE COMPANY.
(a) The Company covenants and agrees with the several Underwriters
as follows:
(i) The Company shall prepare the Prospectus in a form
approved by the Representatives and file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of business on
the second business day following the
17.
<PAGE> 18
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Securities Act, and shall
promptly advise the Representatives (i) when any amendment to the Registration
Statement shall have become effective, (ii) of any request by the Commission for
any amendment of the Registration Statement or the Prospectus or for any
additional information, (iii) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company shall not file any
amendment of the Registration Statement or supplement to the Prospectus unless
the Company has furnished the Representatives a copy for their review prior to
filing and shall not file any such proposed amendment or supplement to which the
Representatives reasonably and timely object. The Company shall use its best
efforts to prevent the issuance of any such stop order and, if issued, to obtain
as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the Shares
is required to be delivered under the Securities Act and the Rules, any event
occurs as a result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Securities Act or the Rules, the
Company promptly shall prepare and file with the Commission, subject to the
second sentence of paragraph (i) of this Section 7(a), an amendment or
supplement which shall correct such statement or omission or an amendment which
shall effect such compliance.
(iii) The Company shall make generally available to its
security holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at the end of
the fiscal quarter of the Company during which the Effective Date occurs (or 90
days if such 12-month period coincides with the Company's fiscal year), an
income statement (which need not be audited) of the Company, covering such 12-
month period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
(iv) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the Registration
Statement (including all exhibits thereto and amendments thereof) and to each
other Underwriter a copy of the Registration Statement (without exhibits
thereto) and all amendments thereof and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Securities Act or the Rules, as
many copies of any preliminary prospectus and the Prospectus and any amendments
thereof and supplements thereto as the Representatives may reasonably request.
(v) The Company shall cooperate with the Representatives and
their counsel in endeavoring to qualify the Shares for offer and sale in
connection with this offering under the state Blue Sky laws of such
jurisdictions as the Representatives may designate and
18.
<PAGE> 19
shall maintain such qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the Company shall not be
required in connection therewith, as a condition thereof, to qualify as a
foreign corporation or to execute a general consent to service of process in any
jurisdiction or subject itself to taxation as doing business in any
jurisdiction.
(vi) For a period of five years after the date of this
Agreement, the Company shall supply to the Representatives, and to each other
Underwriter who may so request in writing, copies of such financial statements
and other periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock and to
furnish to the Representatives a copy of each annual or other report it shall be
required to file with the Commission.
(vii) Without the prior written consent of the
Representatives, for a period of 90 days after the date of this Agreement, the
Company shall not issue, sell or register with the Commission, or otherwise
dispose of, directly or indirectly, any equity securities of the Company (or any
securities convertible into or exercisable or exchangeable for equity securities
of the Company), except for the issuance of the Shares pursuant to the
Registration Statement, the issuance of shares pursuant to the Company's
existing stock option plans or purchase rights (as amended or supplemented from
time to time), employee share purchase plan outstanding as of the date hereof,
and in each case, as described in or contemplated by the Prospectus or the
issuance of securities in private transactions to corporate partners at prices
greater than or equal to the then current fair market value of the Common
Stock.
(viii) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and by Nasdaq
(including any required registration under the Exchange Act).
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses of the
Company incident to the public offering of the Shares and the performance of the
obligations under this Agreement including those relating to: (i) the
preparation, printing, filing and distribution of the Registration Statement,
including all exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the filing and distribution of this Agreement; (ii) the preparation and delivery
of certificates for the Shares to the Representatives; (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the various jurisdictions referred to in Section 7(a)(v), including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such registration and qualification and the preparation, printing,
distribution and shipment of preliminary and supplementary Blue Sky memoranda;
(iv) the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the Prospectus,
and of the several documents required by this Section to be so furnished, as may
be reasonably requested for use in connection with the offering and sale of the
Shares by the Underwriters or by dealers to whom Shares may be sold; (v) the
filing fees of the NASD in connection with its review of the terms of the public
offering and reasonable fees and disbursements of counsel of the Underwriters in
connection with such review; (vi) the furnishing (including costs of shipping
and mailing) to the
19.
<PAGE> 20
Representatives and to the Underwriters of copies of all reports and information
required by Section 7(a)(vi); (vii) the inclusion of the Shares for quotation on
the Nasdaq National Market; and (viii) all transfer taxes, if any, with respect
to the sale and delivery of the Shares by the Company and the Selling
Securityholder to the Underwriters. Subject to the provisions of Section 10, the
Underwriters agree to pay, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and expenses incident
to the performance of the obligations of the Underwriters under this Agreement
not payable by the Company pursuant to the preceding sentence, including,
without limitation, the fees and disbursements of counsel for the Underwriters.
Nothing in this Section 7 shall affect existing agreements between the Company
and the Selling Securityholder with respect to reimbursement or allocation of
costs and expenses associated with the offering and sale of the Shares.
8. INDEMNIFICATION.
(a) The Company and the Selling Securityholder, severally and not
jointly, agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of any Underwriter (or any person controlling
such Underwriter) on account of any losses, claims, damages or liabilities
arising from the sale of the Shares to any person by such Underwriter if such
untrue statement or omission or alleged untrue statement or omission was made in
such preliminary prospectus, the Registration Statement or the Prospectus, or
such amendment or supplement, in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives on behalf
of any Underwriter specifically for use therein; provided, further, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter or any person controlling such
Underwriter, from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, if a copy of the Prospectus (as then amended or
supplemented, if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability. The obligation of each Selling Securityholder
to indemnify the Underwriter (including any controlling person, director
or officer thereof) shall be limited to the net proceeds received by the Selling
Securityholder in
20.
<PAGE> 21
connection with the sale of its Shares hereby. This indemnity agreement will be
in addition to any liability which the Company and the Selling Securityholder
may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, each director of the Company, each officer of the Company who
signs the Registration Statement and the Selling Securityholder to the same
extent as the foregoing indemnity from the Company and the Selling
Securityholder to each Underwriter, but only insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in any
preliminary prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, contained in the last paragraph of the
cover page, in the paragraphs relating to stabilization and passive market
making on the inside front cover page of the Prospectus and the statements
contained in paragraphs 1, 2 and 5 under the caption "Underwriting" in the
Prospectus.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section , notify
each such indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served. No indemnification provided
for in Section 8(a) or 8(b) shall be available to any party who shall fail to
give notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise other than under this Section . In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have reasonably concluded that there may be a conflict of interest between
the indemnifying parties and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of one counsel shall
21.
<PAGE> 22
for all similarly situated indemnified parties be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
9. CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Section 8(a) or
8(b) is due in accordance with its terms but for any reason is held to be
unavailable from the Company or the Selling Securityholder, the Company, the
Selling Securityholder and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by the Company or the Selling Securityholder
from persons other than the Underwriters, such as persons who control the
Company within the meaning of the Securities Act, officers of the Company who
signed the Registration Statement and directors of the Company, who may also be
liable for contribution) to which the Company, the Selling Securityholder and
one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Securityholder on the one hand and the Underwriters on the other from
the offering of the Shares or, if such allocation is not permitted by applicable
law or indemnification is not available as a result of the indemnifying party
not having received notice as provided in Section 8 hereof, in such proportion
as is appropriate to reflect not only the relative benefits referred to above
but also the relative fault of the Company and the Selling Securityholder on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Securityholder and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of underwriting commissions but before deducting
expenses) received by the Company and the Selling Securityholder, as set forth
in the table on the cover page of the Prospectus, bear to (y) the underwriting
commissions received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and the Selling
Securityholder or the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
related to information supplied by the Company, the Selling Securityholder or
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Securityholder and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 9, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder, and (ii) the Company and the Selling
Securityholder shall be liable and responsible for any amount in excess of such
underwriting discount; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
22.
<PAGE> 23
fraudulent misrepresentation. For purposes of this Section 9, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) in the immediately preceding sentence of this Section 9. Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section ,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section . No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent; provided,
however, that such consent shall not be unreasonably withheld. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to their respective underwriting commitments and not joint.
10. TERMINATION. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives by notifying the
Company and the Selling Securityholder at any time:
(a) in the absolute discretion of the Representatives at or before
any Closing Date: (i) if on or prior to such date, any domestic or international
event or act or occurrence has materially disrupted, or in the opinion of the
Representatives will materially disrupt, the securities markets; (ii) if there
has occurred any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the United
States is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the offering; (iii) if there shall be such a
material adverse change in general financial, political or economic conditions
or the effect of international conditions on the financial markets in the United
States is such as to make it, in the judgment of the Representatives,
inadvisable or impracticable to market the Shares; (iv) if trading in the Shares
has been suspended by the Commission or trading generally on the New York Stock
Exchange, Inc. or Nasdaq has been suspended or limited, or minimum or maximum
ranges for prices for securities shall have been imposed, or maximum ranges for
prices for securities have been required, by said exchanges or by order of the
Commission, the NASD or any other governmental or regulatory authority; or (v)
if a banking moratorium has been declared by any state or Federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 6 shall not have been fulfilled when and as required by
this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Securityholder shall be under any liability
to any Underwriter, and no Underwriter shall be under any liability to the
Company or the Selling Securityholder, except
23.
<PAGE> 24
that (y) if this Agreement is terminated by the Representatives or the
Underwriters because of any failure, refusal or inability on the part of the
Company and the Selling Securityholder to comply with the terms or to fulfill
any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
and the Selling Securityholder or to the other Underwriters for damages
occasioned by its failure or refusal.
11. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters shall
fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 10) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then each of
the nondefaulting Underwriters shall be obligated to purchase such Shares on the
terms herein set forth in proportion to their respective obligations hereunder;
provided, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant
to this Section 11 by more than one-ninth of such number of Shares without the
written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then the Company
shall be entitled to an additional business day within which it may, but is not
obligated to, find one or more substitute underwriters reasonably satisfactory
to the Representatives to purchase such Shares upon the terms set forth in this
Agreement.
In any such case, either the Representatives, or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives, the Company and the Selling
Securityholder. If the number of Shares to be purchased on such Closing Date by
such defaulting Underwriter or Underwriters shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, and none of
the nondefaulting Underwriters or the Company shall make arrangements pursuant
to this
24.
<PAGE> 25
Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company or the Selling
Securityholder and without liability on the part of the Company or the Selling
Securityholder, except in both cases as provided in Sections 7(b), 8, 9 and 10.
The provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company or the nondefaulting Underwriters arising
out of such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
12. MISCELLANEOUS. The respective agreements, representations, warranties,
indemnities and other statements of the Company and the Selling Securityholder
and of the Underwriters set forth in or made pursuant to this Agreement shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Selling Securityholder or the Company or any of
the officers, directors or controlling persons referred to in Sections 8 and 9
hereof, and shall survive delivery of and payment for the Shares. The provisions
of Sections 7(b), 8, 9 and 10 shall survive the termination or cancellation of
this Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company, the Selling Securityholder and their respective successors and
assigns, and, to the extent expressed herein, for the benefit of persons
controlling any of the Underwriters, or the Company, and directors and officers
of the Company, and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of Shares from any
Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and mailed or
delivered or by telephone or telegraph if subsequently confirmed in writing, (a)
if to the Representatives, c/o Oppenheimer & Co., Inc., Oppenheimer Tower, World
Financial Center, New York, New York 10281 Attention: Peter J. Crowley, with a
copy to Gregory C. Smith, Cooley Godward LLP, One Maritime Plaza, 20th Floor,
San Francisco, CA 9411-3580, (b) if to the Company, to its agent for service as
such agent's address appears on the cover page of the Registration Statement,
with a copy to Gregory M. Gallo, Gray Cary Ware & Freidenrich, 400 Hamilton
Avenue, Palo Alto, CA 94301, and (c) if to the Selling Securityholder to Corange
International Limited, 22 Church Street, Hamilton, HM HX, Bermuda, with a copy
to Bryan Cave LLP, 700 13th Street, N.W., Suite 700, Washington, D.C. 20005,
Attention: Eric F. Stone, Esq.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws.
25.
<PAGE> 26
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
us.
Very truly yours,
PROTEIN DESIGN LABS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
The foregoing Underwriting Agreement CORANGE INTERNATIONAL LIMITED
is hereby confirmed and accepted
as of the date first above written.
By:_______________________________
Name:_____________________________
OPPENHEIMER & CO., INC. Title:____________________________
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
As Representatives of the several
Underwriters named in Schedule I.
By: OPPENHEIMER & CO., INC.
By:_______________________________
Name:_____________________________
Title:____________________________
26.
<PAGE> 27
SCHEDULE I
FIRM SHARES TO BE PURCHASED FROM COMPANY
[TO COME]
<TABLE>
<CAPTION>
NAME OF UNDERWRITER Number of Firm
Shares to be Purchased
<S> <C>
Total............................................... _____
=====
</TABLE>
<PAGE> 28
SCHEDULE II
FIRM SHARES TO BE PURCHASED
FROM SELLING SECURITYHOLDER
[TO COME]
NAME OF UNDERWRITER NUMBER OF FIRM
SHARES TO BE PURCHASED
<PAGE> 29
ANNEX A
FORM OF OPINION OF COUNSEL
FOR SELLING SECURITYHOLDER
(i) the Underwriting Agreement has been duly executed and delivered by or
on behalf of the Selling Securityholder and the Custody Agreement between the
Selling Securityholder and Chase Mellon Shareholder Services, as Custodian, and
the Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the Selling Securityholder;
(ii) the Underwriting Agreement, the Custody Agreement and the Power of
Attorney are valid and binding agreements of the Selling Securityholder
enforceable in accordance with their terms except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and except with
respect to those provisions relating to indemnity or contribution for
liabilities under the Securities Act, as to which no opinion need be expressed,
and the Selling Securityholder has full legal right and authority to enter into
the Underwriting Agreement, the Custody Agreement and the Power of Attorney and
to sell, transfer and deliver in the manner provided in the Underwriting
Agreement the Shares sold by the Selling Securityholder hereunder;
(iii) the transfer and sale by the Selling Securityholder of the Shares to
be sold by the Selling Securityholder as contemplated by the Underwriting
Agreement, the Power of Attorney and the Custody Agreement will not conflict
with, result in a breach of, or constitute a default under any agreement or
instrument known to such counsel to which the Selling Securityholder is a party
or by which the Selling Securityholder or any of its properties may be bound, or
any applicable law or regulation, or so far is known to such counsel, order,
writ, injunction or decree of any jurisdiction, court or governmental
instrumentality body.
(iv) all of the Selling Securityholder's rights in the Shares to be sold
by the Selling Securityholder under the Underwriting Agreement, has been
transferred to the Underwriters who have severally purchased such Shares under
the Underwriting Agreement, free and clear of adverse claims, assuming for the
purpose of this opinion that the Underwriters purchased the same in good faith
without notice of any adverse claims; and
(v) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares to
be sold by the Selling Securityholder by the Underwriters and the clearance of
the offering with the NASD.
------------------------------------
<PAGE> 30
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States upon opinions of local counsel
satisfactory in form and scope to counsel for the Underwriters. Copies of any
opinions so relied upon shall be delivered to the Representatives and to counsel
for the Underwriters and the foregoing opinion shall also state that counsel
knows of no reason the Underwriters are not entitled to rely upon the opinions
of such local counsel.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Protein Design Labs,
Inc. for the registration of 2,750,000 shares of its Common Stock and to the
incorporation by reference therein of our report dated January 27, 1997 with
respect to the financial statements of Protein Design Labs, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Palo Alto, California
February 13, 1997
