<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 2000
REGISTRATION NO. 333-44754
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROTEIN DESIGN LABS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-3023969
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
34801 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
(510) 574-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DOUGLAS O. EBERSOLE
34801 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
(510) 574-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
GREGORY M. GALLO ROD GUERRA, JR.
DOUGLAS J. REIN GREGORY C. SMITH
GRAY CARY WARE & FREIDENRICH LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
400 HAMILTON AVENUE 525 UNIVERSITY AVE., SUITE 220
PALO ALTO, CALIFORNIA 94301 (650) 833-2000 PALO ALTO, CALIFORNIA 94301
</TABLE>
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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 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, 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, 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
under the Securities Act, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED AGGREGATE PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, $.01 par
value.................. 3,450,000 shares(1) $102.625(2) $354,056,250 $93,471(3)
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</TABLE>
(1) Includes 450,000 shares which the Underwriters have the option to purchase
to cover over allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) and based on the average of the high and low sales prices on
September 19, 2000 as reported on The Nasdaq Stock Market's National Market.
(3) A registration fee of $59,438 was previously paid.
------------------------
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 SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 2000
3,000,000 Shares
Protein Design Labs, Inc. Logo
PROTEIN DESIGN LABS, INC.
Common Stock
------------------
Our common stock is listed on The Nasdaq Stock Market's National Market
under the symbol "PDLI". The last reported sale price of our common stock on The
Nasdaq Stock Market's National Market on September 22, 2000 was $124.95 per
share.
The underwriters have an option to purchase a maximum of 450,000 additional
shares to cover overallotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
6.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS PROTEIN DESIGN LABS
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<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON CIBC WORLD MARKETS
SG COWEN
The date of this prospectus is , 2000.
<PAGE> 3
PRODUCTS IN DEVELOPMENT
The following table summarizes the potential therapeutic indications,
development status and commercial rights for our approved product and clinical
product candidates and is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus. Not all clinical trials
being conducted are listed. The development and commercialization of our product
candidates is subject to numerous risks and uncertainties. See "Risk Factors."
<TABLE>
<CAPTION>
ANTIBODY PRODUCT INDICATION(S) STATUS
---------------- ------------- ------
<S> <C> <C>
Zenapax(R)(1) Kidney transplant rejection Marketed
Heart transplant rejection Phase III
Psoriasis Phase II
Uveitis Phase I/II
Multiple sclerosis Phase I/II
SMART(TM) M195 Acute myeloid leukemia Phase III
Nuvion(TM) Psoriasis Phase I/II
Transplantation Phase II
Graft-versus-host disease Phase I
Cutaneous T-cell lymphoma Phase I
SMART Anti-L-Selectin(2) Trauma Phase IIa
SMART 1D10 Non-Hodgkins B-cell lymphoma Phase I
Humanized Anti-IL-4(3) Asthma Phase I
SMART Anti-Gamma Interferon Autoimmune diseases Phase I
SMART Anti-VEGF(4) Cancer Phase I
SMART Anti-E/P-Selectin Stroke, asthma Phase I in healthy
volunteers complete
</TABLE>
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(1) Hoffmann-La Roche Inc. and its affiliates (Roche) have marketing rights to
Zenapax for transplantation. We share marketing rights with Roche for
Zenapax's autoimmune indications.
(2) Scil Biomedicals GmbH has European development and marketing rights to the
SMART Anti-L-Selectin Antibody and is conducting the Phase IIa trial.
(3) We licensed the humanized anti-IL-4 antibody from SmithKline Beecham
Corporation, which has the option to acquire marketing rights after a
specified Phase II trial and share development costs and profits from
product sales.
(4) We are developing the SMART Anti-VEGF Antibody with Toagosei Co., Ltd.
Toagosei has marketing rights in Japan. We have marketing rights in North
America and the option to market in the rest of the world outside of Japan.
Protein Design Labs, our logo and SMART are registered U.S. trademarks and
Nuvion is a trademark of Protein Design Labs, Inc. Zenapax is a registered U.S.
trademark of Roche. All other company names and trademarks included in this
prospectus are trademarks, registered trademarks or trade names of their
respective owners.
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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SUMMARY............................... 1
RISK FACTORS.......................... 6
USE OF PROCEEDS....................... 18
PRICE RANGE OF COMMON STOCK........... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 20
SELECTED FINANCIAL DATA............... 21
BUSINESS.............................. 23
</TABLE>
<TABLE>
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PAGE
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<S> <C>
MANAGEMENT............................ 35
DESCRIPTION OF CAPITAL STOCK.......... 38
UNDERWRITING.......................... 39
NOTICE TO CANADIAN RESIDENTS.......... 41
LEGAL MATTERS......................... 42
EXPERTS............................... 42
WHERE YOU CAN FIND MORE INFORMATION... 43
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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<PAGE> 5
We were incorporated in Delaware in 1986. Our principal executive offices
are located at 34801 Campus Drive, Fremont, California 94555 and our phone
number is (510) 574-1400. Our home page is www.pdl.com. Information contained on
our Web site does not constitute part of this prospectus.
FORWARD-LOOKING STATEMENTS
This prospectus and the material incorporated by reference into this
prospectus include "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical facts are "forward-looking statements" for
purposes of these provisions. These forward-looking statements include
statements of the plans and objectives of management for future operations,
statements concerning product development programs and clinical trials,
statements regarding anticipated future economic conditions or performance, and
statements of assumptions underlying any of the foregoing. In some cases,
forward-looking statements are identified by the use of terminology such as
"may", "will", "expects", "plans", "anticipates", "estimates", "potential", or
"continue" or the negative thereof or other comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot assure you that those expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth below, and for the
reasons described elsewhere in this prospectus. All forward-looking statements
and reasons why results may differ included in this prospectus are made as of
the date hereof, and we assume no obligation to update these forward-looking
statements or reasons why actual results might differ.
ii
<PAGE> 6
SUMMARY
This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in the common stock. You should read
the entire prospectus carefully.
PROTEIN DESIGN LABS, INC.
We are a leader in the development of humanized monoclonal antibodies for
the prevention and treatment of disease. We have licensed rights to our first
humanized antibody product, Zenapax, to Roche, which markets it for the
prevention of kidney transplant rejection. We are also testing Zenapax for the
treatment of autoimmune disease. In addition, we have eight other humanized
antibodies in clinical development for autoimmune and inflammatory conditions,
asthma and cancer.
We have fundamental patents in the U.S., Europe and Japan, which we believe
cover most humanized antibodies. Eleven companies have licenses under these
patents for humanized antibodies that they have developed. We receive royalties
on sales of the three humanized antibodies developed by other companies that are
currently being marketed.
THE OPPORTUNITY
During the past several years, there has been a resurgence of interest in
the medical and commercial potential of monoclonal antibodies. The FDA has
approved nine therapeutic antibodies, seven of them in the last three years,
with total sales in 1999 in excess of $1.0 billion. This resurgence has been
made possible by the use of genetic engineering to create improved forms of
antibodies. In particular, we developed and patented computer-aided technology
to make humanized antibodies, which are antibodies that capture the benefits of
traditional mouse-derived monoclonal antibodies while avoiding their limitations
in treating humans.
Four of the nine therapeutic antibodies approved for marketing by the FDA
are humanized antibodies, and at least 40 other humanized antibodies are
currently in clinical trials. These humanized antibodies address many large
markets, including cancer, stroke, heart disease, asthma, and autoimmune
diseases such as psoriasis, multiple sclerosis and rheumatoid arthritis. A
number of these antibodies have entered or completed the later phases of
clinical development and, depending on satisfactory clinical results, may reach
the marketplace in the next few years. As discussed further below, many of these
antibodies are licensed under our patents, or are being developed by us.
In addition, with the sequencing of the human genome nearly complete, large
numbers of new, potentially important therapeutic targets are being identified.
Humanized antibodies can be routinely and reliably developed against almost any
cell surface or extracellular target. Hence, we believe that humanized
antibodies will be a key part of the next generation of pharmaceutical products.
STRATEGY
Our objective is to leverage our product pipeline and patent portfolio in
the field of antibodies to become a fully-integrated, profitable, research-based
biopharmaceutical company. We derive revenues, and expect to derive revenues in
the future, from three major sources:
- Sales of products that we have developed. We receive royalties on sales
of Zenapax by our licensee, Roche. We have eight other humanized
antibodies in clinical development. We plan to market some of our
products, once approved, in North America, especially for specialty
markets such as cancer that we believe can be effectively serviced with a
relatively small sales force. We may license marketing rights for some
antibodies or some geographic areas to other pharmaceutical companies.
- Royalties from the sale of humanized antibodies developed by other
companies. We license our patents covering humanized antibodies in
return for license fees, annual maintenance payments and
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<PAGE> 7
royalties on product sales. The three humanized antibodies currently
approved by the FDA in addition to Zenapax are licensed under our
patents. Two of these antibodies are Genentech's Herceptin and
MedImmune's Synagis, which had reported sales totaling approximately $480
million in 1999 and on which we are currently receiving royalties. The
third is American Home Products' Mylotarg, which it began marketing in
May 2000. We have license agreements with eight other companies for
humanized antibodies they are developing.
- Research and development contracts with other companies. We humanize
antibodies for other companies in return for upfront fees, milestone
payments and royalties on any product sales. In some cases we also
receive the right to co-promote these products in designated territories.
We also sometimes license out marketing rights to a humanized antibody
that we are developing, and then typically receive upfront fees and
milestone payments and/or research funding, in addition to royalties on
any product sales by our licensee.
PRODUCTS IN DEVELOPMENT
We have the following products under clinical development. We usually refer
to the humanized antibodies that we have made as SMART antibodies.
- Zenapax. The FDA approved Zenapax in December 1997 for the prevention of
kidney transplant rejection. Zenapax was the first humanized antibody to
be approved anywhere in the world. Our licensee Roche sells this product
in the U.S., Europe and other territories for the transplant indication.
Zenapax works by blocking the activation of T cells, which play a key
role in both transplant rejection and autoimmune disease. Zenapax is the
first effective immunosuppressive drug without significant side effects.
As a result, we believe Zenapax may be useful for the long-term treatment
of autoimmune diseases such as psoriasis and multiple sclerosis. In 1999,
we reacquired from Roche specific development and marketing rights to
Zenapax for autoimmune diseases.
Zenapax is currently in two Phase II trials in psoriasis, a common
autoimmune disease of the skin, and in early stage trials for uveitis,
multiple sclerosis, aplastic anemia, and the ocular manifestations of
Bechet's disease. We plan to conduct additional trials for psoriasis and
other autoimmune diseases. In the early stage clinical trial for uveitis,
an autoimmune disease of the eye, Zenapax was safely administered to
patients for one year and was effective in controlling the disease in
most patients, some of whom have continued to receive Zenapax for up to
three years.
- SMART M195 Antibody. This antibody has completed a Phase II trial and is
now in a Phase III trial for the treatment of acute myeloid leukemia, a
disease that has approximately 10,000 new cases in the U.S. each year and
has a high mortality rate. An interim review of the trial results by an
independent data safety monitoring board is expected in the fourth
quarter of 2000. The monitoring board could recommend or require that the
trial be terminated if the interim data do not show a sufficient
probability of the trial being successful or if specified safety criteria
are not met. If the final results of the trial are positive, we expect to
file for marketing approval.
- Nuvion (SMART Anti-CD3 Antibody). We are developing this antibody for
the treatment of autoimmune diseases. Although both Nuvion and Zenapax
may target some of the same diseases, we believe they may have
complementary roles in medical treatment. Nuvion may be more potent than
Zenapax, but may not be suitable for chronic administration, so it may be
most useful to treat acute episodes of autoimmune disease and to induce
remissions. Zenapax may be useful to maintain the remissions for longer
periods. Nuvion is currently in a Phase I/II clinical trial for
psoriasis. It is also in clinical trials for transplant rejection,
graft-versus-host disease, and cutaneous T-cell lymphoma, but we have no
current plans to conduct Phase III trials in these indications.
- SMART Anti-L-Selectin Antibody. This antibody may be useful for
preventing the multiple organ failure and mortality that often follows
severe trauma. In 1999, we licensed European marketing rights for this
antibody to Scil Biomedicals. Scil paid us a licensing fee and agreed to
conduct and pay for clinical trials in Europe and to provide us with the
data; in return, we are making milestone
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<PAGE> 8
payments to Scil on the achievement of defined clinical and regulatory
goals. Scil has completed a Phase I trial of SMART Anti-L-Selectin and is
now conducting a Phase IIa trial for treatment of trauma. If the results
from that Phase IIa trial are encouraging, we may initiate clinical
development in the U.S.
- SMART 1D10 Antibody. The National Cancer Institute is sponsoring a Phase
I trial of this antibody for non-Hodgkins B-cell lymphoma. Clinical
responses were observed in three of the patients in this trial, and we
plan to initiate a Phase II trial. SMART 1D10 is directed to a different
target on B cells than Rituxan, the antibody currently marketed for
non-Hodgkins lymphoma, and thus may provide an alternative therapy. In
the U.S., approximately 290,000 patients have this disease and 55,000 new
cases occur annually.
- Humanized Anti-IL-4 Antibody. We licensed this antibody, for the
potential treatment of asthma and allergy, from SmithKline in 1999. The
humanized anti-IL-4 antibody blocks the effects of interleukin 4, which
is believed to play a key role in initiating the series of biological
processes that lead to allergy and asthma. SmithKline began a Phase I
trial of the humanized anti-IL-4 antibody, which we have now completed.
We plan to initiate a Phase I/II multiple dose study, followed by a Phase
II trial in moderate to severe asthma patients.
- SMART Anti-Gamma Interferon Antibody. This antibody targets gamma
interferon, a protein that stimulates several types of white blood cells
and that may be involved in some autoimmune diseases. We have completed a
Phase I trial of SMART Anti-Gamma Interferon in normal volunteers, which
showed the antibody is well-tolerated and has biological activity. We
plan to initiate a Phase I/II trial in patients with Crohn's disease, a
form of inflammatory bowel disease. In the future, we may initiate
clinical trials in other autoimmune diseases.
- SMART Anti-VEGF Antibody. This antibody blocks the action of vascular
endothelial growth factor (VEGF), which is believed to play an important
role in the formation of blood vessels in tumors, a process that allows
the tumors to grow. We humanized the antibody for Toagosei, a Japanese
chemical company, and subsequently entered into an agreement with
Toagosei under which the two companies will share development costs,
marketing rights, and profits from potential sales of the antibody in
markets outside of Japan. We are currently conducting a Phase I trial of
the antibody in collaboration with the European Organization for Research
and Treatment of Cancer.
- SMART Anti-E/P-Selectin Antibody. This antibody targets adhesion
molecules on the inside of blood vessels that may be involved in
inflammation. We have completed a Phase I trial of SMART
Anti-E/P-Selectin in healthy volunteers, which showed that the antibody
is well-tolerated in a range of doses. We have retained worldwide rights
to SMART Anti-E/P-Selectin and are seeking a partner for its further
development.
RECENT DEVELOPMENTS
Our patents for humanized antibodies are being opposed in patent office
proceedings in Europe and Japan, and a successful challenge could limit our
future revenues from licensing these patents. At an oral hearing on March 20,
2000, the Opposition Division of the European Patent Office decided to revoke
the broad claims in our first European patent pertaining generally to antibody
humanization. We plan to appeal this decision to the Technical Board of Appeal
of the European Patent Office.
On March 28, 2000, we granted a license under our humanization patents to
Merck KGaA, an international pharmaceutical company based in Germany, for an
antibody they are developing. We received a signing and licensing fee and are
entitled to royalties on any product sales.
On May 8, 2000, we granted multiple licenses under our humanization patents
to Chugai Pharmaceutical Company. We received a signing and licensing fee of
$6.0 million and are entitled to royalties on any product sales.
On August 30, 2000 and September 15, 2000, we entered into two agreements
to humanize antibodies for Eli Lilly and Company. Lilly agreed to pay us signing
and licensing fees of $1.7 million and $1.36 million and to make additional
payments upon the achievement of specified milestones and to pay royalties on
any sales of the humanized antibodies.
3
<PAGE> 9
THE OFFERING
Common stock offered.......... 3,000,000 shares
Common stock outstanding after
the offering.................. 42,849,124 shares
Use of proceeds............... To fund clinical trials, to expand
manufacturing capabilities, to expand our
marketing and sales capabilities, and for
working capital and other general corporate
purposes.
Nasdaq National Market
symbol........................ PDLI
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of June 30, 2000 and
excludes as of that date:
- 5,227,090 shares issuable upon exercise of outstanding stock options with
a weighted average exercise price of $21.98 per share, of which options
to purchase 1,463,383 were then exercisable
- 2,539,348 shares available for future option grants under our stock
option plan
- 730,608 shares available for sale under our employee stock purchase plan,
and
- 1,986,755 shares issuable on conversion of our outstanding convertible
notes.
All information in this prospectus has been adjusted to give effect to the
increase in our authorized shares of common stock effected in July 2000 and the
two-for-one split of our common stock effected on August 23, 2000.
4
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------
1997 1998 1999 1999 2000
-------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Total revenues......................... $ 20,255 $30,828 $ 35,754 $17,124 $35,864
Net income (loss)...................... (23,875) (9,502) (10,333) (4,564) 5,791
Net income (loss) per share:
Basic................................ $ (0.68) $ (0.26) $ (0.28) $ (0.12) $ 0.15
Diluted.............................. $ (0.68) $ (0.26) $ (0.28) $ (0.12) $ 0.13
Weighted average number of shares:
Basic................................ 35,298 37,050 37,396 37,244 39,218
Diluted.............................. 35,298 37,050 37,396 37,244 43,186
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments...................... $309,881 $665,489
Working capital............................................. 194,468 550,076
Total assets................................................ 354,658 710,266
Long-term debt, excluding current maturities................ 9,527 9,527
Convertible debt............................................ 150,000 150,000
Total stockholders' equity.................................. 185,670 541,278
</TABLE>
The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the 3,000,000 shares of common stock offered in this offering
at an assumed public price of $124.95 per share, and after deducting the
estimated discount and estimated offering expenses payable by us.
5
<PAGE> 11
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the factors described below in addition to the other information in
this prospectus before purchasing our shares. Additional risks and uncertainties
not presently known to us or that we currently see as immaterial may also impair
our business. If any of these risks actually occurs, it could materially harm
our business, financial condition or operating results. In that case, the price
of our common stock could decline and you may lose part or all of your
investment.
RISKS RELATING TO OUR COMPANY
WE HAVE A HISTORY OF OPERATING LOSSES AND MAY NOT ACHIEVE SUSTAINED
PROFITABILITY.
Our expenses have generally exceeded revenues. As of June 30, 2000, we had
an accumulated deficit of approximately $73.4 million. We believe that our
losses may increase because of the extensive resource commitments required to
achieve regulatory approval and commercial success for any individual product.
For example, over the next several years, we will incur substantial additional
expenses as we continue to develop and manufacture our potential products,
invest in new research areas and improve and expand our manufacturing, marketing
and sales capabilities. Since we or our collaborative partners or licensees may
not be able to successfully develop additional products, obtain required
regulatory approvals, manufacture products at an acceptable cost and with
appropriate quality, or successfully market such products with desired margins,
we may never achieve sustained profitable operations. The amount of net losses
and the time required to reach sustained profitability are highly uncertain. We
may be unable to achieve or sustain profitability.
Our commitment of resources to the continued development of our products
will require significant additional funds for development. Our operating
expenses may also increase as:
- some of our earlier stage potential products move into later stage
clinical development
- additional potential products are selected as clinical candidates for
further development
- we invest in additional manufacturing capacity
- we defend or prosecute our patents and patent applications, and
- we invest in research or acquire additional technologies, product
candidates or businesses.
In the absence of substantial revenues from new corporate collaborations or
patent licensing or humanization agreements, significant royalties on sales of
products licensed under our intellectual property rights, product sales or other
uncertain sources of revenue, we will incur substantial operating losses.
OUR REVENUES, EXPENSES AND OPERATING RESULTS WILL LIKELY FLUCTUATE IN FUTURE
PERIODS.
Our revenues have varied in the past and will likely continue to fluctuate
considerably from quarter to quarter and from year to year. As a result, our
revenues in any period may not be predictive of revenues in any subsequent
period. Our royalty revenues may be unpredictable and may fluctuate since they
depend upon:
- the seasonality of sales of licensed products
- the existence of competing products
- the marketing efforts of our licensees
- potential reductions in royalties payable to us due to credits for prior
payments to us
- the timing of royalty reports, some of which are required quarterly and
others semi-annually
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<PAGE> 12
- our method of accounting for royalty revenues from our licensees, and
- our ability to successfully defend and enforce our patents.
Other revenue may also be unpredictable and may fluctuate due to the timing
of payments of non-recurring licensing and signing fees and payments for
manufacturing services and achievement of milestones under new and existing
collaborative, humanization, and patent licensing agreements. Revenue
historically recognized under our prior agreements may not be an indicator of
non-royalty revenue from any future collaborations.
In addition, our expenses may be unpredictable and may fluctuate from
quarter to quarter due to the timing of expenses, which may include payments
owed by us under licensing arrangements and due to our policy of recording
expenses under certain collaborative agreements during the quarter in which such
expenses are reported to us.
In the second quarter of 2000, we received $20.4 million in revenue. This
included $6.5 million in non-recurring revenue from our multiple patent licenses
with Chugai and from expansion of a patent license with American Home Products.
To date in the third quarter of 2000, we have entered into two new humanization
agreements, and we cannot predict the amount of revenue, if any, that will be
derived from these or any other new agreements in the quarter. We also received
significant royalty revenues on sales of the product Synagis in the second
quarter. This product has higher sales in the fall and winter, which to date
have resulted in much higher royalties paid to us in our first and second
quarters than in other quarters. We expect to receive approximately $5.0 million
less in revenue from Synagis royalties in the third quarter than in the second
quarter of 2000 and aggregate royalties from sales of other products to be
roughly comparable to those in the second quarter. As a result of these factors,
we expect both royalty and non-royalty revenues in both the third and fourth
quarters of 2000 to be significantly below their levels for the second quarter.
In addition, we expect to incur losses in the third and fourth quarters that
will exceed in the aggregate the income we earned for the first half of 2000.
OUR HUMANIZATION PATENTS ARE BEING OPPOSED AND A SUCCESSFUL CHALLENGE COULD
LIMIT OUR FUTURE REVENUES.
Substantially all of our current revenues are related to our humanization
patents. At an oral hearing in March 2000, the Opposition Division of the
European Patent Office decided to revoke the broad claims of our first European
humanization patent. We plan to appeal this decision and until our appeal is
resolved, we may be limited in our ability to collect royalties or to negotiate
future licensing or collaborative research and development arrangements based on
this and our other humanization patents. Moreover, if our appeal is
unsuccessful, our ability to collect royalties on European sales of antibodies
humanized by others would depend on the scope and validity of our second
European patent, whether the antibodies are manufactured in a country outside of
Europe where they are covered by one of our patents, and in that case the terms
of our license agreements with respect to that situation. Also, the Opposition
Division's decision could encourage challenges of our related patents in other
jurisdictions, including the U.S. This decision may lead some of our licensees
to stop making royalty payments or lead potential licensees not to take a
license, either of which might result in us initiating formal legal actions to
enforce our rights under our humanization patents. In such a situation, a likely
defensive strategy to our action would be to challenge our patents in that
jurisdiction. During the appeals process with respect to our first European
patent, if we were to commence an infringement action to enforce that patent,
such an action would likely be stayed until the appeal is decided by the
European Patent Office. As a result, we may not be able to successfully enforce
our rights under our European or related U.S. and Japanese patents. We have been
advised that eight notices of opposition have been filed with respect to our
second European antibody humanization patent. Also, three opposition statements
have been filed with the Japanese Patent Office with respect to our humanization
patent issued in Japan in late 1998.
We intend to vigorously defend the European patents and the Japanese patent
in these proceedings; however, we may not prevail in the opposition proceedings
or any litigation contesting the validity of these patents. If our appeal with
respect to our first European patent is unsuccessful or if the outcome of the
other European or Japanese opposition proceedings or any litigation involving
our antibody humanization
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patents were to be unfavorable, our ability to collect royalties on existing
licensed products and to license our patents relating to humanized antibodies
may be materially harmed. In addition, these proceedings or any other litigation
to protect our intellectual property rights or defend against infringement
claims by others could result in substantial costs and diversion of management's
time and attention, which could harm our business and financial condition.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY, WE MAY NOT
BE ABLE TO COMPETE SUCCESSFULLY.
Our pending patent applications may not result in the issuance of valid
patents or our issued patents may not provide competitive advantages. Also, our
patent protection may not prevent others from developing competitive products
using related or other technology.
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 our programs. Some of these applications or patents may be
competitive with our applications or contain material that could prevent the
issuance of patents to us or result in a significant reduction in the scope of
our issued patents.
The scope, enforceability and effective term of patents can be highly
uncertain and often involve complex legal and factual questions. No consistent
policy has emerged regarding the breadth of claims in biotechnology patents, so
that even issued patents may later be modified or revoked by the relevant patent
authorities or 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 we are
unable to predict the extent of patent protection in any country.
In addition to seeking the protection of patents and licenses, we also rely
upon trade secrets, know-how and continuing technological innovation which we
seek to protect, in part, by confidentiality agreements with employees,
consultants, suppliers and licensees. If these agreements are not honored, we
might not have adequate remedies for any breach. Additionally, our trade secrets
might otherwise become known or patented by our competitors.
WE MAY REQUIRE ADDITIONAL PATENT LICENSES IN ORDER TO MANUFACTURE OR SELL OUR
POTENTIAL PRODUCTS.
Other companies, universities and research institutions may obtain patents
that could limit our ability to use, import, manufacture, market or sell our
products or impair our competitive position. As a result, we might be required
to obtain licenses from others before we could continue using, importing,
manufacturing, marketing, or selling our products. We may not be able to obtain
required licenses on terms acceptable to us, if at all. If we do not obtain
required licenses, we may encounter significant delays in product development
while we redesign potentially infringing products or methods or may not be able
to market our products at all.
Celltech Therapeutics Limited has been granted a European patent covering
humanized antibodies, which we have opposed. At an oral hearing in September
2000, the Opposition Division of the European Patent Office decided to revoke
this patent. Celltech may elect to appeal that decision. Also, Celltech has a
pending divisional patent application in Europe, which is currently drafted with
broad claims directed towards humanized antibodies. We cannot predict whether
Celltech will be able to successfully appeal the decision of the Opposition
Division with respect to their first European patent or whether they will be
able to obtain the grant of a patent from the pending application with claims
broad enough to generally cover humanized antibodies. Celltech has also been
issued a corresponding U.S. patent that contains claims that may be considered
broader in scope than their first European patent. We have entered into an
agreement with Celltech providing each company with the right to obtain
nonexclusive licenses for up to three antibody targets under the other company's
humanization patents. Nevertheless, if our SMART antibodies were covered by
Celltech's European or U.S. patents and if we were to need more than the three
licenses under those patents currently available to us under the agreement, we
would be required to negotiate additional licenses under those patents or to
significantly alter our processes or products. We might not be
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able to successfully alter our processes or products to avoid conflict with
these patents or to obtain the required additional licenses on commercially
reasonable terms, if at all.
In addition, if the Celltech U.S. patent or any related patent applications
conflict with our U.S. patents or patent applications, we may become involved in
proceedings to determine which company was the first to invent the products or
processes contained in the conflicting patents. These proceedings could be
expensive, last several years and either prevent issuance of additional patents
to us relating to humanization of antibodies or result in a significant
reduction in the scope or invalidation of our patents. Any limitation would
reduce our ability to negotiate or collect royalties or to negotiate future
collaborative research and development agreements based on these patents.
Lonza Biologics, Inc. has a patent issued in Europe to which we do not have
a license that may cover a process that we use to produce our potential
products. In addition, we do not have a license to an issued U.S. patent
assigned to Stanford University and Columbia University, which may cover a
process we use to produce our potential products. We have been advised that an
exclusive license has been previously granted to a third party under this
patent. If our processes were covered by either of these patents, we might be
required to obtain licenses or to significantly alter our processes or products.
We might not be able to successfully alter our processes or products to avoid
conflicts with these patents or to obtain licenses on acceptable terms.
Toagosei Co., Ltd. is subject to a claim alleging patent infringement based
on the importation into the U.S. by Toagosei to us of an antibody alleged to
have been analyzed in violation of a third party's patents directed to an animal
model. To date, we have not directly been made subject to such a claim and,
although we are still investigating the matter, we have reached a preliminary
conclusion that these allegations lack merit. We cannot, however, assure you
that our preliminary conclusion would be found to be correct. The third party
has made a settlement offer to Toagosei, which even if agreed to and shared by
us (although we may be entitled to indemnification), would not materially affect
our financial condition. Nevertheless, we cannot assure you that these
allegations can be settled on reasonable terms, if at all.
IF WE CANNOT SUCCESSFULLY COMPLETE OUR CLINICAL TRIALS, WE WILL BE UNABLE TO
OBTAIN REGULATORY APPROVALS REQUIRED TO MARKET OUR PRODUCTS.
To obtain regulatory approval for the commercial sale of any of our
potential products or to promote these products for expanded indications, we
must demonstrate through preclinical testing and clinical trials that each
product is safe and effective for use in indications for which approval is
requested. We have conducted only a limited number of clinical trials to date.
We may not be able to successfully commence and complete all of our planned
clinical trials without significant additional resources and expertise. Our
potential inability to commence or continue clinical trials, to complete the
clinical trials on a timely basis or to demonstrate the safety and efficacy of
our potential products, further adds to the uncertainty of regulatory approval
for our potential products.
Larger and later stage clinical trials may not produce the same results as
early stage trials. Many companies in the pharmaceutical and biotechnology
industries, including our company, have suffered significant setbacks in
clinical trials, including advanced clinical trials, even after promising
results had been obtained in earlier trials.
Even when a drug candidate shows indications of efficacy in a clinical
trial, it may be impossible to further develop or receive regulatory approval
for the drug if it causes an unacceptable incidence or severity of side effects,
or further development may be slowed down by the need to find dosing regimens
that do not cause such side effects. For example, while Nuvion has shown
biological activity in some patients in the Phase I/II trial for psoriasis, it
has also at some dose levels caused a level of side effects that would be
unacceptable in this patient population. Hence, we plan to conduct a Phase II
trial of Nuvion in psoriasis in an attempt to find a dosing regimen that is both
well-tolerated and effective. However, we may not be able to find such a
regimen, and inability to do so would prevent further development of Nuvion for
the psoriasis indication. As a second example, the SMART 1D10 Antibody produced
partial clinical responses in some B-cell lymphoma patients but at some dose
levels there were
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significant side effects. Hence, we plan to conduct a Phase II trial of SMART
1D10 to determine the optimum dosing regimen.
OUR CLINICAL TRIAL STRATEGY MAY INCREASE THE RISK OF CLINICAL TRIAL
DIFFICULTIES.
Research, preclinical testing and clinical trials may take many years to
complete and the time required can vary depending on the indication being
addressed and the nature of the product. We may at times elect to use aggressive
clinical strategies in order to advance potential products through clinical
development as rapidly as possible. For example, we may commence clinical trials
without conducting preclinical animal efficacy testing, where an appropriate
animal efficacy testing model does not exist, or we may conduct later stage
trials based on limited early stage data. As a result, we anticipate that only
some of our potential products may show safety and efficacy in clinical trials
and some may encounter difficulties or delays during clinical development.
For example, we have entered the SMART M195 Antibody into a Phase III
clinical trial in acute myelogenous leukemia with a clinical regimen that has
not been tested previously with this antibody in combination with chemotherapy.
Results from our prior Phase II and Phase II/III studies showed only a limited
number of complete and partial remissions using the antibody without concomitant
chemotherapy. In addition, based in part on the nature and severity of the
disease, we initiated a Phase III study without a meeting with the FDA or
European regulatory authorities to discuss the protocol and its adequacy to
support approval of the SMART M195 Antibody. This study may not be successful,
or the FDA or European regulatory authorities may not agree that the study will
be adequate to obtain regulatory approval, even if the study is successful. In
addition, the protocol for our Phase III trial includes an interim review by an
independent data safety monitoring board, which we expect to take place in the
fourth quarter of 2000. The monitoring board could recommend or require that the
trial be terminated if the interim data do not show a sufficient probability of
the trial being successful or if specified safety criteria are not met.
WE MAY BE UNABLE TO ENROLL SUFFICIENT PATIENTS TO COMPLETE OUR CLINICAL TRIALS.
The rate of completion of our clinical trials, and those of our
collaborators, is significantly dependent upon the rate of patient enrollment.
Patient enrollment is a function of many factors, including:
- the size of the patient population
- perceived risks and benefits of the drug under study
- availability of competing therapies
- availability of clinical drug supply
- availability of clinical trial sites
- design of the protocol
- proximity of and access by patients to clinical sites
- patient referral practices of physicians
- eligibility criteria for the study in question, and
- efforts of the sponsor of and clinical sites involved in the trial to
facilitate timely enrollment.
We may have difficulty obtaining sufficient patient enrollment or clinician
support to conduct our clinical trials as planned, and we may need to expend
substantial additional funds to obtain access to resources or delay or modify
our plans significantly. These considerations may lead us to consider the
termination of ongoing clinical trials or development of a product for a
particular indication.
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OUR REVENUES FROM LICENSED TECHNOLOGIES DEPEND ON THE EFFORTS AND SUCCESSES OF
OUR LICENSEES.
In those instances where we have licensed rights to our technologies, the
product development and marketing efforts and successes of our licensees will
determine the amount and timing of royalties we may receive, if any. We have no
assurance that any licensee will successfully complete the product development,
regulatory and marketing efforts required to sell products. The success of
products sold by licensees will be affected by competitive products, including
potential competing therapies that are marketed by the licensee or others.
IF OUR COLLABORATIONS ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE TO EFFECTIVELY
DEVELOP AND MARKET SOME OF OUR PRODUCTS.
We have collaborative agreements with several pharmaceutical and other
companies to develop, manufacture and market Zenapax and some of our potential
products. In some cases, we are relying on our collaborative partners to
manufacture such products, to conduct clinical trials, to compile and analyze
the data received from these trials, to obtain regulatory approvals and, if
approved, to market these licensed products. As a result, we may have little or
no control over the manufacturing, development and marketing of these potential
products and little or no opportunity to review clinical data prior to or
following public announcement.
Our collaborative agreements can generally be terminated by our partners on
short notice. A collaborator may terminate its agreement with us or separately
pursue alternative products, therapeutic approaches or technologies as a means
of developing treatments for the diseases targeted by us or our collaborative
effort. Even if a collaborator continues its contributions to the arrangement,
it may nevertheless determine not to actively pursue the development or
commercialization of any resulting products. In these circumstances, our ability
to pursue potential products could be severely limited.
Continued funding and participation by collaborative partners will depend
on the timely achievement of our research and development objectives, the
retention of key personnel performing work under those agreements and on each
collaborative partner's own financial, competitive, marketing and strategic
considerations. Such considerations include:
- the commitment of management of the collaborative partners to the
continued development of the licensed products or technology
- the relationships among the individuals responsible for the
implementation and maintenance of the collaborative efforts, and
- the relative advantages of alternative products or technology 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.
Our ability to enter into new collaborations and the willingness of our
existing collaborators to continue development of our potential products depends
upon, among other things, our patent position with respect to such products. If
we are unable to successfully maintain our patents we may be unable to collect
royalties on existing licensed products or enter into additional collaborations
and agreements.
IMPLEMENTATION OF STAFF ACCOUNTING BULLETIN NO. 101 MAY REQUIRE US TO REVISE OUR
FINANCIAL STATEMENTS OR OUR REVENUE RECOGNITION PRACTICES.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). We are evaluating the
effects, if any, that the adoption of SAB 101 in the fourth quarter of 2000,
effective January 1, 2000, may have on the results of our operations or our
financial position. We have been advised that the SEC intends to provide
additional guidance during the third quarter of 2000 with respect to the
implementation of SAB 101. We do not know whether this guidance and
implementation of SAB 101 will require us to revise our revenue recognition
practices or to restate revenues for the first and second quarters of 2000.
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OUR LACK OF EXPERIENCE IN SALES, MARKETING AND DISTRIBUTION MAY HAMPER MARKET
INTRODUCTION AND ACCEPTANCE OF OUR PRODUCTS.
We intend to market and sell a number of our products either directly or
through sales and marketing partnership arrangements with collaborative
partners. To market products directly, we must either establish a marketing
group and direct sales force or obtain the assistance of another company. We may
not be able to establish marketing, sales and distribution capabilities or
succeed in gaining market acceptance for our products. If we were to enter into
co-promotion or other marketing arrangements with pharmaceutical or
biotechnology companies, our revenues would be subject to the payment provisions
of these arrangements and dependent on the efforts of third parties.
MANUFACTURING DIFFICULTIES COULD DELAY COMMERCIALIZATION OF OUR PRODUCTS.
Of the products that we currently have in clinical development, Roche is
responsible for manufacturing Zenapax, SmithKline is responsible for
manufacturing the humanized anti-IL-4 antibody and Scil Biomedicals is
responsible for manufacturing the SMART Anti-L-Selectin Antibody. We are
responsible for manufacturing our other products for our own development. We
intend to continue to manufacture potential products for use in preclinical and
clinical trials using our manufacturing facility in accordance with standard
procedures that comply with appropriate regulatory standards. The manufacture of
sufficient quantities of antibody products that comply with these standards is
an expensive, time-consuming and complex process and is subject to a number of
risks that could result in delays. We and our collaborative partners have
experienced some manufacturing difficulties. Product supply interruptions could
significantly delay clinical development of our potential products, reduce third
party or clinical researcher interest and support of proposed clinical trials,
and possibly delay commercialization and sales of these products. Manufacturing
difficulties can even interrupt the supply of marketed products, thereby
reducing revenues and risking loss of market share. For example, Roche has
received a warning letter from the FDA regarding deficiencies in the manufacture
of various products. Although the letter primarily related to products other
than Zenapax, Roche has also experienced difficulties in the manufacture of
Zenapax leading to interruptions in supply. If future manufacturing difficulties
arise and are not corrected in a timely manner, Zenapax supplies could be
interrupted, which could cause a delay or termination of our clinical trials of
Zenapax in autoimmune disease and could force Roche to withdraw Zenapax from the
market temporarily or permanently, resulting in loss of revenue to us. These
occurrences could impair our competitive position.
We do not have experience in manufacturing commercial quantities of our
potential products, nor do we currently have sufficient capacity to manufacture
our potential products on a commercial scale. To obtain regulatory approvals and
to create capacity to produce our products for commercial sale at an acceptable
cost, we will need to improve and expand our existing manufacturing
capabilities. We are reviewing plans to expand our manufacturing capacity,
including possible acquisition and conversion of an existing building into a
manufacturing plant or construction of an entirely new manufacturing plant. If
we implement these plans we will incur substantial costs. Any construction
delays could impair our ability to produce adequate supplies of our potential
products for clinical use or commercial sale on a timely basis. Further, we may
be unable to improve and expand our manufacturing capability sufficiently to
obtain necessary regulatory approvals and to produce adequate commercial
supplies of our potential products on a timely basis. Failure to do so could
delay commercialization of these products and could impair our competitive
position.
We are also investigating the use of contract manufacturing to produce
commercial supplies of at least the SMART M195 Antibody in the event that the
Phase III trial of that antibody is successful. We may be unable to secure such
manufacturing capacity and to successfully produce commercial supplies on a
timely basis. Failure to do so could delay commercialization of this product and
could impair our competitive position.
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WE MAY REQUIRE ADDITIONAL FUNDS THAT MAY BE DIFFICULT TO OBTAIN IN ORDER TO
CONTINUE OUR BUSINESS ACTIVITIES AS PLANNED.
Our operations to date have consumed substantial amounts of cash. We will
be required to spend substantial funds in conducting clinical trials, to expand
our marketing capabilities and efforts, to expand existing research and
development programs, to develop and expand our development and manufacturing
capabilities and to defend or prosecute our patents and patent applications. To
develop and commercialize our products we may need to raise substantial
additional funds through equity or debt financings, collaborative arrangements,
the use of sponsored research efforts or other means. Additional financing may
not be available on acceptable terms, if at all, and may only be available on
terms dilutive to existing stockholders or that would increase the amount of our
indebtedness. Our inability to secure adequate funds on a timely basis could
result in the delay or cancellation of programs that we might otherwise pursue.
OUR REVENUE MAY BE ADVERSELY AFFECTED BY COMPETITION AND RAPID TECHNOLOGICAL
CHANGE.
Potential competitors have developed and are developing human and humanized
antibodies or other compounds for treating autoimmune and inflammatory diseases,
transplantation, asthma and cancers. In addition, a number of academic and
commercial organizations are actively pursuing similar technologies, and several
companies have developed or may develop technologies that may compete with our
SMART antibody technology. Competitors may succeed in more rapidly developing
and marketing technologies and products that are more effective than our
products or that would render our products or technology obsolete or
noncompetitive. Our collaborative partners may also independently develop
products that are competitive with products that we have licensed to them. This
could reduce our revenues under our agreements with these partners.
Any product that we or our collaborative partners succeed in developing and
for which regulatory approval is obtained must then compete for market
acceptance and market share. The relative speed with which we and our
collaborative partners can develop products, complete the clinical testing and
approval processes, and supply commercial quantities of the products to the
market compared to competitive companies will affect market success. For
example, Novartis, which has a significant marketing and sales force directed to
the transplantation market, has received approval to market Simulect, a product
competitive with Zenapax, in the U.S. and Europe. Since Novartis launched
Simulect in the European Union earlier than Roche, Zenapax may have a smaller
market share than Simulect and other available products.
RISKS RELATING TO OUR INDUSTRY
WE MAY BE UNABLE TO OBTAIN OR MAINTAIN REGULATORY APPROVAL FOR OUR PRODUCTS.
The manufacturing, testing and marketing of our products are subject to
regulation by numerous governmental authorities in the U.S. and other countries.
In the U.S., pharmaceutical products are subject to rigorous FDA regulation.
Additionally, other federal, state and local regulations govern the manufacture,
testing, clinical and nonclinical studies to assess safety and efficacy,
approval, advertising and promotion of pharmaceutical products. The process of
obtaining approval for a new pharmaceutical product or for additional
therapeutic indications within this regulatory framework requires a number of
years and the expenditure of substantial resources. Companies in the
pharmaceutical and biotechnology industries, including us, have suffered
significant setbacks in various stages of clinical trials, even in advanced
clinical trials after promising results had been obtained in earlier trials.
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 rigorous guidelines 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 these FDA approved
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guidelines. These foreign manufacturing establishments are subject to periodic
inspection by the FDA or by corresponding regulatory agencies in these countries
under reciprocal agreements with the FDA. Moreover, pharmaceutical product
manufacturing facilities may also be regulated by state, local and other
authorities.
For the marketing of pharmaceutical products outside the U.S., we and our
collaborative partners are subject to foreign regulatory requirements and, if
the particular product is manufactured in the U.S., FDA and other U.S. export
provisions. 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 us or our licensees or marketing partners in our respective
efforts to secure necessary governmental approvals. This could delay or prevent
us, our licensees or our marketing partners from marketing potential
pharmaceutical products.
Both before and after approval is obtained, a pharmaceutical product, its
manufacturer and the holder of the Biologics License Application (BLA) for the
pharmaceutical product are subject to comprehensive regulatory oversight. The
FDA may deny a BLA if applicable regulatory criteria are not satisfied.
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, marketing approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems with the pharmaceutical
product occur following approval. 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, which may include, among other adverse
actions, withdrawal of the previously approved pharmaceutical product or
marketing approvals and/or the imposition of criminal penalties against the
manufacturer and/or BLA holder.
MANUFACTURING CHANGES MAY RESULT IN DELAYS IN OBTAINING REGULATORY APPROVAL OR
MARKETING FOR OUR PRODUCTS.
Manufacturing of antibodies for use as therapeutics in compliance with
regulatory requirements is complex, time-consuming and expensive. If we make
changes in the manufacturing process, we may be required to demonstrate to the
FDA and corresponding foreign authorities that the changes have not caused the
resulting drug material to differ significantly from the drug material
previously produced. This is particularly important if we want to rely on
results of prior preclinical studies and clinical trials performed using the
previously produced drug material. Depending upon the type and degree of
differences between the newer and older drug material, we may be required to
conduct additional animal studies or human clinical trials to demonstrate that
the newly produced drug material is sufficiently similar to the previously
produced drug material. We have made manufacturing changes and are likely to
make additional manufacturing changes for the production of our products
currently in clinical development. These manufacturing changes could result in
delays in development or regulatory approvals or in reduction or interruption of
commercial sales and could impair our competitive position.
OUR BUSINESS MAY BE HARMED IF WE CANNOT OBTAIN SUFFICIENT QUANTITIES OF RAW
MATERIALS.
We depend on outside vendors for the supply of raw materials used to
produce our product candidates. Once a supplier's materials have been selected
for use in our manufacturing process, the supplier in effect becomes a sole or
limited source of that raw material due to regulatory compliance procedures. If
the third party suppliers were to cease production or otherwise fail to supply
us with quality raw materials and we were unable to contract on acceptable terms
for these services with alternative suppliers, our ability to produce our
products and to conduct preclinical testing and clinical trials of product
candidates would be adversely affected. This could impair our competitive
position.
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IF WE DO NOT ATTRACT AND RETAIN KEY EMPLOYEES, OUR BUSINESS COULD BE IMPAIRED.
To be successful we must retain our qualified clinical, manufacturing,
scientific and management personnel. Because we are located in a high technology
area, we face competition for personnel from other companies, academic
institutions, government entities and other organizations. We are currently
conducting a search for a chief financial officer, as well as other senior
management personnel. If we are unsuccessful in filling these positions or
retaining qualified personnel, our business could be impaired.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS, AND OUR INSURANCE COVERAGE MAY
NOT BE ADEQUATE TO COVER THESE CLAIMS.
We face 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. This risk will exist even
with respect to any products that receive regulatory approval for commercial
sale. While we have obtained liability insurance for our products, it may not be
sufficient to satisfy any liability that may arise. Also, adequate insurance
coverage may not be available in the future at acceptable cost, if at all.
WE MAY INCUR SIGNIFICANT COSTS IN ORDER TO COMPLY WITH ENVIRONMENTAL REGULATIONS
OR TO DEFEND CLAIMS ARISING FROM ACCIDENTS INVOLVING THE USE OF HAZARDOUS
MATERIALS.
We are subject to federal, state and local laws and regulations governing
the use, discharge, handling and disposal of materials and wastes used in our
operations. As a result, we may be required to incur significant costs to comply
with these laws and regulations. We cannot eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
we could be held liable for any resulting damages and incur liabilities which
exceed our resources. In addition, we cannot predict the extent of the adverse
effect on our business or the financial and other costs that might result from
any new government requirements arising out of future legislative,
administrative or judicial actions.
CHANGES IN THE U.S. AND INTERNATIONAL HEALTH CARE INDUSTRY COULD ADVERSELY
AFFECT OUR REVENUES.
The U.S. and international health care industry is subject to changing
political, economic and regulatory influences that may significantly affect the
purchasing practices and pricing of pharmaceuticals. Cost containment measures,
whether instituted by health care providers or imposed by government health
administration regulators or new regulations, could result in greater
selectivity in the purchase of drugs. As a result, third-party payors may
challenge the price and cost effectiveness of our products. In addition, in many
major markets outside the U.S., pricing approval is required before sales can
commence. As a result, significant uncertainty exists as to the reimbursement
status of approved health care products.
We may not be able to obtain or maintain our desired price for our
products. Our products may not be considered cost effective relative to
alternative therapies. As a result, adequate third-party reimbursement may not
be available to enable us to maintain prices sufficient to realize an
appropriate return on our investment in product development. Also, the trend
towards managed health care in the U.S. and the concurrent growth of
organizations such as health maintenance organizations, as well as legislative
proposals to reform health care or reduce government insurance programs, may all
result in lower prices, reduced reimbursement levels and diminished markets for
our products. These factors will also affect the products that are marketed by
our collaborative partners.
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RISKS RELATING TO THIS OFFERING
AS A RESULT OF OUR SALE OF CONVERTIBLE NOTES, WE HAVE A SIGNIFICANT AMOUNT OF
DEBT AND MAY HAVE INSUFFICIENT CASH TO SATISFY OUR DEBT SERVICE OBLIGATIONS. IN
ADDITION, THE AMOUNT OF OUR DEBT COULD IMPEDE OUR OPERATIONS AND FLEXIBILITY.
As a result of our sale of convertible notes with an aggregate principal
amount of $150 million in February 2000, we have a significant amount of debt
and debt service obligations. If we are unable to generate sufficient cash flow
or otherwise obtain funds necessary to make required payments on the notes,
including from cash and cash equivalents on hand, we will be in default under
the terms of the indenture which could, in turn, cause defaults under our other
existing and future debt obligations. Our operations have not produced income
sufficient to cover our fixed charges and we do not expect they will do so for
at least the near future.
Even if we are able to meet our debt service obligations, the amount of
debt we have could adversely affect us in a number of ways, including by:
- limiting our ability to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes
- limiting our flexibility in planning for, or reacting to, changes in our
business
- placing us at a competitive disadvantage relative to our competitors who
have lower levels of debt
- making us more vulnerable to a downturn in our business or the economy
generally, and
- requiring us to use a substantial portion of our cash to pay principal
and interest on our debt, instead of applying those funds to other
purposes such as working capital and capital expenditures.
OUR COMMON STOCK PRICE IS VOLATILE AND AN INVESTMENT IN OUR COMPANY COULD
DECLINE IN VALUE.
Market prices for securities of biotechnology companies, including
ourselves, have been highly volatile so that investment in our securities
involves substantial risk. Additionally, 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. The following are some of the
factors that may have a significant effect on the market price of our common
stock:
- developments or disputes as to patent or other proprietary rights
- disappointing sales of approved products
- approval or introduction of competing products and technologies
- results of clinical trials
- failures or unexpected delays in obtaining regulatory approvals or FDA
advisory panel recommendations
- delays in manufacturing or clinical trial plans
- fluctuations in our 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 us or our competitors
- initiation, termination or modification of agreements with our
collaborative partners
- loss of key personnel
16
<PAGE> 22
- litigation or the threat of litigation
- public concern as to the safety of drugs developed by us
- sales of our common stock held by collaborative partners or insiders
- comments and expectations of results made by securities analysts, and
- general market conditions.
If any of these factors causes us to fail to meet the expectations of
securities analysts or investors, or if adverse conditions prevail or are
perceived to prevail with respect to our business, the price of the common stock
would likely drop significantly. A significant drop in the price of a company's
common stock often leads to the filing of securities class action litigation
against the company. This type of litigation against us could result in
substantial costs and a diversion of management's attention and resources.
17
<PAGE> 23
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the common stock
offered hereby will be approximately $355.6 million (or $409.0 million if the
over-allotment option is exercised in full) after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us. We
expect to use the net proceeds to fund clinical trials, to expand manufacturing
capabilities, to expand marketing and sales capabilities, and for working
capital and other general corporate purposes. Pending use of the net proceeds of
this offering, we intend to invest the net proceeds in interest-bearing,
investment-grade securities.
PRICE RANGE OF COMMON STOCK
Our common stock trades on The Nasdaq National Market under the symbol
"PDLI." The following table sets forth for the periods indicated the high and
low closing bid prices for our common stock as quoted on The Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter............................................. $ 23 1/8 $17 5/16
Second Quarter............................................ 19 3/4 10 1/16
Third Quarter............................................. 13 1/8 8 3/8
Fourth Quarter............................................ 13 5/8 8 1/4
1999
First Quarter............................................. $ 13 1/4 $ 6 5/8
Second Quarter............................................ 11 7 3/16
Third Quarter............................................. 18 1/16 11 1/16
Fourth Quarter............................................ 36 5/16 16 1/8
2000
First Quarter............................................. $163 5/8 $29 49/64
Second Quarter............................................ 92 29 25/32
Third Quarter (through September 22, 2000)................ 124 60 19/32
</TABLE>
On September 22, 2000, the closing bid price quoted on The Nasdaq National
Market for the common stock was $124 per share. As of September 22, 2000 there
were approximately 126 holders of record of our common stock. Because many of
these shares are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. Payment of future dividends, if any,
will be at the discretion of our board of directors after taking into account
various factors, including our financial condition, operating results and
current and anticipated cash needs.
18
<PAGE> 24
CAPITALIZATION
The following table presents our actual unaudited capitalization as of June
30, 2000 and our adjusted capitalization reflecting the estimated net proceeds
of $355.6 million from the sale of the 3,000,000 shares of common stock offered
in this offering. This table should be read with the financial statements and
related notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, excluding current maturities................ $ 9,527 $ 9,527
Convertible debt............................................ 150,000 150,000
-------- --------
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, 90,000,000 shares
authorized; 39,849,124 issued and outstanding actual,
42,849,124 shares outstanding as adjusted.............. 398 428
Additional paid-in capital................................ 260,919 616,497
Accumulated deficit....................................... (73,426) (73,426)
Accumulated other comprehensive income (loss)............. (2,221) (2,221)
-------- --------
Total stockholders' equity............................. 185,670 541,278
-------- --------
Total capitalization.............................. $345,197 $700,805
======== ========
</TABLE>
This table excludes (a) options outstanding under our stock option plans at
June 30, 2000 to purchase 5,227,090 shares of common stock at a weighted average
exercise price of $21.98, of which options to purchase 1,463,383 shares were
then exercisable, (b) 730,608 shares authorized for issuance under our employee
stock purchase plan, and (c) 1,986,755 shares issuable upon conversion of our
convertible notes.
19
<PAGE> 25
DILUTION
The net tangible book value of our common stock as of June 30, 2000 was
$180,887,600 or $4.54 per share. Net tangible book value per share represents
the amount of our total tangible assets less our total liabilities divided by
the number of shares of common stock outstanding. After giving effect to the
sale of 3,000,000 shares of common stock, less underwriting discounts and
commissions and our estimated offering expenses, our pro forma net tangible book
value as of June 30, 2000 would have been $536,495,100, or $12.52 per share.
This represents an immediate increase in pro forma net tangible book value of
$7.98 per share to existing investors and an immediate dilution per share of
$112.43 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 in this offering and the pro forma net tangible book
value per share immediately afterwards.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $124.95
Net tangible book value per share as of June 30, 2000..... $4.54
Increase per share attributable to new investors.......... 7.98
-----
Pro forma net tangible book value per share after this
offering.................................................. 12.52
-------
Dilution per share to new investors......................... $112.43
=======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share will be $13.62, resulting in immediate
dilution to new investors of $111.33 per share.
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. At June 30, 2000, a total of 5,227,090 shares
of common stock were subject to outstanding options, at a weighted average
exercise price of $21.98 per share. The exercise of outstanding options and
warrants having an exercise price less than the offering price would increase
the dilutive effect to new investors.
20
<PAGE> 26
SELECTED FINANCIAL DATA
The following selected financial data for each of the three years in the
period ended December 31, 1999, and as of December 31, 1998 and 1999 has been
taken from, or is derived from, and should be read with our financial
statements, including the notes thereto, that have been audited by Ernst & Young
LLP, independent auditors, and are incorporated by reference herein and included
in our Annual Report on Form 10-K for the year ended December 31, 1999. The
selected financial data for each of the years ended December 31, 1995 and 1996,
and as of December 31, 1995, 1996 and 1997, has been taken from or is derived
from our audited financial statements that have not been included or
incorporated by reference in this prospectus. The selected financial data for
the six-month periods ended June 30, 1999 and 2000, and as of June 30, 2000 is
unaudited and has been taken from or is derived from, and should be read with
our unaudited financial statements incorporated by reference herein and included
in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal, recurring adjustments, that in the opinion of management are necessary
for a fair presentation of the information set forth therein. Historical results
are not necessarily indicative of future results for any period.
This financial data is qualified by reference to, and should be read in
conjunction with, the financial statements incorporated by reference into this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Revenue under agreements
with third parties...... $11,408 $ 16,500 $ 11,137 $21,325 $ 26,811 $12,501 $28,343
Interest and other
income.................. 6,205 6,100 9,118 9,503 8,943 4,623 7,521
------- -------- -------- ------- -------- ------- -------
Total revenues............. 17,613 22,600 20,255 30,828 35,754 17,124 35,864
Costs and expenses:
Research and development... 20,803 28,795 25,614 31,645 36,090 16,793 21,284
General and
administrative.......... 5,163 5,601 6,629 8,685 9,842 4,895 5,329
Special charge............. -- -- 11,887 -- -- -- --
Interest expense........... 1 -- -- -- 155 -- 3,460
------- -------- -------- ------- -------- ------- -------
Total costs and expenses... 25,967 34,396 44,130 40,330 46,087 21,688 30,073
------- -------- -------- ------- -------- ------- -------
Net income (loss)............ $(8,354) $(11,796) $(23,875) $(9,502) $(10,333) $(4,564) $ 5,791
======= ======== ======== ======= ======== ======= =======
Net income (loss) per share
Basic...................... $ (0.27) $ (0.38) $ (0.68) $ (0.26) $ (0.28) $ (0.12) $ 0.15
======= ======== ======== ======= ======== ======= =======
Diluted.................... $ (0.27) $ (0.38) $ (0.68) $ (0.26) $ (0.28) $ (0.12) $ 0.13
======= ======== ======== ======= ======== ======= =======
Shares used in computation of
net income (loss) per share
Basic...................... 30,686 31,208 35,298 37,050 37,396 37,244 39,218
Diluted.................... 30,686 31,208 35,298 37,050 37,396 37,244 43,186
</TABLE>
21
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments...................... $107,065 $ 99,667 $163,655 $143,439 $137,237 $309,881
Working capital.................... 43,522 74,221 66,490 82,394 22,669 194,468
Total assets....................... 116,412 110,331 175,026 171,850 182,551 354,658
Accumulated deficit................ (23,711) (35,507) (59,382) (68,884) (79,217) (73,426)
Long-term obligations, exclusive of
current portion.................. -- -- -- -- 9,724 159,527
Total stockholders' equity......... 112,856 105,112 168,468 162,496 164,743 185,670
</TABLE>
---------------
The non-cash special charge of approximately $11.9 million in 1997 related to
the extensions of the term of all outstanding stock options held by our
employees, officers, directors and consultants that were granted prior to
February 1995, with the single exception of stock options granted to one
non-employee director. The extension conforms the term of previously granted
stock options, which was six years, to those granted since February 1995, ten
years.
22
<PAGE> 28
BUSINESS
OVERVIEW
We are a leader in the development of humanized monoclonal antibodies for
the prevention and treatment of disease. We have licensed rights to our first
humanized antibody product, Zenapax, to Roche, which markets it for the
prevention of kidney transplant rejection. We are also testing Zenapax for the
treatment of autoimmune disease. In addition, we have eight other humanized
antibodies in clinical development for autoimmune and inflammatory conditions,
asthma and cancer.
We have fundamental patents in the U.S., Europe and Japan, which we believe
cover most humanized antibodies. Eleven companies have licenses under these
patents for humanized antibodies that they have developed. We receive royalties
on sales of the three humanized antibodies developed by other companies that are
currently being marketed.
PRODUCTS IN DEVELOPMENT
The following table summarizes the potential therapeutic applications and
development status for our approved product and clinical product candidates. Not
all clinical trials being conducted are listed. The development and
commercialization of our product candidates is subject to numerous risks and
uncertainties.
<TABLE>
<CAPTION>
ANTIBODY PRODUCT INDICATION(S) STATUS
---------------- ------------- ------
<S> <C> <C>
Zenapax Kidney transplant rejection Marketed
Heart transplant rejection Phase III
Psoriasis Phase II
Uveitis Phase I/II
Multiple sclerosis Phase I/II
SMART M195 Acute myeloid leukemia Phase III
Nuvion Psoriasis Phase I/II
Transplantation Phase II
Graft-versus-host disease Phase I
Cutaneous T-cell lymphoma Phase I
SMART Anti-L-Selectin Trauma Phase IIa
SMART 1D10 Non-Hodgkins B-cell lymphoma Phase I
Humanized Anti-IL-4 Asthma Phase I
SMART Anti-Gamma Interferon Autoimmune diseases Phase I
SMART Anti-VEGF Cancer Phase I
SMART Anti-E/P-Selectin Stroke, asthma Phase I in healthy
volunteers complete
</TABLE>
ZENAPAX. The FDA approved Zenapax in December 1997 for the prevention of
kidney transplant rejection. It has since been approved in Europe and other
countries. Zenapax was the first humanized antibody to be approved anywhere in
the world. The Zenapax approvals are based on two Phase III clinical trials,
both of which demonstrated that Zenapax-treated patients had a statistically
significant reduction in acute rejection episodes compared to patients who did
not receive Zenapax. Also, Zenapax treatment was not associated with any
observed side effects in addition to those typically seen in the transplant
setting. Our licensee Roche sells Zenapax in the U.S., Europe and other
territories for the transplant indication and we receive royalties on Zenapax
sales.
Roche has sponsored or authorized several additional Zenapax clinical
trials in other transplant settings, including liver transplants, pediatric
kidney transplants, in combination with Roche's drug CellCept with and without
certain other immunosuppressive drugs in kidney transplants, and for the
treatment of graft-versus-host disease in donor bone marrow transplants. Roche
is currently conducting a Phase III trial in heart transplant
23
<PAGE> 29
patients. In addition, we are aware of numerous independent clinical studies
using Zenapax in settings including heart, lung, pancreas and combined
intestinal and liver transplants.
Zenapax binds to the interleukin-2 (IL-2) receptor on immune system cells
known as T cells. IL-2 is a lymphokine, one of the substances released by cells
as part of the immune response that occurs in autoimmune diseases and often
following organ transplants. IL-2 stimulates T cells to divide and participate
in an immune response. Zenapax blocks the binding of IL-2 to its receptor on T
cells, suppressing an immune response by inhibiting the proliferation of
activated T cells.
Zenapax is the first effective immunosuppressive drug without significant
side effects. For example, Zenapax is more specific and less toxic than other
immunosuppressive drugs such as cyclosporine or ORTHOCLONE OKT3 which suppress
essentially all T cells and possibly other cells. As a result, we believe
Zenapax may be useful for the long-term treatment of autoimmune diseases such as
psoriasis and multiple sclerosis.
In 1999, we reacquired from Roche specific development and marketing rights
to Zenapax for autoimmune diseases. We will fund costs of clinical trials for
Zenapax in autoimmune diseases. In return, we have the right to market Zenapax
for approved autoimmune indications in the U.S. and Canada, and will receive a
major portion of the revenues from sales for these diseases. Roche will continue
to manufacture Zenapax and pay for the cost of goods from its share of the
revenues. In Europe and other countries, Roche can elect to market Zenapax for
approved autoimmune indications or to allow us to market it, and revenues will
be shared.
Zenapax is currently in two Phase II trials in psoriasis, a common
autoimmune disease of the skin, and in early stage trials for uveitis, multiple
sclerosis, aplastic anemia, and the ocular manifestations of Bechet's disease.
We plan to conduct additional trials for psoriasis and other autoimmune
diseases. In the early stage clinical trial for uveitis, an autoimmune disease
of the eye, Zenapax was safely administered to patients for one year and was
effective in controlling the disease in most patients, some of whom have
continued to receive Zenapax for up to three years.
SMART M195 ANTIBODY. SMART M195 binds to the cancer cells of most patients
with myeloid leukemias. Myeloid leukemia is the major form of adult leukemia. It
is classified into two types: acute myeloid leukemia, or AML, and chronic
myelogenous leukemia. At least 14,000 new cases of myeloid leukemia occur each
year in the U.S. and 10,000 or more of these cases are AML. The current survival
rate from myeloid leukemia is very low, despite aggressive chemotherapy and
multiple, expensive hospitalizations.
Several clinical trials using the SMART M195 Antibody have been conducted,
including:
- a multicenter Phase II/III trial designed to evaluate the antibody for
prolonging remission in AML patients
- a Phase II trial to evaluate whether the antibody could induce remission
in patients whose AML had relapsed
- a physician-sponsored Phase II trial of the antibody in patients with
newly diagnosed acute promyelocytic leukemia, a subtype of AML, and
- physician-sponsored trials using the antibody linked to the radioisotopes
90-Yttrium or 213-Bismuth.
In general, these trials have demonstrated that SMART M195 has some
biological activity and potential for efficacy. In November 1999, we began a
randomized, multicenter, international Phase III study of the antibody in
patients with refractory or first-relapsed AML. Patients receive a regimen of
either SMART M195 plus standard chemotherapy or standard chemotherapy alone. Up
to 200 patients may be enrolled in the trial, which is designed to evaluate the
frequency of complete remission and other endpoints. An interim review of the
trial results by an independent data safety monitoring board is expected in the
fourth quarter of 2000. The monitoring board could recommend or require that the
trial be
24
<PAGE> 30
terminated if the interim data do not show a sufficient probability of the trial
being successful or if specified safety criteria are not met. If the final
results of the trial are positive, we expect to file for marketing approval.
In addition to the Phase III trial, in 1999 a Phase II trial began to test
the safety and efficacy of SMART M195 in patients with high risk myelodysplastic
syndrome, a precancerous condition. The study is being conducted by the European
Organization for the Research and Treatment of Cancer.
NUVION (SMART ANTI-CD3 ANTIBODY). We are developing this antibody for the
treatment of autoimmune diseases. It binds to the CD3 antigen, a key receptor
for stimulating T cells. A mouse anti-CD3 antibody, ORTHOCLONE OKT3, from
Johnson & Johnson, is marketed as an immunosuppressive drug for the treatment of
acute kidney, liver and heart transplantation rejection. While highly effective,
OKT3 use is often limited by serious toxicity as well as formation of anti-OKT3
antibodies because it is a mouse antibody. In contrast, Nuvion is humanized and
also has been specifically engineered to reduce certain immune system
interactions that we believe contribute to the toxicity of OKT3.
Although both Nuvion and Zenapax may target some of the same diseases, we
believe they may have complementary roles in medical treatment. Nuvion may be
more potent than Zenapax, but may not be suitable for chronic administration, so
it may be most useful to treat acute episodes of autoimmune disease and to
induce remissions. Zenapax may be useful to maintain the remissions for longer
periods.
Nuvion is currently in a Phase I/II clinical trial for psoriasis. It is
also in clinical trials for transplant rejection, graft-versus-host disease, and
cutaneous T-cell lymphoma, but we have no current plans to conduct Phase III
trials in these indications. We have retained worldwide rights to Nuvion.
SMART ANTI-L-SELECTIN ANTIBODY. This antibody inhibits the process of
neutrophil binding to the lining of blood vessels. It may be useful for
preventing multiple organ failure and mortality that often follows severe
trauma. In primate studies carried out by independent investigators, SMART
Anti-L-Selectin treatment resulted in a statistically significant improvement in
survival in a model that simulates severe trauma. We believe this antibody also
may be useful to treat adult respiratory distress syndrome and reperfusion
injury due to heart attacks.
In May 1999, we licensed European marketing rights for this antibody to
Scil, a European biotechnology company. Scil paid us a licensing fee and agreed
to conduct and pay for clinical trials in Europe and to provide us with the
data; in return, we are making milestone payments to Scil, at our election, on
the achievement of defined clinical and regulatory goals. Scil has completed a
Phase I trial of SMART Anti-L-Selectin and is now conducting a Phase IIa trial
for treatment of trauma. If the results from that Phase IIa trial are
encouraging, we may initiate clinical development in the U.S.
SMART 1D10 ANTIBODY. The National Cancer Institute is sponsoring a Phase I
trial of this antibody for non-Hodgkins B-cell lymphoma. Clinical responses were
observed in three of the patients in this trial, and we plan to initiate a Phase
II trial. SMART 1D10 is directed to a different target on B cells than Rituxan,
the antibody currently marketed for non-Hodgkins lymphoma, and thus may provide
an alternative therapy. In the U.S., approximately 290,000 patients have this
disease and 55,000 new cases occur annually. We have retained worldwide rights
to SMART 1D10.
HUMANIZED ANTI-IL-4 ANTIBODY. We licensed this antibody, for the potential
treatment of asthma and allergy, from SmithKline in 1999. The humanized
anti-IL-4 antibody blocks the effects of interleukin 4, which is believed to
play a key role in initiating the series of biological processes that lead to
allergy and asthma. SmithKline began a Phase I trial of the humanized anti-IL-4
antibody, which we have now completed. We plan to initiate a Phase I/II multiple
dose study, followed by a Phase II trial in moderate to severe asthma patients.
We will conduct and pay for initial clinical trials of the humanized
anti-IL-4 antibody and pay SmithKline to manufacture the antibody. SmithKline
has agreed to make a milestone payment to us upon the achievement of a specified
clinical goal. At the completion of a specified Phase II trial, SmithKline may
choose to pay us a fee to acquire marketing rights. In that case, we and
SmithKline will share future
25
<PAGE> 31
development costs and profits from any product sales. If SmithKline elects not
to pay this fee, we will have the right to develop and market the antibody.
Concurrently, we granted SmithKline an exclusive license under our
humanization patents for a humanized anti-IL-5 antibody that they are
developing, for which SmithKline paid us a licensing fee. We also granted
SmithKline options to obtain non-exclusive licenses under these patents for up
to three additional antibodies. These arrangements with SmithKline illustrate
our ability to leverage our patent portfolio to obtain rights to a potentially
important product.
SMART ANTI-GAMMA INTERFERON ANTIBODY. This antibody targets gamma
interferon, a protein that stimulates several types of white blood cells and
that may be involved in some autoimmune diseases. We have completed a Phase I
trial of SMART Anti-Gamma Interferon in normal volunteers, which showed the
antibody is well-tolerated and has biological activity. We plan to initiate a
Phase I/II trial in patients with Crohn's disease, a form of inflammatory bowel
disease. In the future, we may initiate clinical trials in other autoimmune
diseases. We have retained worldwide rights to SMART Anti-Gamma Interferon.
SMART ANTI-VEGF ANTIBODY. This antibody blocks the action of vascular
endothelial growth factor (VEGF), which is believed to play an important role in
the formation of blood vessels in tumors, a process that allows the tumors to
grow. We humanized the antibody for Toagosei, a Japanese chemical company, and
subsequently entered into an agreement with Toagosei under which the two
companies will share development costs, marketing rights, and profits from
potential sales of the antibody in markets outside of Japan. Toagosei has
exclusive rights to market the antibody in Japan. We have exclusive marketing
rights in North America and the option to obtain marketing rights in the rest of
the world outside of Japan. We are conducting a Phase I trial of the antibody in
collaboration with the European Organization for Research and Treatment of
Cancer.
SMART ANTI-E/P-SELECTIN ANTIBODY. This antibody targets adhesion molecules
on the inside of blood vessels that may be involved in inflammation. We have
completed a Phase I trial of SMART Anti-E/P-Selectin in healthy volunteers which
showed that the antibody is well-tolerated in a range of doses. We have retained
worldwide rights to SMART Anti-E/P-Selectin and are seeking a partner for its
further development.
OUR TECHNOLOGIES
Antibody Background Information
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, or due to an aberrant autoimmune response. B cells
produce millions of different kinds of antibodies, which have slightly different
shapes that enable them to bind and, as a result, inactivate different targets.
Antibodies that have 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
range of targets, including targets to which the human body does not normally
produce antibodies. Specifically, many mouse, or murine, antibodies have been
developed as potential therapeutics to inhibit immune function, destroy cancer
cells or neutralize viruses.
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.
In addition, 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 humans, a
murine antibody is usually recognized by the body's immune system as foreign.
The immune system therefore responds with a human anti-mouse antibody, or 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.
26
<PAGE> 32
More recently, improved forms of antibodies, such as humanized, human and
chimeric antibodies, have been developed using recombinant DNA and other
technologies. 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 monoclonal antibodies are now progressing into
clinical trials. In a list of biotechnology medicines under clinical development
in the U.S. published in 1999 by the Pharmaceutical Research and Manufacturers
of America, antibodies comprised the single largest category (excluding
vaccines), representing 22% of the products listed. In particular, we are aware
of at least 40 humanized antibodies in clinical trials, including several
antibodies addressing large markets that are being developed by major
pharmaceutical companies. Eight humanized or chimeric antibodies have already
been approved for marketing by the FDA, and generated more than $1.0 billion in
revenues in 1999.
Our SMART Antibody Technology
Our patented SMART antibody technology has positioned us as a leader in the
development of therapeutic antibodies that overcome the problems associated with
murine antibodies. Our 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 our SMART
antibodies generally avoid a HAMA response and have a longer half-life than
murine antibodies.
Every antibody contains two regions: a variable domain that binds to the
target antigen 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 antigen and the
framework region that holds the CDRs in position and helps maintain their
required shape. 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.
A SMART antibody is a humanized antibody designed by using our 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 we developed as well as the
experience of our 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.
Our Other Technologies
In addition to our SMART antibody technology, we use additional
antibody-based drug development technologies to overcome shortcomings of murine
antibodies. We are also pursuing a program to discover novel antibiotics and a
rational drug design program that leverages our computer expertise to
potentially develop new drug candidates.
NOVEL ANTIBIOTICS. We have a research program to discover and develop new
antibiotics for the treatment of certain microbial infections, including
infections caused by microbes that have developed resistance to available
antibiotics. This program uses technology to identify microbial genes that are
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differentially expressed when microbes infect a host. These microbial genes and
their products may become potential targets for novel antibiotics, which may be
identified by high throughput screening and medicinal chemistry. We anticipate
that aspects of this work may be conducted by corporate partners. In December
1997, we entered into a collaborative agreement with Eli Lilly and Company,
providing for a funded research program involving seven specific types of
bacteria. The funded research program will end on November 30, 2000.
RATIONAL DRUG DESIGN. We are pursuing a rational drug design program
focusing on small molecules by extending our computer modeling tools originally
developed for our SMART antibody program. Rational drug design uses computer
models of proteins and their interactions with smaller molecules to accelerate
discovery and optimization of new drug compounds. Although our technology is at
an early stage, we believe that this application of our modeling algorithms may
ultimately be used to develop non-antibody, small-molecule drug candidates. For
that purpose, we have initiated a program in medicinal and combinatorial
chemistry.
BUSINESS STRATEGY
Our objective is to leverage our product pipeline and patent portfolio in
the field of antibodies to become a fully-integrated, profitable, research-based
biopharmaceutical company. We derive revenues, and expect to derive revenues in
the future, from three major sources:
- SALES OF PRODUCTS THAT WE HAVE DEVELOPED. We receive royalties on sales
of Zenapax by our licensee, Roche. We have eight other humanized
antibodies in clinical development. We plan to market some of our
products, once approved, in North America, especially for specialty
markets such as cancer that we believe can be effectively serviced with a
relatively small sales force. We may license marketing rights for some
antibodies or some geographic areas to other pharmaceutical companies.
- ROYALTIES FROM THE SALE OF HUMANIZED ANTIBODIES DEVELOPED BY OTHER
COMPANIES. We license our patents covering humanized antibodies in
return for license fees, annual maintenance payments and royalties on
product sales. The three humanized antibodies currently approved by the
FDA in addition to Zenapax are licensed under our patents. Two of these
antibodies are Genentech's Herceptin and MedImmune's Synagis, which had
reported sales totaling approximately $480 million in 1999 and on which
we are currently receiving royalties. The third is American Home
Products' Mylotarg, which it began marketing in May 2000. We have license
agreements with eight other companies for humanized antibodies they are
developing.
- RESEARCH AND DEVELOPMENT CONTRACTS WITH OTHER COMPANIES. We humanize
antibodies for other companies in return for upfront fees, milestone
payments and royalties on any product sales. In some cases we also
receive the right to co-promote these products in designated territories.
We also sometimes license out marketing rights to a humanized antibody
that we are developing, and then typically receive upfront fees and
milestone payments and/or research funding, in addition to royalties on
any product sales by our licensee.
COLLABORATIVE, HUMANIZATION AND PATENT LICENSING ARRANGEMENTS
Collaborative Arrangements
ROCHE. In 1989, we entered into agreements with Roche to collaborate on
the research and development of antibodies which bind to the IL-2 receptor,
including Zenapax. Under these agreements, Roche has exclusive, worldwide rights
to manufacture, market and sell Zenapax. We began receiving royalties on sales
of Zenapax in 1998. Our royalties are subject to offsets for milestones, third
party license fees and royalties, and patent expenses paid by Roche.
In October 1999, we agreed with Roche to replace the 1989 agreements with
new agreements under which we assumed worldwide responsibility for the clinical
development of Zenapax for the potential
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treatment of autoimmune diseases. Roche retained exclusive worldwide rights to
Zenapax for non-autoimmune diseases and is continuing to market Zenapax for the
prevention of kidney transplant rejection. In return for undertaking clinical
development in autoimmune indications, we will receive a significant share of
Zenapax revenues from sales for autoimmune indications, either from our own
marketing efforts or from revenue sharing with Roche.
In the U.S. and Canada, we will have the right to market Zenapax in
autoimmune indications and will pay for these activities from our share of
revenues. Outside the U.S. and Canada, Roche may choose to market Zenapax in
autoimmune indications. In this case, we will receive a substantial portion of
Zenapax revenue from these indications. For countries and indications for which
Roche elects not to market, we will receive an exclusive license to market
Zenapax and pay Roche a small royalty.
SCIL. In March 1999, we entered into an agreement with Scil for rights to
develop and market SMART Anti-L-Selectin in Europe. Scil paid us a $3.0 million
signing and licensing fee for these rights, and we will be entitled to royalties
on any product sales. We agreed to make milestone payments to Scil, at our
election, upon the achievement of specified clinical and regulatory goals.
SMITHKLINE. In September 1999, we signed agreements with SmithKline
involving two humanized antibodies for the possible treatment of asthma. We
obtained a license to SmithKline's humanized anti-IL-4 antibody and granted an
exclusive license under our antibody humanization patents to SmithKline for its
humanized anti-IL-5 antibody. We have completed the Phase I clinical program for
the humanized anti-IL-4 antibody and plan to conduct Phase I/II and Phase II
trials in asthma patients. We will be entitled to exclusive, worldwide
development, marketing and sales rights to the anti-IL-4 antibody unless
SmithKline pays a fee to acquire marketing rights at the end of a specified
Phase II trial. If SmithKline decides to participate in the further development
of the antibody, we will share future development costs and profits at a
pre-agreed ratio. We also may receive co-promotion rights in the U.S.
TOAGOSEI. In July 1999, we signed a licensing and joint development
agreement with Toagosei for an antibody developed by Toagosei and humanized by
us. The antibody, SMART Anti-VEGF, binds to vascular endothelial growth factor,
a protein that regulates new blood vessel formation in certain tissues and in
tumors. We plan to develop the antibody with Toagosei for potential uses in the
treatment of cancer.
Under the agreement, we obtained exclusive development and marketing rights
to SMART Anti-VEGF in North America and the option to obtain exclusive rights to
market the antibody in Europe and other markets, except Japan. Toagosei has
exclusive rights to market SMART Anti-VEGF in Japan. We will direct the clinical
development program, and the two companies will share development costs and
profits from sales of the antibody, if any, in markets outside Japan.
LILLY. In December 1997, we signed a collaborative agreement with Lilly to
discover and develop new small molecule drugs for the treatment of some types of
infections, including those caused by organisms that are resistant to available
antibiotics. The agreement involves a program to identify microbial genes that
are differentially expressed when an infectious agent, such as a bacteria,
infects a host. Lilly recently informed us that it does not intend to renew the
research program under this agreement beyond the initial three-year term, which
will end on November 30, 2000.
We received an initial $3.0 million payment under the agreement and have
received research funding totaling $4.8 million over the three-year term. We
also may receive milestone payments for identification of gene targets and for
each compound selected for development by Lilly, if any, and are entitled to
royalties on any product sales.
Humanization and Patent Licensing Arrangements.
YAMANOUCHI PHARMACEUTICAL CO., LTD. In February 1991, we entered into an
agreement with Yamanouchi to humanize a mouse anti-platelet (anti-gpIIb/IIIa)
antibody developed by Yamanouchi for cardiovascular disorders. Yamanouchi is
conducting a Phase II clinical trial with the antibody we humanized for them.
Yamanouchi has exclusive, worldwide rights to the antibody and is responsible
for all
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development activities. We have received milestone payments and will be entitled
to royalties on any sales of the antibody.
MOCHIDA PHARMACEUTICAL CO., LTD. In December 1995, we entered into an
agreement with Mochida to humanize a mouse antibody for use in infectious
disease. We received a licensing and signing fee and milestone payments and can
earn royalties on any product sales. In addition, we have an option to co-
promote the antibody in North America.
TOAGOSEI CO., LTD. In September 1996, we entered into an agreement with
Toagosei to humanize a mouse antibody for treating cancer. We received a
licensing and signing fee and milestone payments and can earn royalties on any
product sales. In 1997, Toagosei made a $2.0 million private equity investment
in our company.
GENETICS INSTITUTE, INC. In December 1996, we entered into an agreement
with Genetics Institute, now a wholly-owned subsidiary of American Home
Products, to initially humanize three mouse antibodies that regulate an immune
system pathway. To date, we have received a $2.5 million licensing and signing
fee and three milestone payments. We are entitled to royalties on any product
sales. We also received an option to co-promote the products in North America
under certain conditions.
TEIJIN LIMITED. In March 1997, we entered into an agreement with Teijin to
humanize a mouse antibody to a toxin produced by the E. coli O157 bacteria that
can cause serious illness or death from the consumption of contaminated food. We
have received a licensing and signing fee and milestone payment and are entitled
to royalties on any product sales.
AJINOMOTO CO., INC. In July 1997, we entered into an agreement with
Ajinomoto to humanize a mouse antibody directed at cardiovascular conditions. We
have received a licensing and signing fee and milestone payments and are
entitled to royalties on any product sales. In addition, we received the right
to obtain co-promotion rights to the antibody in North America.
GENENTECH, INC. In September 1998, we entered into an agreement covering
patent rights under our humanization patents and under Genentech patents
relating to antibody engineering. Genentech paid us a $6.0 million fee, and we
paid Genentech a $1.0 million fee. Each company can obtain up to six licenses
for humanized antibodies upon payment of an additional fee of at least $1.0
million per antibody, as well as royalties on any product sales. The number of
licensed antibodies may be increased and the term of the agreement extended upon
payment of additional fees. In November 1998, Genentech exercised certain of its
rights under the agreement and obtained a nonexclusive license for Herceptin.
Genentech paid us a $1.0 million licensing and signing fee and we currently
receive royalties on Herceptin sales.
PROGENICS PHARMACEUTICALS, INC. In April 1999, we entered into an
agreement to humanize PRO 140, Progenic's novel anti-CCR5 monoclonal antibody
that inhibits HIV replication in the laboratory. Progenics paid us a licensing
and signing fee and has agreed to make additional payments upon the achievement
of specified milestones and to pay royalties on any sales of the antibody.
FUJISAWA PHARMACEUTICALS CO. In June 1999, we entered into a research
agreement with Fujisawa to engineer certain antibodies targeted to the treatment
of inflammatory and immunologically-based disorders. The engineering included
the use of our patented modification of the constant region of certain types of
antibodies. In February 2000, we entered into an agreement to humanize one of
these antibodies. Fujisawa paid us a $1.5 million licensing and signing fee. We
are entitled to receive milestone payments, annual maintenance fees and
royalties on any product sales.
CELLTECH THERAPEUTICS LIMITED. In December 1999, we entered into a patent
rights agreement with Celltech covering specified patents relating to humanized
monoclonal antibodies. Under the agreement, Celltech paid us a $3.0 million fee
for the right to obtain worldwide licenses under our antibody humanization
patents for up to three Celltech antibodies. We paid Celltech a fee for the
right to obtain worldwide licenses under Celltech's antibody humanization patent
for up to three of our antibodies. When a license is taken by either company,
the other will be entitled to an additional license fee. Each company will pay
royalties to the other on any sales of licensed antibodies.
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TANOX, INC. In March 2000, we entered into a patent rights agreement with
Tanox under our humanization patents. Tanox paid us a $2.5 million fee, which
reflected a $1.5 million credit for a fee Tanox previously paid to us for a
patent license for an antibody which was incorporated into this agreement. Tanox
can obtain up to four patent licenses for humanized antibodies upon payment of
an additional fee of at least $1.0 million per antibody, as well as royalties on
any product sales.
ELI LILLY AND COMPANY. In August and September 2000, we entered into two
agreements to humanize antibodies for Lilly. Lilly agreed to pay us signing and
licensing fees of $1.7 million and $1.36 million and to make additional payments
upon the achievement of specified milestones and to pay royalties on any sales
of the humanized antibodies.
OTHER PATENT LICENSE AGREEMENTS. We have entered into patent license
agreements with a number of other companies that are independently developing
humanized antibodies. In each license agreement, we granted a worldwide,
exclusive or nonexclusive license under our patents to the other company for an
antibody to a specific target antigen. In general, we received a licensing and
signing fee and the right to receive annual maintenance fees and royalties on
any product sales. Under some of these agreements, we also may receive milestone
payments. In addition to Herceptin, we receive royalties on sales of Synagis, an
antibody developed by MedImmune which is currently marketed in the U.S. and
Europe, and expect to receive royalties on Mylotarg, an antibody developed by
American Home Products which is currently marketed in the U.S. In addition to
Genentech, MedImmune and American Home Products, we have patent license
agreements with Sankyo, Biogen, IDEC Pharmaceuticals, Elan Pharmaceuticals,
Medarex, SmithKline, Merck KGaA and Chugai.
MANUFACTURING AND FACILITIES
We own two buildings comprising approximately 92,000 square feet of
research and development and general office space in Fremont, California. We
relocated our California headquarters and research and development facilities to
this space beginning in September 1998. We also lease an additional 43,000
square feet of laboratory and office space at the site of our former
headquarters and research and development facilities in Mountain View,
California. In 1998, we subleased all of that space to two other companies. The
subleases are scheduled to terminate on December 31, 2000, the termination date
of our lease with respect to that space.
We lease approximately 47,000 square feet of manufacturing, laboratory and
office space in Plymouth, Minnesota. Our lease will terminate on February 29,
2004, subject to our options to extend the lease for two additional five year
terms. Although these facilities are sufficient for our present manufacturing
operations, in order to obtain regulatory approvals and to create capacity to
produce our products for commercial sale at an acceptable cost, we will need to
expand and improve our manufacturing capabilities. We intend to acquire
additional space and construct a commercial manufacturing facility.
Of the products that we currently have in clinical development, Roche is
responsible for manufacturing Zenapax, SmithKline is responsible for
manufacturing the humanized anti-IL-4 antibody and Scil is responsible for
manufacturing the SMART Anti-L-Selectin Antibody. We are responsible for
manufacturing our other products for our own development. We intend to continue
to manufacture potential products for use in preclinical and clinical trials in
accordance with standard procedures that comply with appropriate regulatory
standards.
PATENTS AND PROPRIETARY TECHNOLOGY
Our success depends significantly on our ability to obtain and maintain
patent protection for our products and technologies, to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties. While we file and prosecute patent applications to protect our
inventions, our pending patent applications may not result in the issuance of
valid patents or our issued patents may not provide competitive advantages.
Also, our patent protection may not prevent others from developing competitive
products using related or other technology.
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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 our programs. Some of these applications or patents may be
competitive with our applications or contain material which could prevent the
issuance of patents to us or result in a significant reduction in the scope of
our issued patents.
The scope, enforceability and effective term of patents issued to
companies, universities and research institutions can be highly uncertain and
often involve complex legal and factual questions. No consistent policy has
emerged regarding the breadth of claims in biotechnology patents, so that even
issued patents may later be modified or revoked by the relevant patent
authorities or 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 we are
unable to predict the extent of patent protection in any country.
We have been issued patents in the U.S., Europe and Japan which we believe
cover many or most humanized antibodies. Some of these patents also cover other
aspects of our SMART antibody technology. We have filed similar patent
applications in other countries.
Our two humanization patents issued by the European Patent Office apply in
the United Kingdom, Germany, France, Italy and eight other European countries.
The European Patent Office procedures provide for an opposition period in which
other parties may submit arguments as to why a patent was incorrectly granted
and should be withdrawn or limited. Eighteen notices of opposition to our first
European patent were filed during the opposition period for the patent,
including oppositions by major pharmaceutical and biotechnology companies. At an
oral hearing in March 2000, the Opposition Division of the European Patent
Office decided to revoke the broad claims in our first European patent based on
formal matters of European patent law, specifically that there had been an
impermissible addition of subject matter after the filing of the original
European patent application, but did not provide the rationale behind its
decision. The decision upheld claims that protect Zenapax. The Opposition
Division did not otherwise announce a decision on the issue of whether the
claims in our patent are inventive in light of the prior art or other issues of
patentability. We plan to appeal the Opposition Division's decision to the
Technical Board of Appeal at the European Patent Office. The Technical Board of
Appeal will consider all issues anew. The appeal suspends the decision of the
Opposition Division during the appeals process, which is likely to take several
years.
The nine month opposition period for our second European antibody
humanization patent ended in May 2000, and we have been advised that eight
notices of opposition have been filed with respect to this patent. Also, three
opposition statements were filed with the Japanese Patent Office with respect to
our humanization patent issued in Japan in late 1998.
We intend to vigorously defend the European patents and the Japanese patent
in these proceedings; however, we may not prevail in the opposition proceedings
or any litigation contesting the validity of these patents. If our appeal with
respect to our first European patent is unsuccessful or if the outcome of the
other European or Japanese opposition proceedings or any litigation involving
our antibody humanization patents were to be unfavorable, our ability to collect
royalties on existing licensed products and to license our patents relating to
humanized antibodies may be materially harmed.
In addition to seeking the protection of patents and licenses, we also rely
upon trade secrets, know-how and continuing technological innovation which we
seek to protect, in part, by confidentiality agreements with employees,
consultants, suppliers and licensees. If these agreements are not honored, we
might not have adequate remedies for any breach. Additionally, our trade secrets
might otherwise become known or patented by our competitors.
GOVERNMENT REGULATION
The manufacturing, testing and marketing of our products are subject to
regulation by numerous governmental authorities in the U.S. and other countries.
In the U.S., pharmaceutical products are subject to rigorous FDA regulation.
Additionally, other federal, state and local regulations govern the manufacture,
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testing, clinical and nonclinical studies to assess safety and efficacy,
approval, advertising and promotion of pharmaceutical products. The process of
obtaining approval for a new pharmaceutical product or for additional
therapeutic indications within this regulatory framework requires a number of
years and the expenditure of substantial resources. Companies in the
pharmaceutical and biotechnology industries, including us, have suffered
significant setbacks in various stages of clinical trials, even in advanced
clinical trials after promising results had been obtained in earlier trials.
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 rigorous guidelines 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 these FDA approved guidelines.
These foreign manufacturing establishments are subject to periodic inspection by
the FDA or by corresponding regulatory agencies in these 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., we and our
collaborative partners are subject to foreign regulatory requirements and, if
the particular product is manufactured in the U.S., FDA and other U.S. export
provisions. 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 us or our licensees or marketing partners in our respective
efforts to secure necessary governmental approvals. This could delay or prevent
us or our licensees or our marketing partners from marketing potential
pharmaceutical products.
Both before and after approval is obtained, a pharmaceutical product, its
manufacturer and the holder of the Biologics License Application (BLA) for the
pharmaceutical product are subject to comprehensive regulatory oversight. The
FDA may deny a BLA if applicable regulatory criteria are not satisfied.
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, marketing approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems with the pharmaceutical
product occur following approval. 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, which may include, among other adverse
actions, withdrawal of the previously approved pharmaceutical product or
marketing approvals and/or the imposition of criminal penalties against the
manufacturer and/or BLA holders.
COMPETITION
Potential competitors have developed and are developing human and humanized
antibodies or other compounds for treating autoimmune and inflammatory diseases,
transplantation, asthma and cancers. In addition, a number of academic and
commercial organizations are actively pursuing similar technologies, and several
companies have developed or may develop technologies that may compete with our
SMART antibody technology. Competitors may succeed in more rapidly developing
and marketing technologies and products that are more effective than our
products or that would render our products or technology obsolete or
noncompetitive. Our collaborative partners may also independently develop
products that are competitive with products that we have licensed to them. This
could reduce our revenues under our agreements with these partners.
Any product that we or our collaborative partners succeed in developing and
for which regulatory approval is obtained must then compete for market
acceptance and market share. The relative speed with which we and our
collaborative partners can develop products, complete the clinical testing and
approval processes, and supply commercial quantities of the products to the
market compared to competitive
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companies will affect market success. For example, Novartis, which has a
significant marketing and sales force directed to the transplantation market,
has received approval to market Simulect, a product competitive with Zenapax, in
the U.S. and Europe. Since Novartis launched Simulect in the European Union
earlier than Roche, Zenapax may have a smaller market share than Simulect and
other available products.
Other competitive factors include:
- the capabilities of our 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 our products relative to their cost
- method of and frequency of administration of our products
- price of our products, and
- patent protection of our products.
HUMAN RESOURCES
As of June 30, 2000, we had 298 full-time employees. Of the total, 106
employees were engaged in research and development, 50 in quality assurance and
compliance, 52 in preclinical, clinical and regulatory, 32 in manufacturing and
58 in general and administrative functions. Our scientific staff members have
diversified experience and expertise in molecular and cell biology, chemistry,
microbiology, immunology, protein chemistry, computational chemistry and
computer modeling. Our success will depend in large part on our ability to
attract and retain skilled and experienced employees. None of our employees are
covered by a collective bargaining agreement, and we consider our relations with
our employees to be good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and title of each of our
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Laurence Jay Korn, Ph.D. ............ 51 Chief Executive Officer, Chairperson of the Board
Daniel J. Levitt, M.D., Ph.D. ....... 52 President, Research and Development
Douglas O. Ebersole, Esq. ........... 44 Senior Vice President, Legal and Licensing, General
Counsel and Secretary
Cary L. Queen, Ph.D. ................ 50 Senior Vice President and Vice President, Research,
Director
William R. Benjamin, Ph.D. .......... 46 Vice President, Drug Discovery
Christine C. Booker.................. 59 Vice President, Quality and Compliance
Frances G. Charlson.................. 40 Vice President, Human Resources
D. Scott Geyer....................... 46 Vice President, Technical Development
Peter H. Grassam..................... 55 Vice President, Manufacturing and General Manager,
Plymouth Facility
Robert L. Kirkman, M.D. ............. 51 Vice President, Business Development and Corporate
Communications
Corine K. Klingbeil, Ph.D. .......... 46 Vice President, Preclinical Development
Jaisim Shah.......................... 40 Vice President, Marketing
Jurgen Drews, M.D. .................. 67 Director
George M. Gould, Esq. ............... 63 Director
Max Link, Ph.D. ..................... 59 Director
Jon S. Saxe, Esq. ................... 64 Director
</TABLE>
Laurence Jay Korn, Ph.D., has been a director and Chairperson of the Board
since July 1986 and has served as 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.
Daniel J. Levitt, M.D., Ph.D., has served as President, Research and
Development since May 2000. From November 1996 to April 2000 he served as Senior
Vice President, Clinical and Regulatory Affairs of the Company. From February
1995 to October 1996 he served as Vice President of Drug Development and Chief
Medical Officer of Geron Corporation. From January 1990 until January 1995, Dr.
Levitt held various positions at Sandoz Pharma Ltd., 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 Alabama Birmingham Medical School. Dr. Levitt
holds an M.D. and Ph.D. from the University of Chicago Pritzker School of
Medicine.
Douglas O. Ebersole has served as our Senior Vice President, Legal and
Licensing since April 1999. In addition, Mr. Ebersole has served as our
Secretary since July 1992, and from July 1992 to April 1999 and again from April
2000, Mr. Ebersole served as our General Counsel. From April 1996 until April
1998, Mr. Ebersole served as Vice President, Licensing and Corporate Services,
and from April 1998 to April 1999, he served as Senior Vice President, Legal,
Licensing and Corporate Services, in addition to his positions as General
Counsel and Secretary. Prior to joining us, he served first as Associate General
Counsel and later as General Counsel at NeXT Computer. Prior to joining NeXT in
1989, he was a partner in the corporate department of the law firm Ware &
Freidenrich. Mr. Ebersole received his J.D. from Stanford Law School.
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Cary L. Queen, Ph.D., has been a director since January 1987 and has served
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.
William R. Benjamin, Ph.D., has served as our Vice President, Drug
Discovery since July 1997. Prior to joining us, from November 1982 to June 1997,
Dr. Benjamin was an employee of Roche, most recently serving as Vice President
of Inflammation and Autoimmune Diseases. At Roche, Dr. Benjamin was responsible
for leading the drug discovery activities of a multidisciplinary research
department in the areas of inflammatory and immune-based diseases. From January
1981 to November 1982, Dr. Benjamin was a postdoctoral fellow at the National
Institute of Dental Research at the National Institutes of Health. Dr. Benjamin
received his Ph.D. degree from the University of South Florida, College of
Medicine.
Christine C. Booker has served as our Vice President, Quality and
Compliance since February 1996. Prior to joining us, from February 1995 through
January 1996, Ms. Booker served as a consultant to us. From August 1994 to July
1996, Ms. Booker 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, including Associate Director, Technical Operations. Ms.
Booker received her B.S. in Chemistry from DePaul University.
Frances G. Charlson has served as our Vice President, Human Resources since
April 2000. In addition, Ms. Charlson has served in increasing positions of
responsibility in our Human Resources Department since joining us in October
1992. Prior to joining the Company, she worked at Alza Corporation for six years
in Human Resources and prior to joining Alza, she worked in Human Resources at
Scios. Ms. Charlson is a Certified Compensation Professional from the American
Compensation Association. Ms. Charlson received her B.S. in Public Relations
from San Jose State University.
D. Scott Geyer has served as our Vice President, Technical Development
since April 1998. Prior to that time, Mr. Geyer served as our Senior Director,
Technical Operations from July 1997 to March 1998. Prior to joining us in July
1996, Mr. Geyer held various positions with the Ares-Serono Group from April
1987 to June 1996, most recently as Executive Director, Process Development at
Ares Advanced Technology, Inc. Prior to that time, Mr. Geyer served in various
positions at Ares Advanced Technology, Inc. from August 1994 to June 1996. Mr.
Geyer received his B.S. in Microbiology from the University of Southwestern
Louisiana and his M.S. in Veterinary Microbiology from Texas A&M University.
Peter H. Grassam has served as our Vice President, Manufacturing and
General Manager of our Plymouth, Minnesota facility since January 1998. From
September 1993 to January 1998, Mr. Grassam served as the Vice President of
Operations and General Manager at the Smithfield site of Alpha Beta Technology,
Inc., and as the Vice President of Operations at Serono Laboratories, Inc., from
January 1992 to September 1993. Mr. Grassam received his Bachelor of Pharmacy
from the University of London and received his post graduate certification at
Groby Road Hospital in England. Mr. Grassam is a Member of the Royal
Pharmaceutical Society of Great Britain and the American Pharmaceutical
Association.
Robert L. Kirkman, M.D., has served as our Vice President, Business
Development and Corporate Communications since July 1998. Prior to joining us,
Dr. Kirkman served as the Chief of the Division of Transplantation at Brigham
and Women's Hospital from 1992 to 1998. Dr. Kirkman was appointed to the
position of Associate Professor of Surgery at Harvard Medical School from 1987
to 1998 and served as an Associate in Surgery at Massachusetts General Hospital
from 1995 to 1998. Dr. Kirkman holds an M.D. from Harvard Medical School and
received his post-graduate training at Peter Bent Brigham Hospital and Brigham
and Women's Hospital.
Corine K. Klingbeil, Ph.D. has served as our Vice President, Preclinical
Development since April 2000. Dr. Klingbeil joined us in January 1993 as
Director, Preclinical Development until March 1995
36
<PAGE> 42
when she became Senior Director. Dr. Klingbeil previously was department head
and later Director, Preclinical Sciences and Development at Scios. After
receiving her Ph.D. at the University of California at Santa Barbara, Dr.
Klingbeil was a postdoctoral fellow at the University of California at San
Francisco from 1983 to 1986.
Jaisim Shah has served as our Vice President, Marketing since August 2000.
Prior to joining us, he served in various marketing management positions at
Bristol Myers Squibb, most recently as Vice President, Marketing, for U.S.
Pharmaceutical Group, Infectious Diseases. He joined Roche Laboratories in 1991
as Product Director for biotech oncology products for the U.S. market. He then
became Global Business Leader for oncology and virology, based in Basel,
Switzerland, for Roche in 1993. He received his MA in International Economics
from the University of Akron and an MBA in Marketing from Oklahoma University.
Jurgen Drews, M.D., has been a director of the Company since February 1997.
Since March 1998, Dr. Drews has served as a contributing advisor to OrbiMed
Advisors. Dr. Drews served as President, Global Research and as a member of the
Executive Committee of the Roche Group from January 1996 to December 1997. From
January 1991 to December 1995, Dr. Drews served as President, International
Research and Development and as a member of the Executive Committee for the
Roche Group. Prior to that time, Dr. Drews served as Chairman of the Research
Board and member of the Executive Committee for Roche from April 1986 to
December 1990. Dr. Drews served as Head of International Pharmaceutical Research
and Development for Sandoz from January 1982 to July 1985. Dr. Drews also serves
as a director of MorphoSys GmbH, Genomics Pharmaceutical Company and Human
Genome Sciences, Inc.
George M. Gould, Esq., has been a director of the Company since October
1989. Since June 1996, Mr. Gould has served as of counsel to the law firm
Gibbons, Del Deo, Dolan, Griffinger & Vecchione. From May 1996 to December 1996,
Mr. Gould was a Senior Vice President of PharmaGenics, Inc. Prior to that time
Mr. Gould served as Vice President, Licensing & Corporate Development and Chief
Patent Counsel for Roche from October 1989 to May 1996.
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. from April 1992 to April 1993. Dr. Link
served in various management positions at Sandoz Ltd. and Sandoz Pharmaceuticals
Corporation from October 1971 to April 1992. Dr. Link is also a director of
Access Pharmaceuticals, Inc., Alexion Pharmaceutical Inc., Cell Therapeutics,
Inc., Cytrx Corp., Discovery Laboratories, Inc., Human Genome Sciences, Inc.,
Osiris Therapeutics, Inc. and Celsion Corporation.
Jon S. Saxe, Esq., has been a director of the Company since March 1989.
From January 1995 to April 1999, Mr. Saxe served as President of the Company.
Since May 2000, Mr. Saxe has served as a consultant to us. From May 1999 to
April 2000, Mr. Saxe served as Senior Advisor to the Chief Executive Officer of
the Company. Mr. Saxe was a consultant to the Company from June 1993 to December
1994. He has served as President of Saxe Associates since May 1993. Mr. Saxe is
also a director of Incyte Genomics Inc., Questcor, Inc., First Horizon
Pharmaceuticals, Inc., InSite Vision, Inc., SciClone Pharmaceuticals, Inc. and
ID Biomedical Corporation and three private companies. Mr. Saxe received his
B.S.Ch.E. from Carnegie-Mellon University, his J.D. from George Washington
University School of Law and his LL.M. from New York University School of Law.
37
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
This summary does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of our certificate of
incorporation, as amended, and all applicable provisions of Delaware law.
GENERAL
We are authorized to issue 90,000,000 shares of common stock, $.01 par
value, and 10,000,000 shares of preferred stock, $.01 par value.
COMMON STOCK
As of June 30, 2000, we had issued and outstanding approximately 39,849,124
shares of common stock held of record by approximately 125 stockholders. Holders
of common stock are entitled to one vote per share for the election of directors
and all other matters submitted to a vote of our stockholders. Subject to the
rights of any holders of preferred stock that may be issued in the future, the
holders of common stock are entitled to share ratably in such dividends as may
be declared by our board of directors out of funds legally available therefor.
In the event of our dissolution, liquidation or winding up, holders of common
stock are entitled to share ratably in all assets remaining after payment of all
liabilities and liquidation preferences of any preferred stock. Holders of
common stock have no preemptive, subscription, redemption, conversion rights or
similar rights. Our certificate of incorporation does not provide for cumulative
voting rights with respect to the election of directors. All outstanding common
stock is fully paid and nonassessable. Shares of our common stock are reserved
for issuance under our option and employee stock purchase plans, and there are
options outstanding under our stock plans for shares of common stock.
PREFERRED STOCK
Our board of directors has the authority, without any action by our
stockholders, to issue preferred stock in one or more series with such
designations, rights and preferences (including dividend, conversion, voting or
other rights or liquidation preferences) as determined by our board of
directors. The issuance of preferred stock could delay, defer or prevent a
change of control and could decrease the amount of earnings and assets available
for distribution to, or adversely affect the voting power or other rights of,
holders of common stock. In addition, the issuance of preferred stock could have
the effect of decreasing the market price of our common stock. At present, there
are no shares of preferred stock outstanding.
TRANSFER AGENT
The transfer agent for our common stock is ChaseMellon Shareholder
Services, LLC. Its address is 235 Montgomery Street, 23rd Floor, San Francisco,
California 94104. Its telephone number is (415) 743-1444.
38
<PAGE> 44
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, CIBC World Markets
Corp. and SG Cowen Securities Corporation are acting as representatives, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation...................... --
CIBC World Markets Corp..................................... --
SG Cowen Securities Corporation............................. --
---------
Total............................................. 3,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 450,000 additional shares from us at the public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the offering price on the cover page of this prospectus and to selling group
members at that price less a selling concession of $
per share. The underwriters and selling group members may allow a discount of
$ per share on sales to other broker/dealers. After the initial public
offering, the public offering price and concession and discount to
broker/dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us............. $ $ $ $
Expenses, payable by us..............
</TABLE>
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any shares of our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock or publicly disclose the
intention to make any offer, sale, pledge, disposition or filing, without the
prior written consent of Credit Suisse First Boston Corporation for a period of
90 days after the date of this prospectus, except issuances of shares of our
common stock pursuant to the conversion of convertible or exchangeable
securities or the exercise of warrants or options, in each case outstanding on
the date of this prospectus, grants of employee stock options pursuant to the
terms of a plan in effect on the date of this prospectus, or issuances of shares
of our common stock pursuant to the exercise of such options.
All of our executive officers and directors have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any of these transactions
are to be settled by delivery of our common stock or other securities, in cash
or otherwise, or publicly disclose the intention to make any offer, sale, pledge
or disposition, or to
39
<PAGE> 45
enter into any of these types of transactions, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 60 days after the date of this prospectus.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions,
penalty bids and passive market making in accordance with Regulation M under the
Exchange Act.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment transactions involve sales by the underwriters of shares
in excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short position
may be either a covered short position or a naked short position. In a
covered short position, the number of shares over-alloted by the
underwriters is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position, the
number of shares involved is greater than the number of shares in the
over-allotment option. The underwriters may close out any short position
by either exercising their over-allotment option and/or purchasing shares
in the open market.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option -- a naked short position -- that
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
- In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of the common stock until the time, if any, at
which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
40
<PAGE> 46
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase such common stock without the benefit of a prospectus qualified
under those securities laws
- where required by law, the purchaser is purchasing as principal and not
as agent, and
- the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act, British Columbia,
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors about the tax consequences of an investment in the common stock in
their particular circumstances and about the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
41
<PAGE> 47
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements appearing in our Annual Report on Form 10-K for the year
ended December 31, 1999, as set forth in their report thereon. We have
incorporated our financial statements by reference in reliance upon Ernst &
Young LLP's report given upon their authority as experts in accounting and
auditing.
42
<PAGE> 48
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. In connection with this offering we have filed with
the SEC a registration statement under the Securities Act of 1933 relating to
the common stock we are offering. As permitted by the SEC rules, this prospectus
omits certain information included in the registration statement. For a more
complete understanding of our common stock and this offering, you should refer
to the registration statement, including its exhibits.
The SEC allows us to "incorporate by reference" the information we file
with it, which means we can disclose important information to you by referring
you to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this prospectus. The
most recent information that we file with the SEC automatically updates and
supersedes older information. We have previously filed the following reports
with the SEC and are incorporating them by reference into this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31,
1999;
2. Our Quarterly Reports on Forms 10-Q for the quarters ended March
31, 2000 and June 30, 2000;
3. Our Current Reports on Form 8-K filed on February 14, 2000, March
1, 2000 and August 29, 2000; and
4. The description of our common stock included in our Registration
Statement on Form 8-A filed on December 23, 1991, and any amendments or
reports filed for the purpose of updating that description.
We also automatically incorporate by reference all documents we file
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 both (a) after the date of the initial registration statement of which this
prospectus forms a part and prior to the effectiveness of that registration
statement, and (b) after the effectiveness of the registration statement of
which this prospectus forms a parts and before all of the shares registered
under that registration statement are sold.
We will provide without charge, to each person who receives a prospectus, a
copy of the information that has been incorporated by reference in this
prospectus. If you would like to obtain this information from us, please direct
your request to us in writing at Protein Design Labs, Inc. Attn: Corporate
Communications, 34801 Campus Drive, Fremont, California 94555 or contact us by
telephone at (510) 574-1400.
The registration statement can also be inspected and copied at prescribed
rates at the public reference facilities maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
may obtain information regarding the Washington, D.C. Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the registration statement is
publicly available through the SEC's site on the World Wide Web, located at
http://www.sec.gov. In addition, you may read and copy our SEC filings at the
office of the National Association of Securities Dealers, Inc. at 1735 K Street,
N.W., Washington, D.C. 20006.
43
<PAGE> 49
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Protein Design Labs, Inc. Logo
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<PAGE> 50
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration, the Nasdaq Listing Fee and the NASD filing fee, all
amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 93,471
Nasdaq Listing Fee.......................................... 17,500
NASD filing fee............................................. 35,906
Accounting fees and expenses................................ 60,000
Legal fees and expenses..................................... 130,000
Blue Sky fees and expenses (including counsel fees)......... 1,000
Printing and engraving expenses............................. 125,000
Transfer agent's and registrar's fees and expenses.......... 1,000
Miscellaneous expenses, including listing fees.............. 36,123
--------
Total....................................................... $500,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes a
court to award, or a corporation's board of directors to grant, indemnity to
directors and officers under certain circumstances for liabilities incurred in
connection with their activities in such capacities (including reimbursement for
expenses incurred). The Registrant's Restated Certificate of Incorporation
provides that the Registrant will indemnify its directors and officers to the
fullest extent permitted by law and that directors shall not be liable for
monetary damages to the Registrant or its stockholders for breach of fiduciary
duty, except to the extent that the DGCL prohibits elimination or limitation of
such liability.
The Registrant's Restated Certificate of Incorporation provides that no
director of the Registrant will be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Registrant or to its stockholders, (ii) for acts or omissions not made in good
faith or involving intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the DGCL, or (iv) for any transactions from which the
director derives an improper personal benefit. In addition, the Registrant's
Amended and Restated Bylaws provide that any director or officer who was or is a
party or is threatened to be made a party to any action or proceeding by reason
of his or her services to the Registrant will be indemnified to the fullest
extent permitted by the DGCL.
The Registrant has entered into agreements with each of its executive
officers and directors under which the Registrant has agreed to indemnify each
of them against expenses and losses incurred for claims brought against them by
reason of their being an officer or director of the Registrant. There is no
pending litigation or proceeding involving a director or officer of the
Registrant as to which indemnification is being sought, nor is the Registrant
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or executive officer.
II-1
<PAGE> 51
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
23.1 Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, independent auditors
24.1* Power of Attorney
</TABLE>
------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 52
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 County of Alameda, State of California on September 25,
2000.
PROTEIN DESIGN LABS, INC.
By: /s/ LAURENCE JAY KORN
------------------------------------
Laurence Jay Korn
Chief Executive Officer and
Chairperson of the Board of
Directors
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: September 25, 2000 /s/ LAURENCE JAY KORN
--------------------------------------------------------
Laurence Jay Korn Chief Executive Officer and
Chairperson of the Board of Directors (Principal
Executive Officer)
Date: September 25, 2000 ROBERT L. KIRKMAN*
--------------------------------------------------------
Robert L. Kirkman Vice President, Business Development
and Corporation Communications (Principal Accounting
Officer)
Date: September 25, 2000 JON S. SAXE*
--------------------------------------------------------
Jon S. Saxe Director
</TABLE>
II-3
<PAGE> 53
<TABLE>
<S> <C>
Date: September 25, 2000 CARY L. QUEEN*
--------------------------------------------------------
Cary L. Queen Director
Date: September 25, 2000 GEORGE M. GOULD*
--------------------------------------------------------
George M. Gould Director
Date: September 25, 2000 MAX LINK*
--------------------------------------------------------
Max Link Director
Date: September 25, 2000 JURGEN DREWS*
--------------------------------------------------------
Jurgen Drews Director
Date: September 25, 2000 *By: /s/ LAURENCE JAY KORN
---------------------------------------------------
Laurence Jay Korn
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
1.1* Form of Underwriting Agreement
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
23.1 Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, independent auditors
24.1* Power of Attorney
</TABLE>
------------------------
* Previously filed.
