AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1996
REGISTRATION NO. 333-07183
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------
BIOCRYST PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
-------------------
<TABLE>
<S> <C>
DELAWARE 62-1413174
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</TABLE>
2190 PARKWAY LAKE DRIVE, BIRMINGHAM, ALABAMA 35244
(205) 444-4600
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
-------------------
CHARLES E. BUGG, PH.D.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
BIOCRYST PHARMACEUTICALS, INC.
2190 PARKWAY LAKE DRIVE
BIRMINGHAM, ALABAMA 35244
(205) 444-4600
(Name, address, including zip code, and telephone number, including
area code, of agent for service of process)
-------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ. FREDERICK W. KANNER, ESQ.
LUCI STALLER ALTMAN, ESQ. DEWEY BALLANTINE
BROBECK, PHLEGER & HARRISON LLP 1301 AVENUE OF THE AMERICAS
1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019
NEW YORK, NEW YORK 10019 (212) 259-8000
(212) 581-1600
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
-------------------
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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,
please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1996
PROSPECTUS
2,000,000 SHARES
[BIOCRYST PHARMACEUTICALS, INC. LOGO]
COMMON STOCK
--------------
All of the shares of Common Stock offered hereby are being sold by BioCryst
Pharmaceuticals, Inc. ("BioCryst" or the "Company"). The Common Stock of the
Company is listed on the Nasdaq National Market tier of The Nasdaq Stock
MarketSM under the symbol "BCRX." On September 23, 1996, the last sale price of
the Common Stock as reported by Nasdaq was $12.375 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering estimated at $ payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms as set forth
above to cover over-allotments, if any. If the Underwriters exercise such
option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
--------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------------
SMITH BARNEY INC. NEEDHAM & COMPANY, INC.
, 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
CURRENT PRODUCT DEVELOPMENT STATUS
<TABLE>
<CAPTION>
Drug Discovery Preclinical Phase I Phase I/II Phase II Phase III
<S> <C> <C> <C> <C> <C> <C>
PNP Inhibitors (BCX-34)
CTCL topical
oral
Psoriasis topical
Atopic dermatitis
HIV [CHART REFLECTING STATUS OF COMPANY'S
PHARMACEUTICAL DEVELOPMENT PROJECTS]
Rheumatoid arthritis
Transplant rejection
Ophthalmic disorders
Influenza Neuraminidase
Inhibitors
Complement Inhibitors
</TABLE>
----------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND OTHER
SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON NASDAQ IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus or incorporated herein by reference. Prospective investors
should carefully consider the information set forth under the heading "Risk
Factors."
THE COMPANY
BioCryst Pharmaceuticals, Inc. ("BioCryst" or the "Company") is an emerging
pharmaceutical company using structure-based drug design to discover and design
novel, small-molecule pharmaceutical products for the treatment of immunological
and infectious diseases and disorders. The Company believes that structure-based
drug design, by precisely designing compounds to fit the active site of target
proteins, offers the potential for developing drugs for many indications that
have improved efficacy and fewer side effects than currently marketed drugs for
the same indications. The Company's development plan focuses on life threatening
or significant clinical indications, including T-cell cancers, psoriasis, human
immunodeficiency virus ("HIV") infection and influenza. The Company is
conducting three clinical trials with its most advanced drug, BCX-34: a Phase
III trial with a topical formulation for cutaneous T-cell lymphoma ("CTCL"), a
Phase I/II trial with an oral formulation for CTCL and a Phase I/II trial with a
topical formulation for atopic dermatitis. In addition, the Company expects to
initiate by the end of 1996 (assuming satisfactory FDA reviews) a Phase III
trial for the topical treatment of psoriasis, a Phase I/II trial for the oral
treatment of psoriasis and a Phase I/II trial for the oral treatment of HIV
infection. BioCryst has additional research projects underway to develop
inhibitors of influenza neuraminidase, an enzyme believed to perform an
essential role in the infectious cycle of flu, and enzymes involved in the
complement cascade, which is implicated in several major inflammatory
conditions. One of the elements of the Company's strategic plan is to leverage
its clinical progress by entering into pharmaceutical collaborations with drug
companies in major world markets. Recently, BioCryst entered into an exclusive
license agreement with Torii Pharmaceutical Co., Ltd. ("Torii"), a Japanese
pharmaceutical company, for the development and commercialization in Japan of
BCX-34 and certain other purine nucleoside phosphorylase ("PNP") inhibitor
compounds. PNP is an enzyme believed to be involved in T-cell proliferation.
BioCryst's lead drug program targets T-cell proliferative disorders, which
arise when T-cells, immune system cells that normally fight infection, attack
normal body cells or multiply uncontrollably. These disorders are varied and
include CTCL (a severe form of cancer), psoriasis, transplant rejection and
certain autoimmune diseases. Additionally, the Company believes that by
suppressing proliferation of the T-cell, the host to the HIV virus, it might be
possible to treat HIV-infected patients. BioCryst has designed and synthesized
several chemically distinct classes of compounds which inhibit PNP.
The Company has completed six Phase I clinical trials, three Phase I/II
clinical trials and three Phase II clinical trials with topical BCX-34 and has
completed one Phase I trial with oral and intravenous formulations of the drug.
BCX-34 has been tested in over 280 subjects, and no significant drug-related
adverse side effects have been observed. The completed Phase II trials of
topical BCX-34 were double-blinded, placebo-controlled and enrolled 30 CTCL
patients and 130 psoriasis patients. A majority of the patients from the Phase
II CTCL trial volunteered to roll over into an extended, open-label trial. In
addition, the Company has initiated preclinical studies using an ophthalmic
formulation of BCX-34 for potential use in treating uveitis and corneal
transplant rejection.
BioCryst's objective is to be a leader in the use of structure-based drug
design to develop clinically and commercially significant pharmaceutical
products. The key elements of the Company's strategy include: (i) targeting
immunological mechanisms to pursue multiple indications; (ii) utilizing advanced
technologies to design traditional pharmaceuticals; (iii) pursuing a tiered
clinical plan for BCX-34 and (iv) establishing additional research
collaborations and strategic partnerships.
In May 1996, BioCryst entered into an exclusive license agreement with Torii
of Tokyo, Japan to develop, manufacture and commercialize BCX-34 and certain
other PNP inhibitor compounds in Japan. Pursuant to the agreement, Torii has
made an upfront license fee payment of $1.5 million and purchased shares of
Common Stock for $1.5 million at a price of $19.58 per share. The agreement
further provides for potential milestone payments of up to $19.0 million and
royalties on future sales of licensed products in Japan. Torii has the right to
develop BCX-34 and certain other PNP inhibitor compounds for three indications
and may negotiate a license with BioCryst to develop the drug for additional
indications.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered................... 2,000,000 shares(1)
Common Stock to be outstanding
after the offering......................... 12,837,237 shares(1)(2)
Use of Proceeds.............................. Funding for research and product development
programs and for general corporate purposes
Nasdaq National Market symbol................ BCRX
</TABLE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total operating
revenues............... $ 83,333 $ 137,614 $ 302,375 $ 269,126 $ 222,329 $ 94,691 $ 1,521,279
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and
development............ 706,807 3,018,774 4,195,800 5,551,660 7,107,249 3,752,843 3,414,457
General and
administrative......... 641,448 1,085,355 1,098,206 1,904,046 2,209,488 1,041,999 1,562,688
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 1,348,255 4,104,129 5,294,006 7,455,706 9,316,737 4,794,842 4,977,145
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest income........ 28,622 47,468 60,629 464,690 662,259 285,544 387,977
Interest expense....... (45,792) (131,927) (264,994) (215,985) (144,115) (77,501) (55,629)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense),
net.................... (17,170) (84,459) (204,365) 248,705 518,144 208,043 332,348
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss............... $(1,282,092) $(4,050,974) $(5,195,996) $(6,937,875) $(8,576,264) $(4,492,108) $(3,123,518)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss per
share(3)............... $(1.50) $(1.31) $(1.55) $(1.02) $(.96) $(.54) $(.31)
Weighted average shares
outstanding(3)......... 855,573 3,100,888 3,352,364 6,787,203 8,905,099 8,305,857 10,095,953
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------------
ACTUAL AS ADJUSTED(4)
------------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities held-to-maturity.............. $ 17,813,084 $ 43,363,084
Working capital..................................................... 17,022,751 42,572,751
Total assets........................................................ 19,667,319 45,217,319
Long-term debt and capital lease obligations, excluding current
portion............................................................. 148,112 148,112
Accumulated deficit................................................. (33,190,911) (33,190,911)
Total stockholders' equity.......................................... 17,803,185 43,353,185
</TABLE>
- ------------
(1) Excludes up to 300,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on shares outstanding on August 31, 1996. Does not include
(i) 1,590,000 shares of Common Stock issuable upon the exercise of
the outstanding options granted pursuant to the Company'samended and
restated 1991 Stock Option Plan at a weighted average exercise price of
$5.70 per share and (ii) 1,012,841 shares of Common Stock issuable upon
the exercise of outstanding warrants issued in connection with certain
financing transactions at a weighted average exercise price of $5.10 per
share. See "Capitalization."
(3) See Note 1 of Notes to Financial Statements for information concerning the
computation of net loss per share and weighted average shares outstanding.
(4) Adjusted to reflect the sale of the shares of Common Stock offered hereby
(at an assumed public offering price of $13.75 per share) and the receipt of
the estimated net proceeds therefrom. See "Use of Proceeds."
-------------------
Unless otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' option to purchase from the Company up to 300,000
additional shares of Common Stock to cover over-allotments, if any. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
4
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing any of the shares of Common Stock offered hereby.
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT; TECHNOLOGICAL
UNCERTAINTY
BioCryst is at an early stage of development. All of the Company's compounds
are in research and development, and no revenues have been generated from sales
of its compounds. It will be a number of years, if ever, before the Company will
recognize significant revenues from product sales or royalties. To date, most of
the Company's resources have been dedicated to the research and development of
pharmaceutical compounds based upon its purine nucleoside phosphorylase ("PNP")
program for the treatment of T-cell proliferative diseases and disorders and for
the development of inhibitors of influenza neuraminidase and enzymes and
proteins involved in the complement cascade. The Company is conducting
preclinical and clinical studies with its lead drug, BCX-34, and results from
these studies may not support future human clinical testing or further
development of the compound. T-cell proliferative diseases, as well as the other
disease indications the Company is studying, are highly complex and their causes
are not fully known. The Company's compounds under development will require
significant additional, time-consuming and costly research and development,
preclinical testing and extensive clinical testing prior to submission of any
regulatory application for commercial use. Product development of new
pharmaceuticals is highly uncertain, and unanticipated developments, clinical or
regulatory delays, unexpected adverse side effects or inadequate therapeutic
efficacy could slow or prevent product development efforts and have a material
adverse effect on the Company. BioCryst's lead drug, BCX-34, reversibly inhibits
T-cell activity, an essential component of the human immune system. In addition
to any direct toxicities or side effects the drug may cause, BCX-34, while
inhibiting T-cells, may compromise the immune system's ability to fight
infection. Although the Company will monitor immunosuppression during drug
dosing, there can be no assurance that the drug will not cause irreversible
immunosuppression. There can be no assurance that the Company's research or
product development efforts as to any particular compound will be successfully
completed, that the compounds currently under development will be safe or
efficacious, that required regulatory approvals can be obtained, that products
can be manufactured at acceptable cost and with appropriate quality or that any
approved products can be successfully marketed or will be accepted by patients,
health care providers and third-party payors. Few drugs discovered by use of
structure-based drug design have been successfully developed, approved by the
United States Food and Drug Administration (the "FDA") or marketed. Within the
pharmaceutical industry, treatment of the disease indications being pursued by
the Company, especially T-cell proliferative diseases such as cutaneous T-cell
lymphoma and psoriasis, have proven difficult. There can be no assurance that
drugs resulting from the approach of structure-based drug design employed by the
Company will overcome the difficulties of drug discovery and development or
result in commercially successful products. See "Business -- Product Research
and Development."
UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING
Before obtaining regulatory approvals for the commercial sale of any of its
products, BioCryst must undertake extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. The Company has limited
experience in conducting clinical trials. To date, the Company has conducted
initial preclinical testing of certain of its compounds and is testing topical
and oral formulations of BCX-34 in various clinical trials. The results of
initial preclinical and clinical testing of compounds under development by the
Company are neither necessarily predictive of results that will be obtained from
subsequent or more extensive preclinical and clinical testing nor necessarily
acceptable to the FDA to support applications for marketing permits. Even if the
results of subsequent clinical tests are positive, products, if any, resulting
from the Company's research and development programs are not likely to be
commercially available for several years. Additionally, the Company has made and
may in the future make changes to the formulation of its drugs and/or to the
processes for manufacturing its drugs. Any such future changes in formulation or
manufacturing processes could result in delays in conducting further preclinical
and clinical testing, in unexpected adverse events in further preclinical and
clinical testing, and/or in additional development expenses. Furthermore, there
can be no assurance
5
<PAGE>
that clinical studies of products under development will be acceptable to the
FDA or demonstrate the safety and efficacy of such products at all or to the
extent necessary to obtain regulatory approvals of such products. The Company's
Phase II trial with topical BCX-34 for the treatment of psoriasis completed in
April 1996 did not achieve a statistically significant outcome. See "Business --
PNP Inhibitors (BCX-34)." Companies in the industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The failure to comply with data integrity (Good Clinical Practice
("GCP")) requirements or to adequately demonstrate the safety and efficacy of a
therapeutic product under development could delay or prevent regulatory approval
of the product, and would have a material adverse effect on the Company.
The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Patient accrual is a function of
many factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in the Company's current trials or future clinical trials may result in
increased costs and/or program delays which could have a material adverse effect
on the Company.
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The research, testing, manufacture, labeling, distribution, advertising,
marketing and sale of drug products are subject to extensive regulation by
governmental authorities in the United States and other countries. Prior to
marketing, compounds developed by the Company must undergo an extensive
regulatory approval process required by the FDA and by comparable agencies in
other countries. This process, which includes preclinical studies and clinical
trials of each compound to establish its safety and effectiveness and
confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources and gives larger companies
with greater financial resources a competitive advantage over the Company. To
date, no compound or drug candidate being evaluated by the Company has been
submitted for approval to the FDA or any other regulatory authority for
marketing, and there can be no assurance that any such product or compound will
ever be approved for marketing or that the Company will be able to obtain the
labeling claims desired for its products or compounds. The Company is and will
continue to be dependent upon the laboratories and medical institutions
conducting its preclinical studies and clinical trials to maintain both good
laboratory and good clinical practices and, except for the formulating and
packaging of small quantities of its drug formulations which the Company is
currently undertaking, upon the manufacturers of its compounds to maintain
compliance with current good manufacturing practice ("GMP") requirements. Data
obtained from preclinical studies and clinical trials are subject to varying
interpretations which could delay, limit or prevent FDA regulatory approval.
Delays or rejections may be encountered based upon changes in FDA policy for
drug approval during the period of development and FDA regulatory review.
Similar delays also may be encountered in foreign countries. Moreover, even if
approval is granted, such approval may entail commercially unacceptable
limitations on the labeling claims for which a compound may be marketed. Even if
such regulatory approval is obtained, a marketed drug or compound and its
manufacturer are subject to continual review and inspection, and later discovery
of previously unknown problems with the product or manufacturer may result in
restrictions or sanctions on such product or manufacturer, including withdrawal
of the product from the market, and other enforcement actions.
In June 1995 the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. The FDA inspected the Company in November 1995 in
relation to a study involving the topical application of BCX-34 concluded in
early 1995, and in June 1996 the FDA inspected the Company and one of its
clinical sites in relation to a Phase II dose-ranging study of BCX-34 for CTCL
and a Phase II dose-ranging study for psoriasis, both of which were concluded in
early 1995. After each inspection, the FDA issued to the Company a List of
Inspectional Observations ("Form FDA 483") setting forth certain deficient GCP
procedures followed by the Company, some of which resulted in submission to the
FDA of efficacy data which reported false statistical significance. The FDA also
issued a Form FDA 483 to the principal investigator at one of the Company's
clinical sites citing numerous significant deficiencies
6
<PAGE>
in the conduct of the Phase II dose-ranging studies of BCX-34 for CTCL and
psoriasis. These deficiencies included improper delegations of authority by the
principal investigator, failures to follow the protocols, institutional review
board deviations, and discrepancies or deficiencies in documentation and
reporting. The CTCL and the psoriasis dose-ranging Phase II clinical trials did
not result in an overall statistically significant drug effect and as a result
of the FDA inspections the FDA may not accept data from these studies. As a
consequence of the FDA inspections and such resulting Form 483s, the Company's
ongoing clinical studies, and in particular, the Phase III trial with topical
BCX-34 for CTCL, are likely to receive increased scrutiny since the same
clinical site which received the 483 is involved in that trial; this may delay
the regulatory review process or require the Company to increase the number of
patients at other sites to obtain approval (which can not be assured on a timely
basis or at all). The Company has adjusted certain of its procedures, but there
can be no assurance that the FDA will find such adjustments to be in compliance
with FDA requirements or that, even if it does find such adjustments to be in
compliance, it will not seek to impose administrative, civil or other sanctions
in connection with the earlier studies. Administrative sanctions could include
refusing to accept earlier studies and requiring the Company to repeat one or
more clinical studies, which would be the only studies the FDA would accept for
purposes of substantive scientific review of any NDA by the agency. See
"Business -- Government Regulation."
Such sanctions or other government regulation may delay or prevent the
marketing of products being developed by the Company, impose costly procedures
upon the Company's activities and confer a competitive advantage to larger
companies or companies that are more experienced in regulatory affairs and that
compete with the Company. There can be no assurance that FDA or other regulatory
approval for any products developed by the Company will be granted on a timely
basis, or at all. Delay in obtaining or failure to obtain such regulatory
approvals will materially adversely affect the marketing of any products which
may be developed by the Company, as well as the Company's results of operations.
See "Business -- Government Regulation."
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
BioCryst, to date, has generated no revenue from product sales and has
incurred losses since its inception. As of June 30, 1996, the Company's
accumulated deficit was approximately $33.2 million. Losses have resulted
principally from costs incurred in research activities aimed at discovering,
designing and developing the Company's pharmaceutical product candidates and
from general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated primarily from collaborative
arrangements, licenses, research grants and from interest income. The Company
expects to incur significant additional operating losses over the next several
years and expects such losses to increase as the Company's research and
development and clinical trial efforts expand. The Company's ability to achieve
profitability depends upon its ability to develop drugs and to obtain regulatory
approval for its products, to enter into agreements for product development,
manufacturing and commercialization, and to develop the capacity to manufacture,
market and sell its products. There can be no assurance that the Company will
ever achieve significant revenues or profitable operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ADDITIONAL FINANCING REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has incurred negative cash flows from operations in each year
since its inception. The Company expects that the funding requirements for its
operating activities will increase substantially in the future due to expanded
research and development activities (including preclinical studies and clinical
trials), the development of manufacturing capabilities and the development of
marketing and distribution capabilities. The Company anticipates that its
capital resources after the consummation of this offering will be adequate to
satisfy its capital requirements through 1998. However, this is a
forward-looking statement, and no assurance can be given that there will be no
change that would consume available resources significantly before such time.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research, drug discovery and development
programs, the magnitude of these programs, progress with preclinical studies and
clinical trials, prosecuting and enforcing patent claims, competing
technological and market developments, changes in existing collaborative
research or development relationships, the ability of the Company to
7
<PAGE>
establish additional collaborative relationships, and the cost of manufacturing
scale-up and effective marketing activities and arrangements. The Company
anticipates, based on its current business plan, that it will be necessary to
raise additional funds in 1999 or earlier. Additional funds, if any, may
possibly be raised through financing arrangements or collaborative relationships
and/or the issuance of preferred or common stock or convertible securities, on
terms and prices significantly more favorable than those of the Common Stock in
this offering, which could have the effect of diluting or adversely affecting
the holdings or rights of existing stockholders of the Company. In addition,
collaborative arrangements may require the Company to transfer certain material
rights to such corporate partners. If adequate funds are not available, the
Company will be required to delay, scale back or eliminate one or more of its
research, drug discovery or development programs or attempt to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish some or all of its rights to certain of its intellectual
property, product candidates or products. No assurance can be given that
additional financing will be available to the Company on acceptable terms, if at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
COMPETITION
The Company is engaged in the pharmaceutical industry, which is
characterized by extensive research efforts, rapid technological progress and
intense competition. There are many public and private companies, including
well-known pharmaceutical companies, chemical companies, specialized
biotechnology companies and academic institutions, engaged in developing
synthetic pharmaceuticals and biotechnological products for human therapeutic
applications that represent significant competition to the Company. Existing
products and therapies and improvements thereto will compete directly with
products the Company is seeking to develop and market, and the Company is aware
that other companies or institutions are pursuing development of new drugs and
technologies directly targeted at applications for which the Company is
developing its drug compounds. Many of the Company's competitors have
substantially greater financial and technical resources and production and
marketing capabilities and experience than does the Company. The Company has
granted Ciba-Geigy Corporation ("Ciba") a worldwide exclusive license to several
compounds in the Company's sixth group of PNP inhibitors. Additionally, the
Company granted an option to license a separate PNP inhibitor compound to
Warner-Lambert Company ("Warner-Lambert"). A dispute has arisen between the
Company and Warner-Lambert regarding this option. See "Business -- Legal
Proceedings." Such arrangements with Ciba and Warner-Lambert do not include
BCX-34 or most of the Company's other compounds. No assurance can be given that
Ciba or Warner-Lambert will or will not develop compounds under such
arrangements, will be able to obtain FDA approval for any licensed compounds,
that any such licensed compounds if so approved will be able to be
commercialized successfully, or that the Company will realize any revenues
pursuant to such arrangements. If commercialized, these compounds could compete
directly against other compounds, including BCX-34, being developed by the
Company.
Many of the Company's competitors have significantly greater experience in
conducting preclinical studies and clinical trials of new pharmaceutical
products and in obtaining FDA and other regulatory approvals for health care
products. Accordingly, BioCryst's competitors may succeed in obtaining approvals
for their products more rapidly than the Company and in developing products that
are safer or more effective or less costly than any that may be developed by the
Company and may also be more successful than the Company in the production and
marketing of such products. Many of the Company's competitors also have current
GMP facilities and significantly greater experience in implementing GMP or in
obtaining and maintaining the requisite regulatory standards for manufacturing.
Moreover, other technologies are, or may in the future become, the basis for
competitive products. Competition may increase further as a result of the
potential advances from structure-based drug design and greater availability of
capital for investment in this field. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective than any being developed by the Company or that would
render the Company's technology and product candidates obsolete or
noncompetitive. See "Business -- Competition."
8
<PAGE>
DEPENDENCE ON COLLABORATIVE PARTNERS; RELATIONSHIP WITH THE UNIVERSITY OF
ALABAMA AT BIRMINGHAM
The Company's strategy for research, development and commercialization of
certain of its products is to rely in part upon various arrangements with
corporate partners, licensees and others. As a result, the Company's products
are dependent in large part upon the subsequent success of such third parties in
performing preclinical studies and clinical trials, obtaining regulatory
approvals, manufacturing and marketing. The Company has recently entered into an
exclusive license agreement with Torii to develop, manufacture and commercialize
in Japan BCX-34 and certain other PNP inhibitor compounds for three indications.
The Company has also entered into collaborative arrangements with Ciba and
intends to pursue additional collaborations in the future. See "Business --
Collaborative Arrangements." There can be no assurance that the Company will be
able to negotiate additional acceptable collaborative arrangements or that such
arrangements will be successful. No assurance can be given that the Company's
collaborative partners will be able to obtain FDA approval for any licensed
compounds, that any such licensed compounds, if so approved, will be able to be
commercialized successfully, or that the Company will realize any revenues
pursuant to such arrangements. Although the Company believes that parties to
collaborative arrangements generally have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources which they devote to these activities are not within the control of
the Company. There can be no assurance that such parties will perform their
obligations as expected or that current or potential collaborators will not
pursue treatments for other diseases or seek alternative means of developing
treatments for the diseases targeted by collaborative programs with the Company
or that any additional revenues will be derived from such arrangements. If any
of the Company's collaborators breaches or terminates its agreement with the
Company or otherwise fails to conduct its collaborative activities in a timely
manner, the development or commercialization of the product candidate or
research program under such collaboration agreement may be delayed, the Company
may be required to undertake unforeseen additional responsibilities or to devote
unforeseen additional resources to such development or commercialization, or
such development or commercialization could be terminated. The termination or
cancellation of collaborative arrangements could also adversely affect the
Company's financial condition, intellectual property position and operations. In
addition, disagreements between collaborators and the Company have in the past
and could in the future lead to delays in the collaborative research,
development or commercialization of certain product candidates, or could require
or result in legal process or arbitration for resolution. These consequences
could be time-consuming, expensive and could have material adverse effects on
the Company. See "Business -- Legal Proceedings."
The successful commercialization of the Company's compounds and product
candidates is also dependent upon the Company's ability to develop collaborative
arrangements with academic institutions and consultants to support research and
development efforts and to conduct clinical trials. The Company's primary
academic collaboration is with The University of Alabama at Birmingham ("UAB").
The Company is highly dependent upon its collaborative arrangements with UAB to
support its ongoing research and development programs and the termination or
cessation of such relationship could have a material adverse effect upon the
Company. There can be no assurance that the Company's current arrangements with
UAB will continue or that the Company will be able to develop successful
collaborative arrangements with academic institutions and consultants in the
future. See "Business -- Collaborative Arrangements -- UAB Collaborative
Arrangements."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
enforce patent protection for its products, preserve its trade secrets, and
operate without infringing on the proprietary rights of third parties, both in
the United States and in other countries. In the absence of patent protection,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology. See "Business -- Patents and Proprietary
Information." Because of the substantial length of time and expense associated
with bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical and biotechnology industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. To date, the Company has been issued
five United States patents related to its PNP inhibitor compounds. Two patent
applications relating to additional PNP inhibitor compounds are
9
<PAGE>
pending at the U.S. Patent and Trademark Office ("PTO"). The Company's patent
application involving two additional PNP inhibitor compounds has been allowed.
The compound under the disputed option to Warner-Lambert is included in this
group. See "Business--Legal Proceedings." The Company may require a license from
Warner-Lambert to market a product containing one or both of these compounds. No
assurance can be given that such a license would be available or obtainable on
terms acceptable to BioCryst. A patent application on a new process to prepare
BCX-34 and other PNP inhibitors has also been submitted to the PTO. In addition,
two patent applications relating to inhibitors of influenza neuraminidase have
been filed at the PTO, one of which has been allowed. The Company has filed
certain corresponding foreign patent applications and intends to file additional
foreign patent applications and additional United States patent applications, as
appropriate. There can be no assurance that patents will be issued from such
applications, that the Company will develop additional products that are
patentable or that present or future patents will provide sufficient protection
to the Company's present or future technologies, products and processes. In
addition, there can be no assurance that others will not independently develop
substantially equivalent proprietary information, design around the Company's
patents or obtain access to the Company's know-how or that others will not
successfully challenge the validity of the Company's patents or be issued
patents which may prevent the sale of one or more of the Company's product
candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid infringing any
patents issued to others. Further, there can be no guarantee that any patents
issued to or licensed by the Company will not be infringed by the products of
others. Litigation and other proceedings involving the defense and prosecution
of patent claims can be expensive and time consuming, even in those instances in
which the outcome is favorable to the Company, and can result in the diversion
of resources from the Company's other activities. An adverse outcome could
subject the Company to significant liabilities to third parties, require the
Company to obtain licenses from third parties or require the Company to cease
any related research and development activities or sales.
The Company's success is also dependent upon the skills, knowledge and
experience (none of which is patentable) of its scientific and technical
personnel. To help protect its rights, the Company requires all employees,
consultants, advisors and collaborators to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside the
Company and requires disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure or the lawful development by others of such
information.
The Company's management and scientific personnel have been recruited
primarily from other pharmaceutical companies and academic institutions. In many
cases, these individuals are continuing research in the same areas with which
they were involved prior to joining BioCryst and may be restricted by agreement
from disclosing to the Company trade secrets they learned elsewhere. As a
result, the Company could be subject to allegations of violation of such
agreements and similar claims and litigation regarding such claims could ensue.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent upon the efforts of its senior management
and scientific team. The loss of the services of one or more members of the
senior management and scientific team could significantly impede the achievement
of development objectives. Although the Company maintains, and is the
beneficiary of, a $2.0 million key-man insurance policy on the life of Charles
E. Bugg, Ph.D., Chairman of the Board of Directors, Chief Executive Officer and
President, the Company does not believe the proceeds would be adequate to
compensate for his loss. Due to the specialized scientific nature of the
Company's business, the Company is also highly dependent upon its ability to
attract and retain qualified scientific, technical and key management personnel.
There is intense competition for
10
<PAGE>
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its existing business and
its expansion into areas and activities requiring additional expertise, such as
production and marketing. The loss of, or failure to recruit, scientific,
technical and managerial personnel could have a material adverse effect on the
Company. In addition, the Company relies on members of its Scientific Advisory
Board and consultants to assist the Company in formulating its research and
development strategy. All of the members of the Scientific Advisory Board and
all of the Company's consultants are employed by other employers, and each such
member or consultant may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to the Company.
See "Business -- Human Resources," "--Scientific Advisory Board and Consultants"
and "Management."
LACK OF MANUFACTURING, MARKETING OR SALES CAPABILITY
The Company has not yet manufactured or marketed any products and currently
does not have the facilities to manufacture its product candidates in commercial
quantities under GMP as prescribed and required by the FDA. To be successful,
the Company's products must be manufactured in commercial quantities under GMP
and at acceptable costs. Although the Company is formulating and packaging under
GMP conditions small amounts of certain drug formulations which are the subject
of preclinical studies and clinical trials, the current facilities of the
Company are not adequate for commercial scale production. Therefore, the Company
will need to develop its own GMP manufacturing facility and/or depend on its
collaborators, licensees or contract manufacturers for the commercial
manufacture of its products. The Company has no experience in such commercial
manufacturing and no assurance can be given that the Company will be able to
make the transition to commercial production successfully or at an acceptable
cost. In addition, no assurance can be given that the Company will be able to
make arrangements with third parties to manufacture its products on acceptable
terms, if at all. The inability of the Company to manufacture or provide for the
manufacture of any products it may develop on a cost-effective basis would have
a material adverse effect on the Company. See "Business -- Manufacturing."
The Company has no experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on its collaborators, licensees or arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT AND PRODUCT PRICING
Successful commercialization of any pharmaceutical products the Company may
develop will depend in part upon the availability of reimbursement or funding
from third-party health care payors such as government and private insurance
plans. There can be no assurance that third-party reimbursement or funding will
be available for newly approved pharmaceutical products or will permit price
levels sufficient to realize an appropriate return on the Company's investment
in its pharmaceutical product development. The U.S. Congress is considering a
number of legislative and regulatory reforms that may affect companies engaged
in the health care industry in the United States. Although the Company cannot
predict whether these proposals will be adopted or the effects such proposals
may have on its business, the existence and pendency of such proposals could
have a material adverse effect on the Company in general. In addition, the
Company's ability to commercialize potential pharmaceutical products may be
adversely affected to the extent that such proposals have a material adverse
effect on other companies that are prospective collaborators with respect to any
of the Company's pharmaceutical product candidates.
Third-party payors are continuing their efforts to contain or reduce the
cost of health care through various means. For example, third-party payors are
increasingly challenging the prices charged for medical products and services.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations, such as health maintenance organizations,
which can control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care or
reduce government insurance programs, may result in lower prices for
11
<PAGE>
pharmaceutical products. The cost containment measures that health care
providers are instituting and the effect of any health care reform could
materially adversely affect the Company's ability to sell its products if
successfully developed and approved.
RISK OF PRODUCT LIABILITY; AVAILABILITY OF INSURANCE
The Company's business may be affected by potential product liability risks
which are inherent in the testing, manufacturing and marketing of pharmaceutical
and other products under development by the Company. There can be no assurance
that product liability claims will not be asserted against the Company, its
collaborators or licensees. The use of products developed by the Company in
clinical trials and the subsequent sale of such products is likely to cause
BioCryst to bear all or a portion of those risks. The Company does not have
product liability insurance but does maintain coverage for clinical trials in
the amount of $1.0 million per occurrence and in the aggregate. No assurance can
be given that such insurance will be adequate to cover claims made with respect
to the clinical trials. There can be no assurance that the Company will be able
to obtain or maintain adequate product liability insurance on acceptable terms
or that such insurance will provide adequate coverage against potential
liabilities. Furthermore, there can be no assurance that any collaborators or
licensees of BioCryst will agree to indemnify the Company, be sufficiently
insured or have a net worth sufficient to satisfy any such product liability
claims.
HAZARDOUS MATERIALS; COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS; EFFECT OF CERTAIN ANTI-TAKEOVER
CONSIDERATIONS
Upon completion of the offering, the Company's directors, executive officers
and certain principal stockholders and their affiliates will own beneficially
approximately 29.0% of the Common Stock. Accordingly, such holders, if acting
together, may have the ability to exert significant influence over the election
of the Company's Board of Directors and other matters submitted to the Company's
stockholders for approval. The voting power of these holders may discourage or
prevent any proposed takeover of the Company unless the terms thereof are
approved by such holders. Pursuant to the Company's Composite Certificate of
Incorporation (the "Certificate of Incorporation"), shares of Preferred Stock
may be issued by the Company in the future without stockholder approval and upon
such terms as the Board of Directors may determine. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock could have the effect of discouraging a third party
from acquiring a majority of the outstanding Common Stock of the Company and
preventing stockholders from realizing a premium on their shares. The Company's
Certificate of Incorporation also provides for staggered terms for the members
of the Board of Directors. A staggered Board of Directors and certain provisions
of the Company's by-laws and of Delaware law applicable to the Company could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,837,237 shares of
Common Stock outstanding. Of these shares, a total of approximately 8,018,809
shares (including the 2,000,000 shares offered hereby and shares tradeable under
Rule 144(k) of the Securities Act of 1933, as amended (the "Securities Act"))
will be freely tradeable in the public market without restriction and
approximately 4,818,428 shares will be "restricted securities" within the
meaning of Rule 144 under the Securities Act (excluding any shares tradeable
under Rule 144(k) of the Securities Act). All such "restricted securities" may
be sold only in compliance with Rule 144 or pursuant to registration under the
Securities Act or an exemption therefrom. As of August 31, 1996, an additional
1,012,841 shares of
12
<PAGE>
Common Stock may be issued from time to time upon the exercise of outstanding
warrants. Warrants for the purchase of 701,000 of such shares are exercisable
at $4.40 per share and expire on October 15, 1996. The holders of such warrants
can elect a net issue exercise, in lieu of a cash exercise, whereby the shares
to be issued would be equal to the product of (a) the number of shares of Common
Stock purchasable under the warrant being exercised, and (b) the fair market
value of one share of Common Stock minus the exercise price divided by (c) the
fair market value of one share of Common Stock. Such shares, upon issuance
pursuant to the net issue exercise option, could be freely tradeable under Rule
144(k), although some holders are "affiliates" within the meaning of Rule 144
and as such are subject to certain Rule 144 restrictions. Any shares of Common
Stock issued upon the exercise of warrants other than by a net issue exercise
(except for warrants to purchase 247,616 shares of Common Stock which have been
held for less than three years) shall be restricted securities within the
meaning of Rule 144. Certain persons and entities holding, or having the right
to purchase upon exercise of outstanding warrants issued in connection with
certain financing transactions, an aggregate of approximately 6,569,722 shares
of Common Stock (not including the shares of Common Stock offered hereby), have
the right to require the Company to register their shares under the Securities
Act in certain circumstances. The holders of 848,333 of such 6,569,722 shares
currently have their shares of Common Stock registered with the Securities and
Exchange Commission (the "Commission") on a Form S-3. The Company intends to
withdraw such registration statement for a period of 90 days following the date
of this Prospectus. In addition, the Company intends to register, subject to
certain restrictions, 1,000,000 shares of Common Stock with the Commission on a
Form S-3 90 days after the date of this Prospectus. The Company has registered
on Form S-8 under the Securities Act 2,191,250 shares of Common Stock, including
the 1,991,250 shares reserved for issuance under the 1991 Stock Option Plan and
the 200,000 shares of Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan (the "Purchase Plan"). Of such 1,991,250 shares of
Common Stock reserved for issuance under the 1991 Stock Option Plan, 1,590,000
shares were subject to options outstanding as of August 31, 1996. Upon the
exercise of the current vested portion of such options, approximately 546,244
shares would be eligible for immediate sale in the public market, subject to
Rule 144 volume restrictions applicable to affiliates and an additional 348,071
shares would be eligible for immediate sale without restriction. Of the 200,000
shares of Common Stock reserved for issuance under the Purchase Plan, 31,432
shares had been issued to certain employees as of August 31, 1996. All 31,432
shares are eligible for immediate sale in the public market, subject, in certain
instances, to Rule 144 volume restrictions applicable to affiliates. Future
sales of Common Stock could have an adverse effect on the market price of the
Common Stock. Additionally, the Commission has proposed an amendment to Rule 144
which would reduce the holding period required for shares subject to Rule 144 to
become eligible for sale in the public market. This proposal, if adopted, would
substantially increase the number of shares of the Company's Common Stock
eligible for immediate sale.
PRICE VOLATILITY; DILUTION
The securities markets have from time to time experienced significant price
and volume fluctuations that have often been unrelated to the operating
performance of particular companies. In addition, the market prices of the
common stock of many publicly traded emerging pharmaceutical and
biopharmaceutical companies have in the past been, and can in the future be
expected to be, especially volatile. Announcements of technological innovations
or new products by the Company or its competitors, developments or disputes
concerning patents or proprietary rights or collaboration partners, achieving or
failing to achieve development milestones, publicity regarding actual or
potential medical results relating to products under development by the Company
or its competitors, regulatory developments in both U.S. and foreign countries,
public concern as to the safety of pharmaceutical products and economic and
other external factors, as well as period-to-period fluctuations in the
Company's financial results, may have a significant impact on the market price
of the Common Stock. Purchasers of Common Stock in this offering will experience
an immediate dilution in net tangible book value of their investment of $10.32
per share (assuming a public offering price of $13.75 per share). Additional
dilution will occur upon exercise of outstanding options and warrants. See
"Dilution."
13
<PAGE>
THE COMPANY
The Company was incorporated under the laws of the State of Nevada on
November 17, 1989 as the successor to a partnership formed in 1986, and was
reincorporated in the State of Delaware on November 25, 1991. All references to
the "Company" or "BioCryst" in this Prospectus include its predecessors, unless
the context otherwise requires. The Company's executive offices are located at
2190 Parkway Lake Drive, Birmingham, Alabama, 35244, and its telephone number is
(205) 444-4600.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock being
offered hereby are estimated to be approximately $25.5 million ($29.4 million
assuming the Underwriters' over-allotment option is exercised in full), assuming
a public offering price of $13.75 per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company.
The Company expects to use all of such proceeds to fund research and product
development programs, including preclinical studies and clinical trials, and for
general corporate purposes. The net proceeds may also be used to acquire
technology, products or companies that complement the business of the Company,
although no such acquisitions are the subject of any letter of intent or
definitive agreement as of the date of this Prospectus.
The amounts and timing of expenditures for each purpose will depend on the
progress of the Company's research and development programs; technological,
competitive and business developments; determinations as to commercial
potential; the terms of any collaborative arrangements entered into by the
Company for development and licensing; the receipt and timing of regulatory
approvals; the availability and attractiveness of alternative financing; and
other factors, many of which are beyond the Company's control. The Company
believes that the net proceeds from this offering, together with interest
thereon, and the Company's existing capital resources will satisfy its capital
requirements through 1998, although this is a forward-looking statement, subject
to certain risks and uncertainties including those discussed under "Risk Factors
- -- Additional Financing Requirements; Uncertainty of Additional Funding" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pending such uses, the Company intends to invest the net proceeds in
short-term, investment grade instruments, certificates of deposit or direct or
guaranteed obligations of the United States or its agencies.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently anticipates that it will retain all available funds for
use in the operation of its business, and therefore does not anticipate paying
any cash dividends in the foreseeable future.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol "BCRX" effective March 4, 1994. Prior to
that date, there was no public market for the Common Stock. The following table
sets forth, for the periods indicated, the high and low sales prices of the
Common Stock reported on the Nasdaq National Market. These prices do not include
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C> <C>
1994
First quarter (from March 4).......................................... $ 6.75 $5.50
Second quarter........................................................ 5.88 3.38
Third quarter......................................................... 5.88 3.75
Fourth quarter........................................................ 6.13 4.38
1995
First quarter......................................................... 7.00 4.63
Second quarter........................................................ 13.75 5.50
Third quarter......................................................... 12.25 7.75
Fourth quarter........................................................ 11.25 8.50
1996
First quarter......................................................... 10.25 8.63
Second quarter........................................................ 20.75 9.13
Third quarter (through September 23).................................. 17.13 11.50
</TABLE>
On September 23, 1996, the last sale price reported on the Nasdaq National
Market tier of The Nasdaq Stock MarketSM for the Common Stock was $12.38 per
share. As of July 31, 1996, there were 561 holders of record of the Common
Stock.
DILUTION
As of June 30, 1996, the Company had a net tangible book value of
$17,803,185 or $1.68 per share. Net tangible book value per share is determined
by dividing the net tangible book value (tangible assets less liabilities) of
the Company by the number of shares of Common Stock outstanding at that date.
Without taking into account any changes in net tangible book value after June
30, 1996, other than to give effect to the sale of the shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $13.75 per
share) and the receipt of the net proceeds therefrom, the net tangible book
value of the Company as of June 30, 1996 would have been $43,353,185, or $3.43
per share. This represents an immediate increase in net tangible book value of
$1.75 per share to existing stockholders and an immediate dilution of $10.32 per
share to new investors. The following table illustrates this dilution per share.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................................... $13.75
Net tangible book value per share as of June 30, 1996....................... $1.68
Increase in net tangible book value per share attributable
to the offering(1)........................................................ 1.75
-----
Adjusted net tangible book value per share after the offering............... 3.43
------
Dilution per share to new investors(2)...................................... $10.32
------
------
</TABLE>
- ------------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.
(2) Determined by subtracting the adjusted net tangible book value per share
after the offering from the amount of cash paid by a new investor for a
share of Common Stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to reflect the sale of the shares of Common Stock
offered hereby (assuming a public offering price of $13.75 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company) and the receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Long-term debt and capital lease obligations,
excluding current portions(1)................................... $ 148,112 $ 148,112
---------- ----------
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized;
none issued or outstanding...................................
Common Stock, $.01 par value; 45,000,000 shares authorized;
10,623,371 shares issued and outstanding, actual; and
12,623,371 shares issued and outstanding, as adjusted(2)..... 106,234 126,234
Additional paid-in capital..................................... 50,887,862 76,417,862
Accumulated deficit............................................ (33,190,911) (33,190,911)
---------- ----------
Total stockholders' equity..................................... 17,803,185 43,353,185
---------- ----------
Total capitalization......................................... $17,951,297 $43,501,297
---------- ----------
---------- ----------
</TABLE>
- ------------
(1) See Notes 5 and 6 of Notes to Financial Statements for additional
information regarding the Company's long-term debt and obligations under
capital leases.
(2) Does not include shares of Common Stock issuable upon exercise of (i) the
1,574,616 outstanding options which have been granted pursuant to the
Company's amended and restated 1991 Stock Option Plan at a weighted average
exercise price of $5.71 per share; or (ii) the 1,313,541 outstanding
warrants issued in connection with certain financing transactions, at a
weighted average exercise price of $4.94 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data set forth below for the fiscal years
ended December 31, 1993, 1994 and 1995 were derived from the financial
statements of the Company included elsewhere in this Prospectus which have been
audited by Ernst & Young LLP, independent auditors. The selected financial data
for the fiscal years ended December 31, 1991 and 1992 were derived from the
financial statements of the Company audited by Ernst & Young LLP, but not
included in this Prospectus. The selected financial data for the six month
periods ended June 30, 1995 and 1996 are derived from the unaudited financial
statements of the Company, which are included elsewhere in this Prospectus and
include all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for the six
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1996. The selected
financial data set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial statements and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total operating
revenues............. $ 83,333 $ 137,614 $ 302,375 $ 269,126 $ 222,329 $ 94,691 $ 1,521,279
---------- ---------- ---------- ---------- ---------- ----------- ----------
Operating expenses:
Research and
development.......... 706,807 3,018,774 4,195,800 5,551,660 7,107,249 3,752,843 3,414,457
General and
administrative....... 641,448 1,085,355 1,098,206 1,904,046 2,209,488 1,041,999 1,562,688
---------- ---------- ---------- ---------- ---------- ----------- ----------
Total operating
expenses............. 1,348,255 4,104,129 5,294,006 7,455,706 9,316,737 4,794,842 4,977,145
---------- ---------- ---------- ---------- ---------- ----------- ----------
Interest income...... 28,622 47,468 60,629 464,690 662,259 285,544 387,977
Interest expense..... (45,792) (131,927) (264,994) (215,985) (144,115) (77,501) (55,629)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Other income
(expense), net....... (17,170) (84,459) (204,365) 248,705 518,144 208,043 332,348
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net loss............. $(1,282,092) $(4,050,974) $(5,195,996) $(6,937,875) $(8,576,264) $ (4,492,108) $(3,123,518)
---------- ---------- ---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net loss per
share(1)............. $(1.50) $(1.31) $(1.55) $(1.02) $(.96) $(.54) $(.31)
Weighted average
shares
outstanding(1)....... 855,573 3,100,888 3,352,364 6,787,203 8,905,099 8,305,857 10,095,953
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and securities
held-to-maturity......... $ 3,163,817 $ 1,283,681 $ 2,873,264 $10,872,861 $11,414,044 $ 17,813,084
Working capital.......... 2,804,705 356,659 1,889,206 10,364,330 10,564,126 17,022,751
Total assets............. 3,577,911 3,555,257 5,202,511 12,802,831 13,056,213 19,667,319
Long-term debt and
capital lease
obligations, excluding
current portion.......... 150,463 930,503 855,389 573,493 300,411 148,112
Accumulated deficit...... (5,306,284) (9,357,258) (14,553,254) (21,491,129) (30,067,393) (33,190,911)
Total stockholders'
equity(2)................ 2,951,217 1,534,060 2,876,579 11,175,960 11,326,498 17,803,185
</TABLE>
- ------------
(1)See Note 1 of Notes to Financial Statements for information concerning the
computation of net loss per share and weighted average shares outstanding.
(2) Includes preferred stock with a liquidation value of $3.0 million for the
year ended December 31, 1991, $2.9 million for the year ended December 31,
1992 and $10.2 million for the year ended December 31, 1993.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.
OVERVIEW
Since its inception in 1986, the Company has been engaged in research and
development activities (including conducting preclinical studies and clinical
trials) and organizational efforts, including recruiting its scientific and
management personnel, establishing laboratory facilities, engaging its
Scientific Advisory Board and raising capital. The Company has not received any
revenue from the sale of pharmaceutical products and does not expect to receive
such revenues to a significant extent for at least several years, if at all. The
Company has incurred operating losses since its inception. The Company expects
to incur significant additional operating losses over the next several years and
expects such losses to increase as the Company's research and development and
clinical trial efforts expand.
The Company's future business, financial condition and results of operations
are dependent on the Company's ability to successfully develop, market and
manufacture its pharmaceutical products for the treatment of major immunological
and infectious diseases and disorders. Inherent in this process are a number of
factors, including those which are described in "Risk Factors," that the Company
must carefully manage in order to be successful.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 and June 30, 1995
Total operating revenues increased to $1.5 million in the first six months
of 1996 from $94,691 in the first six months of 1995. The increase was primarily
due to the $1.5 million license fee paid to the Company by Torii pursuant to a
license agreement. No assurance can be given as to whether and when Torii may
make additional payments under such agreement.
Research and development expenses decreased 9.0% to $3.4 million in the
first six months of 1996 from $3.8 million in the first six months of 1995. The
decrease is primarily attributable to less costs associated with manufacturing
compounds for conducting clinical trials and fewer preclinical studies in
progress. These costs tend to fluctuate from quarter to quarter depending upon
the stage of development and the conduct of clinical trials. This decrease is
not necessarily indicative of a decrease in research and development expenses
for the full year. The Company expects research and development expenses to
increase during the remainder of 1996 due to increased clinical trials and costs
associated with manufacturing BCX-34.
General and administrative expenses increased 50.0% to $1.6 million in the
first six months of 1996 from $1.0 million in the first six months of 1995. The
increase is primarily the result of approximately $574,000 in consulting fees
and withholding taxes incurred in connection with the license agreement with
Torii.
Other income (expense), net increased 59.7% to $332,348 in the first six
months of 1996 from $208,043 in the first six months of 1995. This net increase
represents an increase in interest and other income and a decrease in interest
expenses. The increase in interest income was primarily due to interest earned
on funds invested from the proceeds of the Company's private placements in 1995
and 1996. Interest expense decreased 28.2% to $55,629 in the first six months of
1996 from $77,501 in the first six months of 1995. The decrease is due to a
decline in capitalized lease obligations, along with long-term
18
<PAGE>
debt. The Company obtained most of its leases in connection with the move to its
new facilities in April 1992.
Years Ended December 31, 1995 and 1994
Total operating revenue decreased 17.4% to $222,329 in 1995 from $269,126 in
1994, primarily as a result of $50,000 of non-recurring contract research in
1994.
Research and development expenses increased 28.0% to $7.1 million in 1995
from $5.6 million in 1994. The increase was primarily attributable to expenses
associated with conducting clinical trials, preclinical studies and large scale
synthesis of BCX-34 and increased personnel costs and expenses associated with
joint research and development contracts with UAB for the influenza
neuraminidase and complement projects and outside research on PNP inhibitors.
General and administrative expenses increased 16.0% to $2.2 million in 1995
from $1.9 million in 1994. The increase was primarily the result of increased
franchise taxes, increased stockholder and investor communication expenses
associated with being a public company and higher business insurance costs.
These increases were partially offset by two non-recurring charges in 1994:
payments made pursuant to a consulting agreement entered into upon the Company's
former president's termination in the second quarter of 1994 and contractual
deferred compensation paid to the former president upon the initial public
offering in the first quarter of 1994.
Other income (expense), net increased 108.3% to $518,144 in 1995 from
$248,705 in 1994. This net increase represents an increase in interest and other
income and a decrease in interest expense. Interest and other income increased
42.5% to $662,259 in 1995 from $464,690 in 1994, primarily due to higher rates
and the investment of funds received from the Company's initial public offering
of common stock in March 1994 and private placements of common stock in
September 1994 and May 1995. Interest expense decreased 33.3% to $144,115 in
1995 from $215,985 in 1994. The decrease was primarily due to a decline in
capitalized lease obligations, along with long-term debt. The Company obtained
most of its leases in connection with the move to its new facilities in April
1992.
Years Ended December 31, 1994 and 1993
Total operating revenue decreased 11.0% to $269,126 in 1994 from $302,375 in
1993. Revenues in 1994 consisted of $219,126 from a Phase II Small Business
Innovation Research ("SBIR") grant and $50,000 from contract research. Revenue
in 1993 consisted primarily of the proceeds from the exercise of an option for a
license by Ciba.
Research and development expenses increased 32.3% to $5.6 million in 1994
from $4.2 million in 1993. The increase was primarily attributable to expenses
associated with conducting clinical trials, preclinical studies and large scale
synthesis of BCX-34 and the effect of additional research and clinical personnel
hired since the first quarter of 1993.
General and administrative expenses increased 73.4% to $1.9 million in 1994
from $1.1 million in 1993. The increase was primarily due to the additional
costs associated with added personnel, additional business insurance, payments
made pursuant to a consulting agreement entered into upon the former president's
termination, costs associated with being a public company, increased legal
expenses and contractual deferred compensation paid to the former president of
the Company upon the initial public offering in the first quarter of 1994 which
were offset in part by the non-recurring effect of writing off costs of a public
offering withdrawn in the second quarter of 1993.
Other income (expense), net increased $453,070 to $248,705 in 1994 from
$(204,365) in 1993. This net increase represents an increase in interest and
other income and a decrease in interest expense. Interest and other income
increased 666.4% to $464,690 in 1994 from $60,629 in 1993, primarily due to
higher rates and the investment of funds received from the Company's initial
public offering. Interest expense decreased 18.5% to $215,985 in 1994 from
$264,994 in 1993. The decrease was primarily due
19
<PAGE>
to a decline in capitalized lease obligations, along with long-term debt. The
Company obtained most of its leases in connection with the move to its new
facilities in April 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenues since the Company's inception.
Operations have principally been funded through an initial public offering of
common stock, private placements of equity and debt securities, equipment lease
financing, facility leases, collaborative and other research and development
agreements (including a license and options for licenses), research grants and
interest income. In addition, the Company has attempted to contain costs and
reduce cash flow requirements by renting scientific equipment or facilities,
contracting with third parties to conduct certain research and development and
using consultants. The Company expects to incur additional expenses, resulting
in significant losses, as it continues and expands its research and development
activities and undertakes additional preclinical studies and clinical trials of
compounds which have been or may be discovered. The Company also expects to
incur substantial administrative, manufacturing and commercialization
expenditures in the future as it seeks FDA approval for its compounds and
establishes its manufacturing capability under GMP and substantial expenses
related to the filing, prosecution, maintenance, defense and enforcement of
patent and other intellectual property claims.
At June 30, 1996, the Company's cash, cash equivalents and securities
held-to-maturity were $17.8 million, an increase of $6.4 million from such
amount at December 31, 1995. The increase was primarily due to the private
placement of common stock in March and May 1996 with proceeds of $9.5 million
partially offset by net cash used by operating activities.
The Company received $500,000 in June 1993 as a license fee from Ciba. The
Company is required to refund up to $300,000 of the fee if sales of any
resultant products are below specified levels.
The Company has financed its equipment purchases primarily with lease lines
of credit. The Company currently has a $500,000 line of credit with its bank to
finance capital equipment. In January 1992, the Company entered into an
operating lease for its current facilities which, based on an extension signed
in December 1994, expires on March 31, 2000, with an option to lease for an
additional three years at current market rates. The operating lease requires the
Company to pay monthly rent (ranging from $10,241 and escalating annually to a
minimum of $12,457 per month in the final year), and a pro rata share of
operating expenses and real estate taxes in excess of base year amounts.
At December 31, 1995, the Company had long-term capital lease and operating
lease obligations which provide for aggregate minimum payments of $531,747 in
1996, $502,077 in 1997 and $306,714 in 1998. The Company is required to expend
$6.0 million over the three-year period ending December 31, 1997 on its
influenza neuraminidase project and $1.0 million over the three-year period
ending July 18, 1998 on its complement project in order to maintain a worldwide
license from UAB. These two agreements have 25-year terms and are terminable by
the Company upon three months' notice. In addition, the Company has committed to
conducting certain clinical trials and animal studies in 1996 for an aggregate
amount of approximately $1.2 million. See "Business--Collaborative
Arrangements."
In May 1996, the Company entered into an exclusive license agreement with
Torii to develop, manufacture and commercialize BCX-34 and certain other PNP
inhibitor compounds in Japan for the treatment of rheumatoid arthritis, T-cell
cancers (including CTCL) and atopic dermatitis. Upon entering into the
agreement, Torii paid the Company $1.5 million in license fees and made a $1.5
million equity investment in the Company, purchasing 76,608 shares of Common
Stock at a purchase price of $19.58 per share. The agreement further provides
for potential milestone payments of up to $19.0 million and royalties on future
sales of licensed products in Japan. Torii is responsible for all development,
regulatory and commercialization expenses in Japan. The agreement is subject to
termination by Torii at any time and by the Company in certain circumstances.
Pursuant to the agreement, Torii may negotiate a license with the Company to
develop BCX-34 and certain other PNP inhibitor compounds for additional
indications. See "Business--Collaborative Arrangements."
20
<PAGE>
At December 31, 1995, the Company had net operating loss and research and
development credit carryforwards of approximately $25.6 million and $1.4
million, respectively, which will expire in 2005 through 2010. At June 30, 1996,
the Company's net operating loss carryforward was approximately $28.7 million.
Use of the net operating losses and research and development credits will be
subject to a substantial annual limitation due to the ownership provisions of
the Tax Reform Act of 1986. The annual limitation is expected to result in the
expiration of a portion of net operating losses and credits before utilization,
which has been considered by the Company in its computations under Statement No.
109. Additional sales of the Company's equity securities may result in further
annual limitations on the use of operating loss carryforwards and research and
development credit carryforwards against taxable income in future years.
The Company plans to finance its needs principally from its existing capital
resources and interest thereon, from payments under collaborative and licensing
agreements with corporate partners, through research grants, and to the extent
available, through lease or loan financing and future public or private
financings. The Company believes that its available funds after completion of
this offering will be sufficient to fund the Company's operations through 1998.
However, this is a forward-looking statement, and no assurance can be given that
there will be no change that would consume available resources significantly
before such time. The Company's long-term capital requirements and the adequacy
of its available funds will depend upon many factors, including results of
research and development, results of product testing, relationships with
strategic partners, changes in the focus and direction of the Company's research
and development programs, competitive and technological advances and the FDA
regulatory process. Additional funds, if any, may possibly be raised through
financing arrangements or collaborative relationships and/or the issuance of
preferred or common stock or convertible securities, on terms and prices
significantly more favorable than those of the Common Stock in this offering,
which could have the effect of diluting or adversely affecting the holdings or
rights of existing stockholders of the Company. In addition, collaborative
arrangements may require the Company to transfer certain material rights to such
corporate partners. If adequate funds are not available, the Company will be
required to delay, scale back or eliminate one or more of its research, drug
discovery or development programs or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish some or all of its rights to certain of its intellectual property,
product candidates or products. No assurance can be given that additional
financing will be available to the Company on acceptable terms, if at all.
Additional funding, whether through additional sales of securities or
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company to delay, scale back or eliminate
certain of its research and development programs or to license third parties to
commercialize products or technologies that the Company would otherwise
undertake itself.
21
<PAGE>
BUSINESS
OVERVIEW
BioCryst is an emerging pharmaceutical company using structure-based drug
design to discover and design novel, small-molecule pharmaceutical products for
the treatment of immunological and infectious diseases and disorders. The
Company believes that structure-based drug design, by precisely designing
compounds to fit the active site of target proteins, offers the potential for
developing drugs for many indications that have improved efficacy and fewer side
effects than currently marketed drugs for the same indications. The Company's
development plan focuses on life threatening or significant clinical
indications, including T-cell cancers, psoriasis, HIV infection and influenza.
The Company is conducting three clinical trials with its most advanced drug,
BCX-34: a Phase III trial with a topical formulation for cutaneous T-cell
lymphoma ("CTCL"), a Phase I/II trial with an oral formulation for CTCL and a
Phase I/II trial with a topical formulation for atopic dermatitis. In addition,
the Company expects to initiate by the end of 1996 (assuming satisfactory FDA
reviews) a Phase III trial for the topical treatment of psoriasis, a Phase I/II
trial for the oral treatment of psoriasis and a Phase I/II trial for the oral
treatment of HIV infection. BioCryst has additional research projects underway
to develop inhibitors of influenza neuraminidase, an enzyme believed to perform
an essential role in the infectious cycle of flu, and enzymes involved in the
complement cascade, which is implicated in several major inflammatory
conditions. One of the elements of the Company's strategic plan is to leverage
its clinical progress by entering into pharmaceutical collaborations with drug
companies in major world markets. Recently, BioCryst entered into an exclusive
license agreement with Torii, a Japanese pharmaceutical company, for the
development and commercialization in Japan of BCX-34 and certain other purine
nucleoside phosphorylase ("PNP") inhibitor compounds. PNP is an enzyme believed
to be involved in T-cell proliferation.
BioCryst's lead drug program targets T-cell proliferative disorders, which
arise when T-cells, immune system cells that normally fight infection, attack
normal body cells or multiply uncontrollably. These disorders are varied and
include CTCL (a severe form of cancer), psoriasis, transplant rejection and
certain autoimmune diseases. Additionally, the Company believes that by
suppressing proliferation of the T-cell, the host to the HIV virus, it might be
possible to treat HIV-infected patients. BioCryst has designed and synthesized
several chemically distinct classes of compounds which inhibit PNP.
The Company has completed six Phase I clinical trials, three Phase I/II
clinical trials and three Phase II clinical trials with topical BCX-34 and has
completed one Phase I trial with oral and intravenous formulations of the drug.
BCX-34 has been tested in over 280 subjects, and no significant drug-related
adverse side effects have been observed. The completed Phase II trials of
topical BCX-34 were double-blinded, placebo-controlled and enrolled 30 CTCL
patients and 130 psoriasis patients. A majority of the patients from the Phase
II CTCL trial volunteered to roll over into an extended, open-label trial. In
addition, the Company has initiated preclinical studies using an ophthalmic
formulation of BCX-34 for potential use in treating uveitis and corneal
transplant rejection.
In May 1996, BioCryst entered into an exclusive license agreement with Torii
to develop, manufacture and commercialize BCX-34 and certain other PNP inhibitor
compounds in Japan. Pursuant to the agreement, Torii has made an upfront license
fee payment of $1.5 million and purchased shares of Common Stock for $1.5
million at a price of $19.58 per share. The agreement further provides for
potential milestone payments of up to $19.0 million and royalties on future
sales of licensed products in Japan. Torii has the right to develop BCX-34 and
certain other PNP inhibitor compounds for three indications and can negotiate a
license with BioCryst to develop the drug for additional indications.
22
<PAGE>
STRATEGY
BioCryst's objective is to be a leader in the use of structure-based drug
design to develop clinically and commercially significant pharmaceutical
products. By utilizing structure-based drug design, the Company is able to
precisely design compounds that block the active site of certain protein targets
associated with particular diseases. BioCryst believes that for many indications
small-molecule compounds tailored to block specific biochemical pathways offer
the potential to be safer and more effective than drugs that currently exist for
the same indications. The key points of the Company's strategy include:
Target Immunological Mechanisms to Pursue Multiple Indications. The
Company's research efforts focus on inhibiting immunological mechanisms,
namely T-cell proliferation and complement activation. While these
mechanisms help fight infection and injury, harmful immune responses can
damage many types of tissue in the body. By shutting down specific immune
responses the Company believes it will be possible to intervene in several
major immunological diseases and disorders thereby gaining economies of
scale during drug development. The Company intends to focus its
immunological development efforts on its PNP and complement enzyme
inhibition programs.
Utilize Advanced Technologies to Design Traditional Pharmaceuticals.
BioCryst utilizes structure-based drug design to precisely engineer novel,
small-molecule compounds. The Company believes that this technique may
permit it to design traditional pharmaceutical products that have the
potential to be safe and effective while having relatively high solubility
and bioavailability and relatively low manufacturing costs. BioCryst intends
to integrate its technologies with other drug discovery approaches such as
screening of combinatorial chemistry libraries. The Company will continue to
leverage its drug design capabilities by designing novel lead inhibitors for
its research-stage programs.
Pursue Tiered Clinical Plan for BCX-34. BioCryst is focusing on drug
development programs for indications that will serve as a foundation for
initiating other trials for different indications. By initially focusing on
dermal indications, the Company was able to begin clinical development with
a topical formulation of BCX-34 to suggest proof of principle in humans that
blocking PNP inhibits T-cell proliferation. The Company was able to initiate
topical trials before other formulations could enter human studies. Having
established a broad topical program, the Company has initiated systemic
product development focusing on an oral formulation. The initial indication
for the oral program is T-cell cancer, a life-threatening disease, which the
Company believes will permit it to collect safety and efficacy data to serve
as a foundation for initiating additional trials for other systemic
indications.
Establish Additional Research Collaborations and Strategic Partnerships.
By leveraging its drug design capabilities and its relationships with
leading scientists at The University of Alabama at Birmingham, the Company
generally intends to develop its pharmaceutical products through the
preclinical development and initial clinical trial phases and to use
strategic alliances to supplement its internal clinical development and
regulatory resources. The Company seeks to establish strategic alliances
with pharmaceutical companies to conduct late-stage clinical trials, to
obtain regulatory approvals, and to market and sell the Company's products,
in exchange for license fees, milestone payments, and royalties. The Company
also intends to continue to enter into research collaborations with
corporate partners and with academic research institutions to enhance and
further develop its products.
PRODUCT RESEARCH AND DEVELOPMENT
Drug Discovery Technology
Traditional Drug Design. Historically, most pharmaceutical companies have
relied on costly and time-consuming screening to discover new chemical entities
for development. While screening has been the basis for the discovery of
virtually all drugs currently in use, the cost has been substantial. On average,
it has generally been necessary to assess hundreds or thousands of chemical
compounds to find
23
<PAGE>
a lead compound which successfully completes the development process. If
screening produces a lead compound, it is likely that the compound's mode of
action will be unknown and the risk of side effects caused by a lack of target
specificity will be high. Newer techniques, such as combinatorial chemistry and
high throughput screening, have enhanced the range of compounds that can be
examined quickly. However, screening-based research has, to date, failed to
yield acceptably safe and effective drugs for many important therapeutic needs.
Most pharmaceutical companies presently use some form of pharmacology-based
rational drug design which primarily utilizes certain receptors or purified
enzyme preparations in assays to identify lead compounds and to design molecules
to perform specific therapeutic tasks. Development of lead compounds is
conducted by systematic empirical methods and computer modeling. While this
approach is more refined than random screening, it is still a costly and
time-consuming effort which is limited by the amount and quality of information
available about the target protein.
Structure-Based Drug Design. Structure-based drug design is a drug discovery
approach by which synthetic compounds are designed from detailed structural
knowledge of the active site of protein targets associated with particular
diseases. The Company's structure-based drug design involves the integrated
application of traditional biology and medicinal chemistry along with an array
of advanced technologies, including X-ray crystallography, combinatorial
chemistry, computer modeling of molecular structures, and protein biophysical
chemistry, to focus on the three-dimensional structure and active site
characterization of the proteins that control cellular biology. BioCryst
believes that structure-based drug design further improves the advancements made
by the rational drug design approach over traditional drug screening techniques.
By identifying the target protein in advance and by discovering the chemical and
molecular structure of the protein, scientists believe it is possible to design
a more optimal drug to interact with the protein.
The initial targets for structure-based drug design are selected based on
their involvement in the biological pathways integral to the course of the
disease. Once a target is selected, its structure is determined by X-ray
crystallography, a method used in determining the precise three-dimensional
molecular structure of proteins. This structure is then used as a blueprint for
the drug design of a lead compound. The compounds are modeled for their fit in
the active site of the target, considering both steric aspects (i.e., geometric
shape) and functional group interactions, such as hydrogen bonding and
hydrophobic interactions.
The initial design phase is followed by the synthesis of the lead compound,
quantitative measurements of its ability to interact with the target protein,
and X-ray crystallographic analysis of the compound-target complex. This
analysis reveals important, empirical information on how the compound actually
binds to the target and the nature and extent of changes induced in the target
by the binding. These data, in turn, suggest ways to refine the lead compound to
improve its binding to the target protein. The refined lead compound is then
synthesized and complexed with the target, and further refined in a reiterative
process. If lead compounds are available from other studies, such as screening
of combinatorial libraries, these compounds may serve as starting points for
this optimization cycle using structure-based drug design.
Once a sufficiently potent compound has been designed and optimized, its
activity is evaluated in a biological system to establish the compound's ability
to function in a physiological environment. If the compound fails at any stage
of the biological evaluation, the design team reviews the structural model and
uses crystallography to adjust the structural features of the compound to
overcome the difficulty. This process continues until a designed compound
exhibits the desired properties.
The compound is then evaluated in an experimental disease model. If the
compound fails, the reasons for failure (e.g., adverse metabolism, plasma
binding, distribution, etc.) are determined and, again, new modified compounds
are designed to overcome the deficiencies without interfering with their ability
to interact with the active site of the target protein. The experimental drug is
then ready for conventional drug development (e.g., studies in safety
assessment, formulation, clinical trials, etc.).
This iterative analysis and compound modification is possible because of the
structural data obtained by X-ray crystallographic analysis at each stage. This
capability renders structure-based drug
24
<PAGE>
design a powerful tool for rapid and efficient development of drugs that are
highly specific for particular protein target sites.
Product Development Programs
BioCryst's research and development programs concentrate in the areas of
human immunological and infectious diseases and disorders. All of BioCryst's
drug discovery programs use structure-based drug design to discover and design
novel, small-molecule pharmaceutical products.
The following table summarizes BioCryst's development projects:
<TABLE>
<CAPTION>
STAGE OF
PROGRAM/COMPOUND INDICATION DELIVERY FORM DEVELOPMENT (1)
- ------------------------ ----------------------- --------------------- ----------------
<S> <C> <C> <C>
PNP Inhibitors (BCX-34) CTCL Topical Phase III
Oral Phase I/II (2)
Psoriasis Topical Phase II
Oral Preclinical
Atopic dermatitis Topical Phase I/II
HIV Oral Preclinical
Rheumatoid arthritis Oral Preclinical
Transplant rejection Oral Preclinical
Ophthalmic diseases and Ophthalmic Preclinical
disorders
Influenza Neuraminidase
Inhibitors Influenza Oral Preclinical
Complement Inhibitors Immunological diseases Intravenous and Oral Preclinical
and disorders
</TABLE>
- ------------
(1) See "--Government Regulation" for a description of drug development phases
and "Risk Factors" for a discussion of certain factors that can adversely
affect the Company's drug development programs.
(2) This trial may also include subjects with T-cell leukemia and other T-cell
cancers.
During the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996 the Company spent an aggregate of $20.3 million on research
and development. Of that amount, $4.2 million was spent in 1993, $5.6 million
was spent in 1994, $7.1 million was spent in 1995 and $3.4 million was spent for
the six months ended June 30, 1996. Approximately $12.4 million of that amount
was spent on in-house research and development and approximately $7.9 million
was spent on contract research and development.
PNP INHIBITORS (BCX-34)
The human immune system employs specialized cells and proteins, including
cells known as T-cells and B-cells, to control infection and recognize and
attack foreign disease-causing viruses, bacteria and parasites. The immune
system can also cause diseases or disorders when it inappropriately identifies
the body's own tissue as foreign and, among other things, produces T-cells that
attack normal body cells. Such diseases are referred to as autoimmune diseases
and include psoriasis, in which the immune system attacks skin tissue, and
rheumatoid arthritis, in which the immune system attacks joint tissue. This
immune system response also causes transplant rejection in which the T-cells of
the immune system attack the transplanted organ or tissue. The immune system may
also produce T-cells that multiply uncontrollably. T-cell proliferation in such
cases is associated with cancers such as cutaneous T-cell lymphoma. Within the
past decade, drugs have been developed that treat autoimmune and related
diseases by selectively suppressing the immune system. However, most current
immunosuppressive drugs have dose-limiting side effects, including severe
toxicity.
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The link between T-cell proliferative disorders and the PNP enzyme was first
discovered approximately 20 years ago when a patient, who was genetically
deficient in PNP, exhibited limited T-cell activity, but reasonably normal
activity of other immune functions. Since then, additional patients with
inherited PNP deficiency have been reported. In most patients, the T-cell
population was less than 20% of normal levels, often as low as 1-3% of normal
levels. However, B-cell function was normal in approximately two-thirds of these
patients. These findings suggested that inhibition of PNP might produce
selective suppression of T-cell function without significantly impairing B-cell
function.
BioCryst has designed and synthesized several chemically distinct groups of
small molecule compounds (five of which have been patented and one of which has
been allowed in the United States) which inhibit the PNP enzyme. In in vitro
preclinical studies, the Company's PNP inhibitor compounds selectively and
potently suppressed human T-cells associated with certain T-cell proliferative
disorders. One member of a patented group of PNP inhibitor compounds, BCX-34,
which was designed and developed by BioCryst, to date has been the most
promising of the Company's compounds as a potential treatment for a number of
T-cell proliferative diseases and related disorders. The Company is in the
clinical stage of development of topical and oral formulations of BCX-34 and is
in the preclinical stage of development of an ophthalmic formulation.
Additionally, the Company has an intravenous formulation for future development.
A topical formulation may be most suitable for treating certain dermal
indications as a result of being able to directly administer the drug to
diseased skin, thereby minimizing systemic absorption. An orally deliverable
product may allow systemic application of the drug in diseases that either
cannot be treated topically or can be treated more effectively with an oral
formulation. An ophthalmic formulation in the form of eye droplets may be most
suitable for treating certain ophthalmic indications as a result of being able
to directly administer the drug to the eye. An intravenous formulation may allow
more precise dosage control and direct systemic application into the bloodstream
and may permit usage of BCX-34 where other methods of delivery may not be
suitable.
Cutaneous T-Cell Lymphoma. CTCL is a severe form of cancer which is
characterized by the development of scaly patches on the skin, progressing to
ulcers and tumors of the skin, lymph nodes and internal organs. CTCL is a
chronic disease involving the proliferation of certain types of T-cells.
According to a medical journal, approximately 1,000 new cases of CTCL are
diagnosed annually in the United States. There is no known cure and the median
survival time is approximately four years after systemic progression of the
disease. Existing therapies for CTCL are generally considered inadequate. In
October 1993, the Company obtained from the FDA orphan drug designation for
BCX-34 to treat CTCL and may qualify for accelerated review as a new drug to
treat serious and life-threatening illnesses.
The Company is conducting a Phase III trial with topical BCX-34 for the
treatment of CTCL. This trial, being conducted at 10 major medical centers, is a
randomized, double-blind, placebo-controlled trial designed to include 90
patients with early-stage CTCL. Patients in this study apply either BCX-34 (1%
concentration) or placebo cream over their entire body twice daily for six
months. Prior to commencing this trial, the Company completed in 1995 a
two-stage Phase II trial, which was conducted at UAB and Washington University
in St. Louis. The first stage of the Phase II trial was a randomized,
double-blind and placebo-controlled dose-ranging trial that enrolled 30 patients
with CTCL. In this trial, patients applied one of three concentrations of BCX-34
(0.3%, 1% or 5%) and placebo cream to different targeted disease lesions twice
daily for six weeks. This trial did not achieve a statistically significant
outcome. Twenty-four of the study patients from the dose-ranging trial continued
in an open-label (i.e., non-blinded) trial applying BCX-34 (1%) to all disease
lesions twice daily for six months. The results from the extended trial
demonstrated clinical improvement in 75% of the patients. Seven patients had
complete remissions (lesions cleared both clinically and histologically), two
patients were clinically clear and nine patients had partial clearance. Six
patients had stable or progressive disease or dropped out of the trial. There
were no significant drug-related adverse events. The foregoing results are not
definitive, as positive Phase III clinical trial results are required to
determine safety and efficacy of BCX-34. The Company believes the results of the
open-label trial suggest that more than six weeks are required to obtain
efficacy in the topical treatment of CTCL.
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The Company completed a Phase I oral and intravenous trial of BCX-34 in May
1995. In this trial, three CTCL patients received a single intravenous dose,
followed a week later by a single oral dose, followed three weeks later by
five-day consecutive oral dosing. This pharmacology study suggested that BCX-34
is well tolerated systemically and that the drug is highly bioavailable in
humans. In late 1995, the Company initiated a Phase I/II dose-escalation oral
trial in CTCL and other T-cell cancer patients. This is an open-label trial
designed to provide safety and pharmacokinetic data on BCX-34 as well as provide
potential efficacy data. To date, nine patients have been enrolled and dosed in
this study, and preliminary data indicates biological activity.
Psoriasis. Psoriasis is a common chronic and recurrent disease involving
T-cells characterized by red, thick scaling of the skin, which can develop at
any time in life. According to the National Psoriasis Foundation, it is
estimated that approximately five million people suffer from some form of
psoriasis in the United States, and 150,000 to 260,000 new cases are diagnosed
annually. About 10% of these cases are classified as "severe" and are most
likely to require physician's care and drug intervention. In some cases, the
condition may be accompanied by a form of arthritis which can be debilitating.
Current therapies for psoriasis either are of limited benefit or have severe
side effects.
The Company completed a Phase II trial with topical BCX-34 for the treatment
of psoriasis in April 1996. This trial, which was conducted at four clinical
research centers (two of which were in northern sites and two of which were in
sunbelt sites), was a randomized, double-blind, placebo-
controlled trial enrolling 90 patients with plaque stage psoriasis. Patients
applied either BCX-34 (1% concentration) or placebo cream over their disease
lesions twice daily for 12 weeks. Overall, the trial did not demonstrate a
statistically significant drug effect relative to the placebo. A subsequent
analysis performed by the Company showed that the placebo-treated patients at
the sunbelt sites had a statistically significant greater therapeutic response
than those at the northern sites. The Company believes that the response in
placebo-treated patients at sunbelt sites may have been increased by the
recognized therapeutic effect sun exposure has on psoriasis. The Company
designed its Phase III trial protocol to take into consideration this factor.
The Company believes that the outcome of this trial is sufficient to justify
proceeding to a Phase III trial. Preceeding this trial was a Phase II trial
completed in December 1994. This Phase II trial was randomized, double-blinded
and placebo-controlled and enrolled 40 patients at UAB with plaque stage
psoriasis. In this trial, patients applied one of four concentrations of BCX-34
(0.1%, 0.3%, 1% or 5%) and placebo cream to different targeted disease lesions
twice daily for six weeks. While there were no significant drug-related adverse
events, this trial did not achieve a statistically significant outcome. The
foregoing results are not definitive as positive Phase III clinical trial
results are required to determine safety and efficacy of BCX-34. The Company
intends to initiate a Phase III topical trial by the end of 1996, subject to
satisfactory review by the FDA. The Company filed in July 1996 an IND for the
oral treatment of psoriasis and, assuming satisfactory FDA review, expects to
initiate a Phase I/II Clinical Trial by the end of 1996.
Atopic Dermatitis. Atopic dermatitis, sometimes referred to as eczema, is a
chronic skin condition occurring primarily in infants and children and, to a
lesser extent, in adults. The disorder is characterized by severe itching, a
rash with small bumps, redness, thickened skin from repeated scratching, and
sometimes secondary infection of the skin. Recent market reviews have suggested
that over 1.8 million individuals suffer from atopic dermatitis.
Several biochemical mechanisms of the disease have been studied, including
abnormal T-cell function. It is uncertain whether inhibiting T-cell
proliferation with BCX-34 will be helpful in treating the disease, but other
agents which inhibit T-cells have been used in treating atopic dermatitis. These
other agents have limited therapeutic benefit or generally cause adverse side
effects which can be severe. In June 1996, the Company initiated a Phase I/II
clinical trial with topical BCX-34 for atopic dermatitis.
HIV. Due to the increasing number of HIV-infected people, HIV infection is a
major health concern. Despite extensive research and development, the treatment
of HIV infection remains unsatisfactory due to the toxicity or limited
therapeutic benefit of currently approved therapies. The Centers for Disease
Control and Prevention ("CDC") estimates that there are approximately one
million people
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in the United States infected with HIV. HIV drug research has focused primarily
on developing inhibitors of the enzymes reverse transcriptase ("RT") and HIV
protease. Initially, scientists thought blocking the HIV essential RT enzyme
would shutdown replication of HIV and curb the progression of HIV infection to
AIDS. Several RT inhibitors are now approved, but the clinical usefulness of
these drugs has been limited by their toxicity and by the ability of HIV to
mutate into forms that are resistant to them. A second approach of HIV drug
research has targeted the HIV protease enzyme. HIV protease is an enzyme that
performs an essential role in the infectious cycle of HIV. It is believed that
blocking HIV protease renders HIV unable to form a new infectious virus.
Although numerous companies are developing protease inhibitors, the long-term
therapeutic potential of these drugs is uncertain.
A new approach to HIV drug research focuses on the T-cell host rather than
the virus. It is believed that while resting, nondividing CD4 T-cells can be
infected by the virus, the virus does not multiply. Since T-cell activation and
growth appear to be essential for virus replication, a treatment which inhibits
T-cell growth might decrease the overall viral burden. The Company believes,
based in part upon preliminary preclinical in vitro tests, that BCX-34 could
potentially be useful in treating HIV-infected patients by reversibly inhibiting
the growth of infected T-cells. The Company is collaborating with researchers at
the UAB Center for AIDS Research on the design of an oral Phase I/II study which
will be initiated following satisfactory FDA review.
Rheumatoid Arthritis. Rheumatoid arthritis is an autoimmune disease that
involves inflammation of the membranes lining joints, causing joint pain,
swelling, and deformities. According to a scientific journal, it is estimated
that approximately 1% to 2% of the U.S. adult population, or approximately 2.6
million to 5.2 million adults, are afflicted with rheumatoid arthritis. There
are many drugs used to treat the disease, but such drug treatments only
alleviate the symptoms of rheumatoid arthritis. The Company believes T-cell
controlling agents, such as PNP inhibitors and specifically an oral formulation
of BCX-34, offer promise as a potential drug treatment for rheumatoid arthritis.
Among other potential competitors, Ciba has rights to develop a group of PNP
inhibitors excluding BCX-34, licensed from BioCryst, with potential application
in the treatment of rheumatoid arthritis.
Transplant Rejection. Risk of rejection is one of the most frequent concerns
following transplant surgery. Rejection is caused by the body's immune response
in which T-cells are generated to attack the transplanted organ or tissue. In
general, for organ and bone marrow transplants, rejection is an acute risk
during the initial hospital stay for the transplant surgery and thereafter a
chronic risk of varying degrees of severity. The Company believes selective
suppression of the immune response may reduce the risk of rejection. The
immunosuppressant drugs which are currently used to control or prevent rejection
often cause significant detrimental side effects. A number of new drugs are in
various stages of development by other researchers and companies for the control
and prevention of transplant rejection. The Company is at the preclinical stage
of development of the oral formulation of BCX-34 for treatment of transplant
rejection.
Ophthalmic Diseases and Disorders. There are a number of inflammatory
diseases of the eye that involve T-cells. A leading ophthalmic inflammatory
disease is uveitis, which is characterized by eye swelling, ocular accumulation
of fatty deposits and impaired vision. The most severe cases of uveitis, such as
Behcet's syndrome and Vogt-Koyanagi-Harada syndrome, may result in blindness.
Clinical studies conducted by third parties with currently approved
immunosuppressants support the idea that T-cells participate in the pathogenesis
of these diseases and that oral and ophthalmic formulations of BCX-34 may
potentially be efficacious in treating these diseases. The Company is in the
preclinical stage of development of an ophthalmic formulation of BCX-34 for
direct delivery of the drug to the eye.
INFLUENZA NEURAMINIDASE INHIBITORS
Influenza is a viral disease which is particularly dangerous to the very
young, the elderly and debilitated patients and those who have suppressed immune
systems. The CDC estimates that approximately 10% to 20% of the U.S. population
is infected with influenza during most influenza seasons. The current standard
for preventing flu is by vaccination, which is of limited benefit as vaccines
are designed to resist a specific flu strain. No satisfactory treatment
currently exists. Since the early 1980's, UAB scientists have been investigating
the active site and function of the enzyme influenza neuraminidase.
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Influenza neuraminidase is an enzyme on the surface of the influenza virus which
is associated with the spread of influenza and is believed to permit the
influenza virus to invade human cells. Scientists at UAB and the Company have
characterized the molecular structure of influenza neuraminidase and have
initiated the design and synthesis of specific inhibitors. Research at UAB and
the Company to date indicates that the active site for influenza neuraminidase
remains substantially unchanged for the major strains of influenza. The Company
believes that a neuraminidase inhibitor may be useful as a treatment for
influenza and is in the preclinical stage of development of neuraminidase
inhibitors. Funded in part by a National Institutes of Health ("NIH") Phase I
SBIR grant and a State of Alabama grant, the Company has developed lead
compounds which in in vitro studies have indicated inhibition of influenza
neuraminidase. At least one major pharmaceutical company is engaged in clinical
studies of an influenza neuraminidase inhibitor compound intended to treat
influenza, and the Company believes that several other pharmaceutical companies
are engaged in research to design or discover inhibitors of influenza
neuraminidase.
COMPLEMENT INHIBITORS
The human body is equipped with immunological defense mechanisms to respond
aggressively to infection or injury. One of these mechanisms, called complement,
is a system of functionally linked proteins that interact with one another in a
highly regulated manner. The complement system functions as a "cascade." Once an
activator of the system converts an inactive enzyme to an active enzyme, the
activated enzyme activates more proteins at the next stage, which in turn
activate other proteins. This mechanism, if inappropriately activated, can cause
acute medical reactions, including the inflammatory reactions that accompany
hemodialysis, myocardial infarction, bypass surgery and post heart attack
reperfusion injury. There are two pathways of complement activations, the
classical pathway and the alternative pathway. The classical pathway is usually
initiated by antigen-antibody complexes, while the alternative pathway is
activated by bacterial, viral and parasite cell surfaces.
Due to the biochemical mechanism of the complement cascade, BioCryst
believes complement inhibitors may have therapeutic applications in numerous
acute and chronic immunological disorders. BioCryst is focusing its research
efforts on designing protein and enzyme inhibitors to limit the rapid and
aggressive damage caused by the complement cascade. The Company is initially
focusing on designing inhibitors for factor D and factor B, enzymes playing a
role in the alternative pathway, and the enzyme C1s, which plays a role in the
classical pathway. Working with UAB scientists and funded in part by SBIR grants
from the NIH, BioCryst has characterized the three-dimensional structure of
factor D and has developed various assay systems for screening complement
inhibitors. The Company is performing preclinical studies with certain
inhibitors it has designed and synthesized. The Company continues to design
additional inhibitors.
COLLABORATIVE ARRANGEMENTS
Torii
In May 1996, the Company entered into an agreement pursuant to which it
granted Torii an exclusive license, with the right to sublicense, to develop,
manufacture and commercialize BCX-34 and certain other PNP inhibitor compounds
in Japan for the treatment of rheumatoid arthritis, T-cell cancers (including
CTCL) and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of Common Stock at a purchase price of
$19.58 per share. In order for Torii to maintain its licensing rights, it is
obligated to make payments to the Company of up to $19.0 million upon the
achievement of specified development milestones. Torii is responsible for all
development, regulatory and commercialization expenses in Japan and is obligated
to pay royalties to the Company on sales of licensed products in Japan. The
agreement will remain in effect, unless earlier terminated, until the last to
expire of any patent rights licensed under the agreement, or in the event no
patents issue, for twenty years from May 31, 1996. The agreement is subject to
termination by Torii at any time and by the Company in certain circumstances,
including any material breaches of the agreement by Torii. Pursuant to the
agreement, Torii may negotiate a license with the Company to develop BCX-34 and
certain other PNP inhibitor compounds for additional indications.
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UAB Collaborative Arrangements
UAB has one of the leading X-ray crystallography centers in the world, with
approximately 100 full-time staff members and approximately $9.0 million in
research grants and contract funding in 1995. In 1986, the Company entered into
an agreement with UAB which granted the Company exclusive rights to any
discoveries resulting from research relating to PNP.
Since 1990, the Company has entered into several other research agreements
with UAB to perform research for the Company. The agreements provide that UAB
perform specific research for the Company in return for research payments and
license fees. In November 1994, the Company entered into an agreement with UAB
for joint research and development relating to development of an influenza
neuraminidase inhibitor. UAB has granted the Company certain rights to any
discoveries in this area resulting from research previously developed by UAB or
jointly developed with BioCryst. The Company has agreed to fund certain UAB
research laboratories, to expend at least $6.0 million for the project over the
three-year period, to pay certain royalties on sales of any resulting product
and to share in future payments received from other third-party collaborators.
In July 1995, the Company entered into an agreement with UAB for joint research
and development relating to factor D inhibitors. UAB has also granted the
Company certain rights to any discoveries in this area resulting from research
previously developed by UAB or jointly developed with BioCryst. The Company has
agreed to fund certain UAB research laboratories, to expend at least $1.0
million for the project over a three-year period, to pay certain royalties on
sales of any resulting product and to share in future payments received from
other third-party collaborators. These two agreements have initial 25-year
terms, (automatically renewable for five year terms throughout the life of the
last patent or extension thereof incorporating the licensed rights) and are
terminable by the Company upon three months' notice and by UAB under certain
circumstances.
BioCryst believes that due to the expertise of the faculty at UAB in the
various disciplines employed by BioCryst in its structure-based drug design
programs, including X-ray crystallography, and UAB's past performance in
identifying and characterizing medically relevant protein targets, BioCryst's
relationship with UAB is important to the success of BioCryst. No assurance can
be given, however, that UAB's research will be beneficial to BioCryst or that
BioCryst will be able to maintain its relationship with UAB. See Note 10 to
Notes to Financial Statements.
Grants and Technology Agreements
In 1987, the Company entered into a research agreement under which BioCryst
received approximately $960,000 over four years from Ciba to fund its research
of PNP inhibitors and Ciba was granted certain rights to enter into various
option and license agreements for PNP inhibitors. In 1990, Ciba exercised its
right pursuant to which the Company granted Ciba an exclusive option to enter
into a worldwide exclusive license for several of the Company's PNP inhibitor
compounds. The license does not include BCX-34. Ciba signed that license
agreement and paid the Company a $500,000 fee (up to $300,000 of which is
refundable in certain circumstances) following patent issuance in 1993. The
terms of the license also call for Ciba to make milestone payments based upon
the estimated annual United States sales of the licensed products plus
royalties. No assurance can be given that any additional revenues will be
realized by the Company pursuant to the license. Ciba's other rights to enter
into various option and license agreements for PNP inhibitors have expired. See
Note 10 to Notes to Financial Statements.
In 1991 and 1992, BioCryst was awarded three $50,000 Phase I SBIR grants by
the NIH. They were used to support the design and synthesis of inhibitors to
influenza neuraminidase, factor D and aldose reductase. In 1992, the Company was
also awarded $47,500 by the Alabama Department of Economic and Community
Affairs, which was used in the design and synthesis of inhibitors of influenza
neuraminidase. In February 1994, BioCryst was awarded a two-year $500,000 Phase
II SBIR grant by the NIH. The grant was used to support the design of inhibitors
of factor D. There is no assurance that BioCryst will be awarded any future
grants. See Note 10 to Notes to Financial Statements.
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PATENTS AND PROPRIETARY INFORMATION
The Company owns or has rights to certain proprietary information, issued
and allowed patents and patent applications which relate to compounds it is
developing. The Company actively seeks, when appropriate, protection for its
products and proprietary information by means of United States and foreign
patents, trademarks and contractual arrangements. In addition, the Company plans
to rely upon trade secrets and contractual arrangements to protect certain of
its proprietary information and products. The Company has been issued five
United States patents which expire in 2009 or 2010 and relate to its PNP
inhibitor compounds. The Company's current lead compound, BCX-34, is covered by
one of the composition of matter patents. Two patent applications relating to
other of the Company's PNP inhibitor compounds are pending at the PTO. The
Company's patent application relating to two additional PNP inhibitor compounds
has been allowed. The compound under a disputed option to Warner-Lambert is
included in this group. The Company may require a license from Warner-Lambert to
market a product containing this compound. No assurance can be given that such a
license would be available or obtainable on terms acceptable to BioCryst. See
"Business -- Legal Proceedings." A patent application on a new process to
prepare BCX-34 and other PNP inhibitors has also been submitted to the PTO. In
addition, two patent applications relating to inhibitors of influenza
neuraminidase have been filed at the PTO, one of which has been allowed. There
can be no assurance that any patents will provide the Company with sufficient
protection against competitive products or otherwise be commercially valuable.
The Company's success will depend in part on its ability to obtain and
enforce patent protection for products developed by it, preserve its trade
secrets, and operate without infringing on the proprietary rights of third
parties, both in the United States and other countries. In the absence of patent
protection, the Company's business may be adversely affected by competitors who
develop substantially equivalent technology. Because of the substantial length
of time and expense associated with bringing new products through development
and regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. There can
be no assurance that patents will be issued from such applications, that the
Company will develop additional products that are patentable or that present or
future patents will provide sufficient protection to the Company's present or
future technologies, products and processes. In addition, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information, design around the Company's patents or obtain access to
the Company's know-how or that others will not successfully challenge the
validity of the Company's patents or be issued patents which may prevent the
sale of one or more of the Company's product candidates, or require licensing
and the payment of significant fees or royalties by the Company to third parties
in order to enable the Company to conduct its business. Legal standards relating
to the scope of claims and the validity of patents in the fields in which the
Company is pursuing research and development are still evolving, are highly
uncertain and involve complex legal and factual issues. No assurance can be
given as to the degree of protection or competitive advantage any patents issued
to the Company will afford, the validity of any such patents or the Company's
ability to avoid violating or infringing any patents issued to others. Further,
there can be no guarantee that any patents issued to or licensed by the Company
will not be infringed by the products of others. Litigation and other
proceedings involving the defense and prosecution of patent claims can be
expensive and time consuming, even in those instances in which the outcome is
favorable to the Company, and can result in the diversion of resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties or require the Company to cease any related research and
development activities or sales.
The Company depends upon the knowledge, experience and skills (which are not
patentable) of its key scientific and technical personnel. To protect its rights
to its proprietary information, the Company requires all employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance that these
agreements will effectively prevent the unauthorized use or disclosure of the
Company's confidential information.
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The Company's research has been or is being funded in part by Small Business
Innovation Research or National Institutes of Health grants. See "Business --
Collaborative Arrangements." As a result of such funding, the United States
Government has or will have certain rights in the inventions developed with the
funding. These rights include a non-exclusive, paid-up, worldwide license under
such inventions for any governmental purpose. In addition, the government has
the right to require the Company to grant an exclusive license under any of such
inventions to a third party if the government determines that (i) adequate steps
have not been taken to commercialize such inventions, (ii) such action is
necessary to meet public health or safety needs or (iii) such action is
necessary to meet requirements for public use under federal regulations. Federal
law requires that any exclusive licensor of an invention that was partially
funded by federal grants (which is the case with the subject matter of certain
patents issued in the Company's name) agree that it will not grant exclusive
rights to use or sell the invention in the United States unless the grantee
agrees that any products embodying the invention will be manufactured
substantially in the United States, although such requirement is subject to a
discretionary waiver by the government. It is not expected that the government
will exercise any such rights.
MARKETING, DISTRIBUTION AND SALES
The Company lacks experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborators, licensees or arrangements with others to provide
for the marketing, distribution and sales of any products it may develop. There
can be no assurance that the Company will be able to establish marketing,
distribution and sales capabilities or make arrangements with collaborators,
licensees or others to perform such activities.
MANUFACTURING
The Company has not yet manufactured or marketed any products and currently
does not have the facilities to manufacture its product candidates in commercial
quantities under GMP as prescribed and required by the FDA. To be successful,
the Company's products must be manufactured in commercial quantities under GMP
and at acceptable costs. Although the Company is formulating and packaging under
GMP conditions small amounts of certain drug formulations which are the subject
of preclinical studies and clinical trials, the current facilities of the
Company are not adequate for commercial scale production. Therefore, the Company
will need to develop its own GMP manufacturing facility and/or depend on its
collaborators, licensees or contract manufacturers for the commercial
manufacture of its products. The Company has no experience in such commercial
manufacturing and no assurance can be given that the Company will be able to
make the transition to commercial production successfully or at an acceptable
cost. In addition, no assurance can be given that the Company will be able to
make arrangements with third parties to manufacture its products on acceptable
terms, if at all. See "Risk Factors -- Lack of Manufacturing, Marketing or Sales
Capability."
GOVERNMENT REGULATION
BioCryst's research and development activities are, and its future business
will be, subject to significant regulation by numerous governmental authorities
in the United States, primarily, but not exclusively, by the FDA, and other
countries. Pharmaceutical products intended for therapeutic or diagnostic use in
humans are governed principally by the Federal Food, Drug and Cosmetic Act and
by FDA regulations in the United States and by comparable laws and regulations
in foreign countries. The process of completing clinical testing and obtaining
FDA approval for a new drug product requires a number of years and the
expenditure of substantial resources.
Following drug discovery, the steps required before a new pharmaceutical
product may be marketed in the United States include (1) preclinical laboratory
and animal tests, (2) the submission to the FDA of an application for an
investigational new drug ("IND"), (3) clinical and other studies to assess
safety and parameters of use, (4) adequate and well-controlled clinical trials
to establish the safety and effectiveness of the drug, (5) the submission of a
new drug application ("NDA") to the FDA, and (6) FDA approval of the NDA prior
to any commercial sale or shipment of the drug.
Typically, preclinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's pharmacology and
toxicology and to identify any potential safety
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problems that would preclude testing in humans. The results of these studies are
submitted to the FDA as part of the IND application. Testing in humans may
commence 30 days after submission of the IND to the FDA unless the FDA objects
although companies typically wait for approval from the FDA before commencing
clinical trials. A three phase clinical trial program is usually required for
FDA approval of a pharmaceutical product. Phase I clinical trials are designed
to determine the metabolism and pharmacologic effects of the drug in humans, the
side effects associated with increasing doses, and, possibly, to obtain early
indications of efficacy. These studies generally involve a small number of
healthy volunteer subjects, but may be conducted in people with the disease the
drug is intended to treat. Phase II studies are conducted in an expanded
population to evaluate the effectiveness of the drug for a particular indication
and thus involve patients with the disease under study. These studies are also
intended to elicit additional safety data on the drug, including evidence of the
short-term side effects and other risks associated with the drug. Phase III
studies are generally designed to provide the substantial evidence of safety and
effectiveness of a drug required to obtain FDA approval. They often involve a
substantial number of patients in multiple study centers and may include chronic
administration of the drug in order to assess the overall benefit-risk
relationship of the drug. A clinical trial may combine the elements of more than
one phase, and typically two or more Phase III studies are required. Upon
completion of clinical testing which demonstrates that the product is safe and
effective for a specific indication, an NDA may be submitted to the FDA. This
application includes details of the manufacturing and testing processes,
preclinical studies and clinical trials. The designation of a clinical trial as
being of a particular phase is not necessarily indicative that such a trial will
be sufficient to satisfy the requirements of a particular phase. For example, no
assurance can be given that a Phase III clinical trial will be sufficient to
support an NDA without further clinical trials. The FDA monitors the progress of
each of the three phases of clinical testing and may alter, suspend or terminate
the trials based on the data that have been accumulated to that point and its
assessment of the benefit-risk ratio to the patient. Typical estimates of the
total time required for completing such clinical testing vary between four and
ten years. FDA approval of the NDA is required before the applicant may market
the new product in the United States. The clinical testing and FDA review
process for new drugs are likely to require substantial time, effort and
expense. There can be no assurance that any approval will be granted to the
Company on a timely basis, if at all. The FDA may refuse to approve an NDA if
applicable statutory and/or regulatory criteria are not satisfied, or may
require additional testing or information. There can be no assurance that such
additional testing or the provision of such information, if required, will not
have a material adverse effect on the Company. The regulatory process can be
modified by Congress or the FDA in specific situations.
In 1988, the FDA issued regulations intended to expedite the development,
evaluation, and marketing of new therapeutic products to treat life-threatening
and severely debilitating illnesses for which no satisfactory alternative
therapies exist. These regulations provide for early consultation between the
sponsor and the FDA in the design of both preclinical studies and clinical
trials. Phase I clinical trials may sometimes be carried out in people with the
disease that the drug is intended to treat rather than in healthy volunteers, as
is customary, followed by studies to establish effectiveness in Phase II. If the
results of Phase I and Phase II trials support the safety and effectiveness of
the therapeutic agent, and their design and execution are deemed satisfactory
upon review by the FDA, marketing approval can be sought at the end of Phase II
trials. NDA approval granted under these regulations may be restricted by the
FDA as necessary to ensure safe use of the drug. In addition, post-marketing
clinical studies may be required. If after approval a post-marketing clinical
study establishes that the drug does not perform as expected, or if
post-marketing restrictions are not adhered to or are not adequate to ensure
safe use of the drug, FDA approval may be withdrawn. The expedited approval may
shorten the traditional drug development process by an estimated two to three
years. There can be no assurance, however, that any compound the Company may
develop will be eligible for evaluation by the FDA under the 1988 regulations
or, if eligible, will be approved for marketing at all or, if approved for
marketing, will be approved for marketing sooner than would be traditionally
expected.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 individuals
in the United States. Orphan drug designation must be requested before
33
<PAGE>
submitting an NDA. After the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use are publicized by
the FDA. Under current law, orphan drug designation grants certain U.S.
marketing exclusivity rights for seven years to the first company to receive FDA
approval to market such designated drug, subject to certain limitations. A
product that is considered by the FDA to be different from a particular orphan
drug or is approved for different indications is not barred from sale in the
United States during the seven year exclusivity period. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory
approval process. In October 1993, the Company obtained from the FDA an orphan
drug designation for BCX-34 to treat CTCL, and may request orphan drug
designation for more of its products and/or additional indications as part of
its overall regulatory strategy in the future. There is no assurance, however,
that any of its products will receive an orphan drug designation or be the first
to be approved by the FDA for the designated indication and, hence, obtain
orphan drug marketing exclusivity. Although obtaining FDA approval to market a
product with an orphan drug designation can be advantageous, there can be no
assurance that the scope of protection or the level of marketing exclusivity
that is currently afforded by orphan drug designation and marketing approval
will remain in effect in the future. There can be no assurance that the Company
will receive FDA approval to market BCX-34 to treat CTCL. In addition, it is
possible that other competitors of the Company could obtain orphan drug
designation for product candidates that are not the same as BCX-34 though they
are intended for use to treat CTCL.
Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety or to gain approval for the use of
a product as a treatment in clinical indications other than those for which the
product was initially tested. The FDA may also require post-marketing testing
and surveillance programs to monitor the drug's effects. Side effects resulting
from the use of pharmaceutical products may prevent or limit further marketing
of products.
Once the sale of a product is approved, the FDA regulates production,
distribution marketing, advertising and other activities under the Federal Food,
Drug, and Cosmetic Act and the FDA's implementing regulations. A post-marketing
testing, surveillance and reporting program may be required to continuously
monitor the product's usage and effects. Product approvals may be withdrawn, or
other actions may be ordered, or sanctions imposed if compliance with regulatory
requirements is not maintained.
In June 1995, the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. Upon learning of the error, the Company initiated
internal and external audits and submitted corrected analyses to the FDA. In
addition, the Company hired a new Vice President of Clinical Development and
outside expert personnel to manage clinical development and monitor studies,
developed additional standard operating procedures, and contracted with a
contract research organization to assist the Company in monitoring its trial for
BCX-34 for CTCL.
In November 1995, the FDA inspected the Company in relation to a February
1995 48-hour skin stripping study involving application of BCX-34. At the
conclusion of the inspection, the FDA issued to the Company a Form FDA 483
including the observation that there was no documentation of any monitoring of
the study or of several other studies. The Company responded to this and the
other observation in the Form FDA 483. Although the FDA has not raised any
additional questions in the matter, the Company does not know whether its
responses were satisfactory to the FDA.
In June 1996, the FDA inspected the Company and one of its clinical sites in
relation to Phase II dose-ranging studies of BCX-34 for CTCL and psoriasis, each
of which was concluded in early 1995. At the conclusion of the inspection, the
FDA issued to the Company a Form FDA 483 citing deficiencies relating to the
monitoring of the studies and the Company's procedures for generating,
archiving, and safeguarding the randomization tables used in the studies. The
deficient procedures failed to prevent the use of an incorrect randomization
table which ultimately resulted in the initial submission to the FDA of data
which reported false statistical significance. The FDA issued a Form FDA 483 to
the principal investigator at one of the Company's clinical sites, citing
numerous significant deficiencies in the conduct of the Phase II dose-ranging
study of BCX-34 for CTCL and psoriasis. These deficiencies
34
<PAGE>
included improper delegations of authority by the principal investigator,
failures to follow the protocols, institutional review board deviations, and
discrepancies or deficiencies in documentation and reporting. As a result of the
FDA inspections the FDA may not accept data from these studies. As a consequence
of the FDA inspections and such resulting Form 483s, the Company's ongoing
clinical studies, and in particular, the Phase III trial with topical BCX-34 for
CTCL, are likely to receive increased scrutiny since the same clinical site
which received the 483 is involved in that trial; this may delay the regulatory
review process or require the Company to increase the number of patients at
other sites to obtain approval (which can not be assured on a timely basis or at
all).
The Company believes that its procedures and monitoring practices are now in
compliance with the FDA's requirements governing GCP. There can be no assurance,
however, that the FDA will agree or that, even if it does agree, it will not
seek to impose administrative, civil, or other sanctions in connection with the
earlier studies and submission. Administrative sanctions could include refusing
to accept earlier studies and requiring the Company to repeat one or more
clinical studies, which would be the only studies the FDA would accept for
purposes of substantive scientific review of any NDA by the agency.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar Federal, state and local regulations governing
permissible laboratory activities, waste disposal handling of toxic, dangerous
or radioactive materials and other matters. The Company believes that it is in
compliance in all material respects with such regulations.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements relating to the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
COMPETITION
The pharmaceutical industry is intensely competitive. Many companies,
including other pharmaceutical companies and biotechnology companies, are
actively engaged in activities similar to those of the Company, including
research and development of drugs for the treatment of immunological and
infectious diseases and disorders. Many of these companies have substantially
greater financial and other resources, larger research and development staffs,
and more extensive marketing and manufacturing organizations than the Company.
In addition, some such companies have considerable experience in preclinical
testing, clinical trials and other regulatory approval procedures. There are
also academic institutions, governmental agencies and other research
organizations which are conducting research in areas in which the Company is
working; they may also market commercial products, either on their own or
through collaborative efforts.
BioCryst expects to encounter significant competition for the pharmaceutical
products it plans to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, certain pharmaceutical and biotechnology firms, including major
pharmaceutical companies and specialized structure-based drug design companies
have announced efforts in the field of structure-based drug design and in the
field of PNP inhibitors, and the Company is aware that other companies or
institutions are pursuing development of new drugs and technologies directly
targeted at applications for which the Company is developing its drug compounds.
The Company expects that the technology for structure-based drug design will
attract significant additional competitors over time. In order to compete
successfully, the Company's goal is to develop proprietary positions in patented
drugs for therapeutic markets which have not been satisfactorily addressed by
conventional research strategies and, in the process, extend its expertise in
structure-based drug design. See "Risk Factors -- Competition."
35
<PAGE>
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
BioCryst has assembled a Scientific Advisory Board comprised of seven
members (the "Scientific Advisors") who are leaders in certain of the Company's
core disciplines or who otherwise have specific expertise in its therapeutic
focus areas. The Scientific Advisory Board meets as a group at scheduled
meetings, and the Scientific Advisors meet more frequently, on an individual
basis, with the Company's scientific personnel and management to discuss the
Company's ongoing research and drug discovery and development projects. The
Company also has consulting agreements with a number of other scientists (the
"Consultants") with expertise in the Company's core disciplines or in its
therapeutic focus areas who are consulted from time to time by the Company.
The Scientific Advisors and the Consultants are reimbursed for their
expenses and receive nominal cash compensation in connection with their service
and have been issued options and/or shares of Common Stock. The Scientific
Advisors have been issued a total of 4,975 shares of Common Stock for nominal
consideration and granted stock options to purchase a total of 71,000 shares of
Common Stock at a weighted average exercise price of $5.99 per share.
Consultants have also been granted stock options to purchase a total of 52,500
shares at a weighted average exercise price of $4.92 per share. The Scientific
Advisors and the Consultants are all employed by or have consulting agreements
with entities other than the Company, some of which may compete with the Company
in the future. The Scientific Advisors and the Consultants are expected to
devote only a small portion of their time to the business of the Company,
although no specific time commitment has been established. They are not expected
to participate actively in the Company's affairs or in the development of the
Company's technology. Certain of the institutions with which the Scientific
Advisors and the Consultants are affiliated may adopt new regulations or
policies that limit the ability of the Scientific Advisors and the Consultants
to consult with the Company. The loss of the services of certain of the
Scientific Advisors and the Consultants could adversely affect the Company to
the extent that the Company is pursuing research or development in areas of such
expertise of the Scientific Advisors and Consultants. To the extent members of
the Company's Scientific Advisory Board or the Consultants have consulting
arrangements with or become employed by any competitor of the Company, the
Company could be materially adversely affected. One member of the Scientific
Advisory Board, Dr. Gordon N. Gill, is a member of the Board of Directors of the
Agouron Institute. The Agouron Institute is a shareholder in, and has had
contractual relationships with, Agouron Pharmaceuticals, Inc., a company
utilizing core technology which is similar to the core technology employed by
BioCryst.
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<PAGE>
The Scientific Advisory Board presently consists of the following
individuals:
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------- ---------------------------------------------
<S> <C>
Albert F. LoBuglio, M.D. (Chairman).......... Professor of Medicine and the Director of the
Comprehensive Cancer Center of UAB
J. Claude Bennett, M.D. ..................... President of UAB and formerly the Spencer
Professor of Medicine and Chairman of the
Department of Medicine of UAB, as well as
Physician-in-Chief of the University of
Alabama Hospital
Gordon N. Gill, M.D. ........................ Professor of Medicine and Chair of the
Faculty of Basic Biomedical Sciences at the
University of California, San Diego School of
Medicine
Robert E. Handschumacher, Ph.D. ............. Professor and former Chairman of the
Department of Pharmacology at Yale University
School of Medicine
Herbert A. Hauptman, Ph.D. .................. Research Professor in Biophysical Science at
the State University of New York (Buffalo),
the President of the Hauptman-Woodward
Medical Research Institute, Inc. (formerly
the Medical Foundation (Buffalo), Inc.), and
Research Professor in Biophysical Sciences at
the State University of New York (Buffalo),
recipient of the Nobel Prize in Chemistry
(1985)
Yuichi Iwaki, M.D., Ph.D. ................... Professor of Urology and Pathology,
University of Southern California School of
Medicine
Hamilton O. Smith, M.D. ..................... Professor, Molecular Biology and Genetics
Department at The Johns Hopkins University
School of Medicine, recipient of the Nobel
Prize in Medicine (1978)
</TABLE>
Any inventions or processes independently discovered by the Scientific
Advisors or the Consultants may not become the property of the Company and will
probably remain the property of such persons or of such persons' employers. In
addition, the institutions with which the Scientific Advisors and the
Consultants are affiliated may make available the research services of their
personnel, including the Scientific Advisors and the Consultants, to competitors
of the Company pursuant to sponsored research agreements. The Company requires
the Scientific Advisors and the Consultants to enter into confidentiality
agreements which prohibit the disclosure of confidential information to anyone
outside the Company and require disclosure and assignment to the Company of
their ideas, developments, discoveries or inventions. However, no assurance can
be given that competitors of the Company will not gain access to trade secrets
and other proprietary information developed by the Company and disclosed to the
Scientific Advisors and the Consultants.
HUMAN RESOURCES
As of July 31, 1996, the Company had 45 employees, of whom 37 were engaged
in research and development and eight were in general and administrative
functions. The Company's scientific staff (16 of whom hold Ph.D. degrees and one
of whom holds an M.D. degree) has diversified experience in biochemistry,
pharmacology, X-ray crystallography, synthetic organic chemistry, computational
chemistry, medicinal chemistry and pharmacology. The Company considers its
relations with its employees to be good.
PROPERTIES
The Company's administrative offices and principal research facility are
located in 22,800 square feet of leased office space in Riverchase
Industrial/Research Park in Birmingham, Alabama. The lease runs through March
31, 2000 with an option to lease for an additional three years at current market
rates. The operating lease requires the Company to pay monthly rent (ranging
from $10,241 and escalating annually to a minimum of $12,457 per month in the
fiscal year), and a pro rata share of operating expenses and real estate taxes
in excess of base year amounts. The Company believes that its facilities are
adequate for its current operations. Additional facilities will be necessary to
manufacture
37
<PAGE>
sufficient quantities under good manufacturing practices to conduct extensive
clinical trials or if the Company undertakes commercial manufacturing.
LEGAL PROCEEDINGS
In October 1991, the Company granted an option to Warner-Lambert to license
BioCryst's group one PNP inhibitors on terms and conditions to be negotiated by
the parties. In June 1993, that option was extended at Warner-Lambert's request
until the earlier of September 1994 or completion of Warner-Lambert's clinical
trials, while being restricted to only BCX-5, one PNP inhibitor compound in
BioCryst's group one inhibitors. The Company's patent application for two
compounds in this group of PNP inhibitor compounds, including BCX-5, has been
allowed by the PTO. Upon exercise of the option, any license negotiated by the
parties would have required an upfront payment, milestone payments and royalties
on agreed-upon terms. In July 1994, Warner-Lambert requested a further extension
of its option and a dispute has arisen between the parties as to, among other
things, whether or not the option has expired and whether or not BioCryst is
obligated to negotiate further with Warner-Lambert the terms of a licensing
agreement.
On February 6, 1995, the Company filed a complaint for a declaratory
judgment against Warner-Lambert in the Circuit Court of Shelby County, Alabama
to resolve the dispute. Warner-Lambert counter-claimed against the Company,
alleging that the Company breached the option. Warner-Lambert claims
compensatory damages for the alleged breach, including the amounts it has paid
to date to BioCryst, its costs in testing BCX-5 and for profits lost because it
will not have certain patent rights to BCX-5 that might have been granted by a
license. In May 1996, BioCryst amended its complaint to assert certain damage
claims.
The Company believes that the conditions precedent to the exercise of
Warner-Lambert's option have not been satisfied, that the option has expired,
and that Warner-Lambert's breach of contract allegations lack merit. The Company
believes that it has complied with its obligations under the option agreement,
and intends to continue to vigorously pursue this action. The proceedings are
ongoing, and there can be no assurance that the Company will prevail or that
Warner-Lambert will not prevail on its counter-claims. No assurance can be given
that this litigation will not have a material adverse effect on the Company.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Charles E. Bugg, Ph.D..................... 55 Chairman, President, Chief Executive
Officer and Director
John A. Montgomery, Ph.D.................. 72 Executive Vice President, Secretary, Chief
Scientific Officer and Director
Ronald E. Gray............................ 55 Chief Financial Officer, Assistant
Secretary and Treasurer
John L. Higgins........................... 26 Vice President, Corporate Development
William W. Featheringill (1).............. 53 Director
Edwin A. Gee, Ph.D. (1)................... 76 Director
Zola P. Horovitz, Ph.D.................... 61 Director
Lindsay A. Rosenwald, M.D................. 41 Director
Joseph H. Sherrill, Jr. .................. 55 Director
William M. Spencer, III (1)............... 75 Director
Randolph C. Steer, M.D., Ph.D............. 46 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee ("Compensation Committee") and the
Audit Committee ("Audit Committee").
Charles E. Bugg, Ph.D. was named Chairman of the Board and Director in
November 1993, Chief Executive Officer in January 1994 and President in early
1995. Prior to joining the Company, Dr. Bugg had served as Director of the
Center for Macromolecular Crystallography, the Associate Director of the
Comprehensive Cancer Center and a Professor of Biochemistry at UAB since 1975.
He was a Founder of BioCryst and served as the Company's first Chief Executive
Officer from 1987-1988 while on a sabbatical from UAB. Dr. Bugg also served as
Chairman of the Company's Scientific Advisory Board from January 1986 to
November 1993. He is Chairman of the U.S. National Committee for Crystallo-
graphy under the National Research Council; past president of the American
Crystallographic Association; and Editor-in-Chief of Acta Crystallographica, a
set of journals published by the International Union of Crystallography. He also
continues to hold the position of Professor Emeritus in Biochemistry and
Molecular Genetics at UAB.
John A. Montgomery, Ph.D. has been a Director since November 1989 and has
been Executive Vice President, Secretary and Chief Scientific Officer since
joining the Company in February 1990. Dr. Montgomery was a Founder of BioCryst.
Prior to joining the Company, Dr. Montgomery served as Senior Vice President of
Southern Research Institute ("SRI") of Birmingham from January 1981 to February
1990. Dr. Montgomery has extensive experience in the area of discovery and
development of novel pharmaceutical products and is widely published. He
continues to hold the position of Distinguished Scientist at SRI, a position he
has held since February 1990.
Ronald E. Gray joined BioCryst in January 1993 as Chief Financial Officer.
In 1994, Mr Gray received the additional title of Treasurer and Assistant
Secretary. Prior to joining BioCryst, from June 1992 to September 1992, Mr. Gray
was Chief Financial Officer of The ACB Companies, a collection agency. From July
1988 to March 1992, Mr. Gray was Chief Financial Officer and Secretary of Image
Data Corporation, a medical imaging company. He was Vice President of Finance,
Secretary and Treasurer of CyCare Systems, Inc., a health care information
processing company, from September 1974 to April 1988.
39
<PAGE>
John L. Higgins joined BioCryst in August 1994 as the Director of Corporate
Development. In July 1995 he was promoted to Vice President, Corporate
Development. From June 1992 to July 1994, Mr. Higgins was a member of the health
care banking team of Dillon, Read & Co. Inc., an investment banking firm. While
at Dillon Read, he focused on financing and advisory assignments for
biotechnology and managed care companies. Mr. Higgins is a member of Colgate
University's Board of Trustees. From August 1988 to May 1992, he attended
Colgate University and graduated with an A.B. in economics in 1992.
William W. Featheringill was elected a Director in May 1995. Mr.
Featheringill was Chairman and Chief Executive Officer of MACESS Corporation,
which designs and installs paperless data management systems for the managed
care industry, from 1988 to November 1995. MACESS Corporation merged with
Sungard Data Systems in late 1995. From 1985 to June 1994, Mr. Featheringill was
the developer, Chairman and Chief Executive Officer of Complete Health Services,
Inc., a health maintenance organization which grew, under his direction, to
become one of the largest HMOs in the southeastern United States. Complete
Health Services, Inc. was acquired by United HealthCare Corporation in June
1994. Mr. Featheringill also has served since 1975 as President and Director of
Private Capital Corporation, a venture capital management company, and serves as
a member of the Board of Directors of Citation Corporation.
Edwin A. Gee, Ph.D. was elected a Director in August 1993. Dr. Gee has been
active as an executive in biotechnology, pharmaceutical and specialty chemical
companies since 1970. He serves as the Chairman of Oncogene Science, one of the
leading biotechnology companies for the diagnosis and treatment of cancer, and
as a director of Buck Hill Falls Company, a golf course management firm. He
served as President, Chairman of the Board and Chief Executive Officer of
International Paper Company from 1978 until his retirement in 1985. Prior to
1978, Dr. Gee was a Senior Vice President, member of the Executive Committee and
a Director of E.I. du Pont de Nemours and Company.
Zola P. Horovitz, Ph.D. was elected a Director in August 1994. Dr. Horovitz
spent 36 years with the Squibb Institute for Medical Research and Bristol-Myers
Squibb Pharmaceutical Research Institute in Princeton, serving as Vice President
of Business Development and Planning at the time of his retirement in 1994. He
also serves as a member of the Board of Directors of InfoMed Holdings, Inc.,
Procept Corporation, Diacrin, Inc., Magainin Pharmaceuticals, Inc. and Synaptic
Pharmaceutical Corp.
Lindsay A. Rosenwald, M.D. has been a Director of the Company since December
1991. He is a founder of several biopharmaceutical companies, including Neose
Technologies, Inc. and Interneuron Pharmaceuticals, Inc. In August 1991, Dr.
Rosenwald founded the Castle Group, Ltd., a New York-based venture capital and
merchant banking firm, and in March 1993 he founded Paramount Capital, Inc., an
investment bank specializing in the health sciences industry. In June 1994, Dr.
Rosenwald founded Aries Financial Services, Inc., a money management firm,
specializing in the health sciences industry. Dr. Rosenwald served as Managing
Director of Corporate Finance at the investment banking firm of D.H. Blair &
Co., Inc. from June 1987 to February 1992, and as Senior Securities analyst at
the investment banking firm of Ladenburg, Thalmann & Co., Inc. from September
1986 to June 1987. Dr. Rosenwald is also Chairman of the Board of Directors of
Interneuron Pharmaceuticals, Inc., a director of Sparta Pharmaceuticals, Inc.,
Atlantic Pharmaceuticals, Inc., Ansan, Inc., Xenometrix, Inc., Neose
Technologies, Inc., Titan Pharmaceuticals, Inc. and Boston Life Sciences, Inc.
Joseph H. Sherrill, Jr. was elected a Director in May 1995. Mr. Sherrill
served as President of R.J. Reynolds ("RJR") Asia Pacific, based in Hong Kong,
where he oversaw RJR operations across Asia, including licensing, joint ventures
and a full line of operating companies from August 1989 to retirement in October
1994. Prior management positions with RJR include Senior Vice President of
Marketing for R.J. Reynolds International, President and Chief Operating Officer
of R.J. Reynolds Tabacos de Brasil, and President and General Manager of R.J.
Reynolds Puerto Rico. Mr. Sherrill also serves as a member of the Board of
Directors of Savers Life Insurance Company.
40
<PAGE>
William M. Spencer, III has been a Director of the Company since its
inception. Mr. Spencer is also a private investor in Birmingham, Alabama. He
served as Chairman of the Board of BioCryst from its founding in 1986 until
April 1992. He co-founded and operated Motion Industries from 1946 through its
merger into Genuine Parts Company in 1976. He has founded several businesses and
serves on the Board of Directors of numerous private corporations.
Randolph C. Steer, M.D., Ph.D. was elected a Director in February 1993. Dr.
Steer has been active as a consultant to biotechnology and pharmaceutical
companies since 1989. From April 1985 to March 1989, he served as the Chairman,
and from 1988 to 1989, he served as the President and Chief Executive Officer
of, Advanced Therapeutics Communications International, Inc., a drug regulatory
consulting group. Prior to 1985, he had executive-level industry experience at
both Ciba and at Marion Laboratories, Inc. (now a division of Marion Merrell Dow
Inc.) where he served as Medical Director and Associate Director, Medical
Affairs, respectively. Dr. Steer serves on the Board of Directors of Techne
Corporation.
------------
In accordance with the terms of the Certificate of Incorporation, the Board
of Directors has been divided into three classes, with members of each class
holding office for staggered three-year terms. Dr. Horovitz's, Mr. Spencer's and
Dr. Steer's terms expire at the 1997 annual meeting, Dr. Bugg's, Dr.
Montgomery's and Dr. Gee's terms expire at the 1998 annual meeting and Dr.
Rosenwald's term expire at the 1999 annual meeting (in all cases subject to the
election and qualification of their successors or to their earlier death,
resignation or removal). Mr. Featheringill and Mr. Sherrill were named Directors
in May 1995 and were elected at the 1996 annual meeting of stockholders, along
with Dr. Rosenwald, for terms expiring in 1999. At each annual stockholder
meeting commencing with the 1996 annual meeting, the successors to the Directors
whose terms expire are elected to serve from the time of their election and
qualification until the third annual meeting of stockholders following their
election and until a successor has been duly elected and qualified. The
provisions of the Company's Certificate of Incorporation governing the staggered
Director election procedure can be amended only by a shareholder vote of at
least 75% of the eligible voting securities. There are no family relationships
among any of the directors and executive officers of the Company.
The Company has a Compensation Committee consisting of Messrs.
Featheringill, Gee and Spencer. The Compensation Committee is responsible for
the annual review of officer compensation and other incentive programs and is
authorized to award options under the Company's 1991 Stock Option Plan.
The Company also has an Audit Committee, consisting of Messrs.
Featheringill, Gee and Spencer, which is responsible for the review of internal
accounting controls, financial reporting and related matters. The Audit
Committee also recommends to the Board the independent accountants selected to
be the Company's auditors and reviews the audit plan, financial statements and
audit results.
41
<PAGE>
CERTAIN TRANSACTIONS
In May 1995, the Company sold an aggregate of 1,570,000 shares of Common
Stock at a purchase price of $5.50 per share to a group of investors including
William W. Featheringill (1,000,000 shares) and Joseph H. Sherill, Jr. (100,000
shares), Directors of the Company who were not Directors at the time of
purchase, and Charles E. Bugg, Ph.D. (5,000 shares), William M. Spencer, III
(100,000 shares) and John Pappajohn (20,000 shares), Directors of the Company.
Dr. Bugg, an executive officer and Director of the Company, is a Professor
Emeritus of UAB and is paid an annual stipend of $8,040 by UAB. The Company paid
approximately $808,000 to UAB in 1995 for conducting certain clinical trials,
research and data analysis.
Dr. Montgomery, an executive officer and Director of the Company, is a
former executive officer of SRI. The Company paid approximately $250,000 to SRI
in 1995 for certain research, laboratory rental and supplies. Dr. Montgomery is
currently a Distinguished Scientist at SRI and was paid approximately $18,922 by
SRI in 1995 for various consulting services unrelated to the services performed
by SRI for the Company.
In March 1996, the Company sold an aggregate of 1,000,000 shares of Common
Stock at a purchase price of $8.00 per share to a group of investors including
William W. Featheringill (235,000 shares), William M. Spencer, III (80,000
shares) and Joseph H. Sherrill, Jr. (25,000 shares), Directors of the Company,
and John P.K. Featheringill (77,500 shares), the brother of William W.
Featheringill. William W. Featheringill is the beneficial owner of 65,000 of the
shares purchased by John P.K. Featheringill.
42
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc.................................................................
Needham & Company, Inc...........................................................
---------
Total............................................................................ 2,000,000
---------
---------
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters propose initially to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
After the offering of the shares of Common Stock offered hereby, the public
offering price and such concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock at the public offering price set forth on the cover page
hereof less underwriting discounts and commissions. The Underwriters may
exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will be obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares set forth
opposite such Underwriter's name in the preceding table bears to the total
number of shares in such table.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Company, its directors and officers, and certain other stockholders of
the Company, holding in the aggregate approximately 3,172,767 shares of Common
Stock, have agreed not to offer, sell, contract to sell, or otherwise dispose of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, other than the shares subject to the
Underwriters' over-allotment option, without the prior written consent of Smith
Barney Inc., for a period of 90 days after the date of this Prospectus.
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A
permits, upon the satisfaction of certain conditions, underwriters and selling
group members participating in a distribution that are also market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") would otherwise prohibit such activity. In general,
under Rule 10b-6A, any Underwriter or selling group member engaged in passive
market making in the Common Stock (i) may not effect transactions in, or display
bids for, the Common Stock at a price that exceeds the highest bid for the
Common Stock displayed by a market maker that is not participating in the
distribution of the Common Stock, (ii) may not have net daily purchases of the
Common Stock that exceed 30% of its average daily trading volume in such stock
for the two full consecutive calendar months immediately preceding the filing
date of the
43
<PAGE>
registration statement of which this Prospectus forms a part and (iii) must
identify its bids as bids made by a passive market maker.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Brobeck, Phleger & Harrison LLP, New York, New
York. A member of Brobeck, Phleger & Harrison LLP owns 5,000 shares of Common
Stock of the Company. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Dewey Ballantine, New York, New
York.
EXPERTS
The financial statements of BioCryst at December 31, 1994 and 1995, and for
each of the three years in the period ended December 31, 1995, appearing and
incorporated by reference in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included and incorporated by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Uncertainty of Protection of Patents and Proprietary Rights" and "Business --
Patents and Proprietary Information" and other references herein to U.S. patent
matters have been reviewed and approved by Pollock, Vande Sande & Priddy,
R.L.L.P., patent counsel for the Company, as experts on such matters and are
included herein in reliance upon that review and approval.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are hereby incorporated by
reference in this Prospectus: (i) the Annual Report of the Company on Form
10-K/A for the fiscal year ended December 31, 1995, (ii) current reports of the
Company on Form 8-K, filed April 5, 1996 and Form 8-K/A filed July 26, 1996,
(iii) the Quarterly Reports of the Company on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996, (iv) the 1996 Proxy Statement, dated April 1,
1996 and (v) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A as filed with the Commission on January 8,
1994.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such document). Requests for such documents
should be submitted in writing to Mr. Ronald E. Gray, Chief Financial Officer,
BioCryst Pharmaceuticals, Inc., 2190 Parkway Lake Drive, Birmingham, Alabama
35244.
44
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
the schedules thereto. For further information with respect to the Company and
such Common Stock, reference is made to the Registration Statement and exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and, with respect to any contract or other document filed as an
exhibit to the Registration Statement, each such statement is qualified in all
respects by reference to such exhibit. Copies of the Registration Statement and
the exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the prescribed fee or may be examined without charge at
the public reference facilities of the Commission described below.
The Company is subject to the reporting requirements of the Exchange Act,
and in accordance therewith files annual and quarterly reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information may be inspected, and copies of such material may be obtained
upon payment of the prescribed fees, at the Commission's Public Reference
Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as
at the Commission's Regional Offices at Seven World Trade Center, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained in person from the
Public Reference Section of the Commission at its principal office located at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees. The Commission maintains a web site (with the address http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding the registrant.
The Common Stock is traded on the Nasdaq National Market tier of The Nasdaq
Stock MarketSM, and in accordance therewith, annual and quarterly reports, proxy
statements and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc., at 1735 K Street, N.W.,
Washington, D.C. 20006.
45
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Audited Financial Statements:
Report of Independent Auditors........................................................ F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity.................................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BioCryst Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of BioCryst
Pharmaceuticals, Inc. as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of BioCryst
Pharmaceuticals, Inc. at December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
January 24, 1996
F-2
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents (Note 4).................. $ 2,678,059 $ 6,134,968 $ 6,272,730
Securities held-to-maturity (Note 4)................ 8,194,802 5,279,076 11,540,354
Prepaid expenses and other current assets........... 244,847 279,386 625,689
----------- ----------- -----------
Total current assets............................ 11,117,708 11,693,430 18,438,773
Furniture and equipment, net (Note 2)............... 1,685,123 1,362,783 1,228,546
----------- ----------- -----------
Total assets.................................... $12,802,831 $13,056,213 $19,667,319
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable.................................... $ 148,114 $ 210,177 $ 460,312
Accrued expenses.................................... 171,012 187,673 378,275
Accrued taxes, other than income.................... 23,726 350,223 155,223
Accrued vacation.................................... 134,727 110,704 131,140
Current maturities of long-term debt (Note 5)....... 25,416 28,782 30,629
Current maturities of capital lease obligations
(Note 6)............................................ 250,383 241,745 260,443
----------- ----------- -----------
Total current liabilities....................... 753,378 1,129,304 1,416,022
----------- ----------- -----------
Long-term debt (Note 5)............................. 47,342 18,560 2,770
----------- ----------- -----------
Capital lease obligations (Note 6).................. 526,151 281,851 145,342
----------- ----------- -----------
Deferred license fee (Note 10)...................... 300,000 300,000 300,000
----------- ----------- -----------
Stockholders' equity (Notes 8 and 9):
Preferred stock, $.01 par value; shares authorized
5,000,000--none issued or outstanding
Common stock, $.01 par value; shares authorized--
45,000,000; shares issued and outstanding--
7,907,166--1994; 9,504,331--1995 and
10,623,371--1996.................................... 79,072 95,043 106,234
Additional paid-in capital........................ 32,588,017 41,298,848 50,887,862
Accumulated deficit............................... (21,491,129) (30,067,393) (33,190,911)
----------- ----------- -----------
Total stockholders' equity...................... 11,175,960 11,326,498 17,803,185
----------- ----------- -----------
Commitments and contingency (Notes 6 and 10)........
----------- ----------- -----------
Total liabilities and stockholders' equity...... $12,802,831 $13,056,213 $19,667,319
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total operating revenues
(Notes 1 and 10).......... $ 302,375 $ 269,126 $ 222,329 $ 94,691 $ 1,521,279
----------- ----------- ----------- ----------- -----------
Expenses:
Research and
development............... 4,195,800 5,551,660 7,107,249 3,752,843 3,414,457
General and
administrative............ 1,098,206 1,904,046 2,209,488 1,041,999 1,562,688
----------- ----------- ----------- ----------- -----------
Total operating
expenses.................. 5,294,006 7,455,706 9,316,737 4,794,842 4,977,145
----------- ----------- ----------- ----------- -----------
Interest income........... 60,629 464,690 662,259 285,544 387,977
Interest expense.......... (264,994) (215,985) (144,115) (77,501) (55,629)
----------- ----------- ----------- ----------- -----------
Other income (expense),
net....................... (204,365) 248,705 518,144 208,043 332,348
----------- ----------- ----------- ----------- -----------
Net loss.................. $(5,195,996) $(6,937,875) $(8,576,264) $(4,492,108) $(3,123,518)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss per share (Note
1)........................ $(1.55) $(1.02) $(.96) $(.54) $(.31)
Weighted average shares
outstanding (Note 1)...... 3,352,364 6,787,203 8,905,099 8,305,857 10,095,953
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS PRESENTED FOR THE SIX MONTHS
ENDED JUNE 30, 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
PREFERRED AND COMMON ADDITIONAL ACCUMULATED STOCKHOLDERS'
OTHER CAPITAL* STOCK PAID-IN CAPITAL DEFICIT EQUITY
-------------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992...... $2,620,629 $ 33,065 $ 8,237,624 $ (9,357,258) $ 1,534,060
Exercise of 8,750 shares of common
stock under the stock option
plan.............................. 87 17,413 17,500
Sale of 436,667 shares of Series A
Preferred Stock at $3.00 per
share, less issuance cost........ 1,165,856 1,165,856
Sale of 994,165 shares of Series B
preferred Stock at $6.00 per
share, less issuance cost........ 5,355,159 5,355,159
Net loss.......................... (5,195,996) (5,195,996)
-------------- ----------- --------------- ------------ -------------
BALANCE AT DECEMBER 31, 1993...... 9,141,644 33,152 8,255,037 (14,553,254) 2,876,579
Sale of 2,310,900 shares of common
stock at $6.50 per share, less
issuance cost..................... 23,109 13,229,538 13,252,647
Conversion of Series A Preferred
Stock into 709,160 shares of
common stock upon the Company's
IPO............................... (3,786,485) 7,092 3,779,393
Conversion of Series B Preferred
Stock into 994,165 shares of
common stock upon the Company's
IPO............................... (5,355,159) 9,942 5,345,217
Sale of 515,000 shares of common
stock at $3.88 per share, less
issuance cost..................... 5,150 1,972,712 1,977,862
Exercise of 99,540 shares of
common stock under the stock
option plan, less 36,796 shares
exchanged......................... 627 6,120 6,747
Net loss.......................... (6,937,875) (6,937,875)
-------------- ----------- --------------- ------------ -------------
BALANCE AT DECEMBER 31, 1994...... 79,072 32,588,017 (21,491,129) 11,175,960
Sale of 1,570,000 shares of common
stock at $5.50 per share, less
issuance cost..................... 15,700 8,594,550 8,610,250
Exercise of 13,834 shares of
common stock under the stock
option plan....................... 138 50,556 50,694
Sale of 13,331 shares of common
stock under the employee stock
purchase plan at $4.94 per
share............................. 133 65,725 65,858
Net loss.......................... (8,576,264) (8,576,264)
-------------- ----------- --------------- ------------ -------------
BALANCE AT DECEMBER 31, 1995...... 95,043 41,298,848 (30,067,393) 11,326,498
Sale of 1,000,000 shares of common
stock at $8.00 per share, less
issuance cost..................... 10,000 7,957,000 7,967,000
Exercise of 33,887 shares of
common stock under the stock
option plan....................... 340 146,252 146,592
Exercise of 800 shares of common
stock under warrants............. 8 6,392 6,400
Sale of 76,608 shares of common
stock at $19.58 per share, less
issuance cost..................... 766 1,417,734 1,418,500
Sale of 7,745 shares of common
stock under the employee stock
purchase plan at $7.97 per
share............................. 77 61,636 61,713
Net loss.......................... (3,123,518) (3,123,518)
-------------- ----------- --------------- ------------ -------------
BALANCE AT JUNE 30, 1996
(UNAUDITED)....................... $ $ 106,234 $50,887,862 $(33,190,911) $ 17,803,185
-------------- ----------- --------------- ------------ -------------
-------------- ----------- --------------- ------------ -------------
</TABLE>
* Represents Series A Preferred Stock at December 31, 1992 and Series A and B
Preferred Stock at December 31, 1993.
See accompanying notes to financial statements.
F-5
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................... $(5,195,996) $ (6,937,875) $ (8,576,264) $(4,492,108) $(3,123,518)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............... 603,532 607,399 554,025 295,880 264,631
Changes in operating assets
and liabilities:
Prepaid expenses and
other assets........... (230,813) 149,638 (34,539) (214,625) (346,303)
Accounts payable......... (232,266) 80,541 62,063 65,787 250,135
Accrued expenses......... 204,263 (452,038) 16,661 (17,711) 190,602
Accrued taxes, other than
income..................... (24,813) (1,461) 326,497 11,079 (195,000)
Vacation accrual......... 78,774 38,439 (24,023) 23,213 20,436
----------- ------------ ------------ ----------- -----------
Net cash used in operating
activities................. (4,797,319) (6,515,357) (7,675,580) (4,328,485) (2,939,017)
----------- ------------ ------------ ----------- -----------
INVESTING ACTIVITIES:
Purchases of furniture and
equipment.................. (327,216) (357,760) (231,685) (113,253) (130,396)
Purchase of marketable
securities................. (13,433,567) (11,397,640) (4,917,517) (10,578,817)
Maturities of marketable
securities................. 5,238,765 14,313,366 12,706,883 4,317,540
----------- ------------ ------------ ----------- -----------
Net cash (used in)/provided
by investing activities.... (327,216) (8,552,562) 2,684,041 7,676,113 (6,391,673)
----------- ------------ ------------ ----------- -----------
FINANCING ACTIVITIES:
Issuance of short-term
notes payable............ 1,741,000
Sale and leaseback of
furniture and equipment.... 242,828
Principal payments of debt
and capital lease
obligations................ (2,108,225) (364,542) (278,354) (157,586) (131,753)
Deferred license........... 300,000
Sale of preferred stock,
net of issuance costs.... 6,521,015
Exercise of stock
options.................... 17,500 6,747 50,694 7,405 146,592
Exercise of warrants....... 6,400
Sale of common stock under
the Employee Stock
Purchase Plan.............. 65,858 61,713
Sale of common stock, net
of issuance costs........ 15,230,509 8,610,250 8,610,250 9,385,500
----------- ------------ ------------ ----------- -----------
Net cash provided by
financing activities....... 6,714,118 14,872,714 8,448,448 8,460,069 9,468,452
----------- ------------ ------------ ----------- -----------
Increase (decrease) in cash
and cash equivalents....... 1,589,583 (195,205) 3,456,909 11,807,697 137,762
Cash and cash equivalents
at beginning of period... 1,283,681 2,873,264 2,678,059 2,678,059 6,134,968
----------- ------------ ------------ ----------- -----------
Cash and cash equivalents
at end of period......... $ 2,873,264 $ 2,678,059 $ 6,134,968 $14,485,756 $ 6,272,730
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
NOTE 1 -- ACCOUNTING POLICIES
Basis of Presentation
BioCryst Pharmaceuticals, Inc. (the "Company") is a pharmaceutical company
using structure-based drug design to discover and design novel, small-molecule
pharmaceutical products for the treatment of immunological and infectious
diseases and disorders. The Company has three research projects, of which only
one is in clinical trials. While the prospects for a project may increase as the
project advances to the next stage of development, a project can be terminated
at any stage of development. Until the Company generates revenues from either a
research project or an approved product, its ability to continue research and
development is dependent upon its ability to raise funds. The Company relies on
sole suppliers to manufacture its BCX-34 compound for clinical trials and is
evaluating supply sources for commercial production.
Net Loss Per Share
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from convertible
subordinated debt, convertible preferred stock, unused stock awards and
unexercised stock options and warrants are excluded from the computation as
their effect is anti-dilutive, except that, pursuant to requirements of the
Securities and Exchange Commission, common and common equivalent shares issued
at a price substantially below the anticipated public stock offering price
during the 12-month period prior to the Company's initial public offering in
March 1994 have been included in the calculation as if they were outstanding for
all periods presented (using the treasury method and the public offering price).
Securities Held-to-Maturity
The Company is required to classify debt and equity securities as
held-to-maturity, available-for-sale or trading. The appropriateness of each
classification is reassessed at each reporting date. The only dispositions were
maturities of securities held-to-maturity. At December 31, 1995 and June 30,
1996, securities held-to-maturity, all current, consisted of $2,714,385 and
$1,710,524, respectively, of U.S. Treasury and Agency securities and $2,564,691
and $9,829,830, respectively, of high-grade domestic corporate debt carried at
amortized cost. The amortized cost of these securities at December 31, 1995 and
June 30, 1996 approximated market value.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed using
the straight-line method with estimated useful lives of five and seven years.
Leased laboratory equipment is amortized over the lease lives of three and five
years. Leasehold improvements are amortized over the remaining lease period.
Income Taxes
The liability method is used in accounting for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 ("Statement No. 109").
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
F-7
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition
Research and development revenue on cost-reimbursement agreements is
recognized as expenses are incurred, up to contractual limits. Research and
development and option payments are recognized as revenue when irrevocably
received, and payments received which are related to future performance are
deferred and taken into income as earned over a specified future performance
period.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers cash
equivalents to be all cash held in money market accounts or investments in debt
instruments with maturities of three months or less at the time of purchase.
Stock-Based Compensation
The Company accounts for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
Opinion No. 25). Under APB No. 25, the Company's stock option and employee stock
purchase plans qualify as noncompensatory plans. Consequently, no compensation
expense is recognized.
Use of Estimates
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from
those estimates.
Reclassifications
The 1994 financial statements have been reclassified to conform to the 1995
financial statements. The changes had no effect on the results of operations
previously reported.
NOTE 2 -- FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ 1996
1994 1995 (UNAUDITED)
---------- ---------- -----------
<S> <C> <C> <C>
Furniture and fixtures......................... $ 61,845 $ 78,560 $ 89,754
Office equipment............................... 128,936 197,389 217,238
Laboratory equipment........................... 639,225 765,873 860,174
Leased laboratory equipment.................... 1,670,651 1,220,778 1,220,778
Leasehold improvements......................... 783,122 802,987 808,038
---------- ---------- -----------
3,283,779 3,065,587 3,195,982
Less accumulated depreciation and
amortization................................... 1,598,656 1,702,804 1,967,436
---------- ---------- -----------
Furniture and equipment, net................... $1,685,123 $1,362,783 $ 1,228,546
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Statement of Financial Accounting Standards No. 121 ("Statement No. 121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, was issued in March 1995 effective for fiscal years beginning
after December 15, 1995. The Company does not anticipate having to recognize any
significant impairment losses when Statement No. 121 is adopted in 1996.
F-8
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- LINE OF CREDIT
The Company had an unused line of credit of $500,000 at December 31, 1995
and June 30, 1996.
NOTE 4 -- CONCENTRATION OF CREDIT AND MARKET RISK
The Company invests its excess cash principally in marketable securities
from a diversified portfolio of institutions with strong credit ratings and in
U.S. government and agency bills and notes, and by policy, limits the amount of
credit exposure at any one institution. These investments are generally not
collateralized and primarily mature within one year. The Company has not
realized any losses from such investments. The Company has one primary bank in
which it keeps funds in excess of the amounts insured by the Federal Deposit
Insurance Corporation. At December 31, 1995 and June 30, 1996, approximately
$4,868,045 and $6,311,226, respectively, of the cash is invested in the Fidelity
Institution Cash Portfolio, which invests in treasury notes and repurchase
agreements. The Fidelity Institution Cash Portfolio is not insured.
NOTE 5 -- LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ 1996
1994 1995 (UNAUDITED)
------- ------- -----------
<S> <C> <C> <C>
Installment note, payable $2,757 monthly, including interest at
12.9% through May 1997......................................... $72,758 $47,342 $33,399
Less current maturities........................................ 25,416 28,782 30,629
------- ------- -----------
Long-term debt, non-current portion............................ $47,342 $18,560 $ 2,770
------- ------- -----------
------- ------- -----------
</TABLE>
The installment note is secured by equipment with an original value of
$171,200 and a carrying value of $14,300 at December 31, 1995. Annual maturities
of long-term debt are $28,782 in 1996 and $18,560 in 1997. The Company paid
$132,484, $215,985, $144,115 and $55,629 in interest on debt and lease
obligations for the years ended December 31, 1993, 1994, 1995 and the six months
ended June 30, 1996, respectively.
NOTE 6 -- LEASES
The Company entered into several capital lease obligations totaling
$1,324,653 in 1992 and $345,998 in 1993 under agreements to obtain laboratory
and office equipment. The leases have terms ranging from 36 to 60 months and
contain renewal options. Assets under capital leases are capitalized using
interest rates appropriate at the inception of each lease.
Certain capital lease obligations noted above were sale leaseback
transactions. Equipment having a book value of $826,720 and $267,497 in 1992 and
1993, respectively, were sold for $776,720 and
F-9
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6 -- LEASES--(CONTINUED)
$242,828 in 1992 and 1993, respectively. The losses, principally representing
sales taxes, have been deferred and are being amortized over the 60-month lease
term.
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1996.................................................. $341,679 $ 190,068
1997.................................................. 337,419 164,658
1998.................................................. 162,642 144,072
1999.................................................. 148,395
2000.................................................. 37,371
-------- ---------
Total minimum lease payments.......................... 841,740 $ 684,564
---------
---------
Less amounts representing interest.................... 318,144
--------
Present value of future minimum lease payments
(including current portion of $241,745)............... $523,596
--------
--------
</TABLE>
Rent expense for operating leases was $95,343, $151,914, $183,522 and
$95,083 in 1993, 1994, 1995 and the six months ended June 30, 1996,
respectively.
NOTE 7 -- INCOME TAXES
The Company has not had taxable income since incorporation and, therefore,
has not paid any income tax. Deferred tax assets of approximately $7,100,000,
$11,250,000 and $12,500,000 at December 31, 1994 and 1995 and June 30, 1996,
respectively, have been recognized principally for the net operating loss and
research and development credit carryforwards and have been reduced by a
valuation allowance of $7,100,000, $11,250,000 and $12,500,000 at December 31,
1994 and 1995 and June 30, 1996, respectively, which will remain until it is
more likely than not that the related tax benefits will be realized.
At December 31, 1995, the Company had net operating loss and research and
development credit carryforwards of approximately $25,600,000 and $1,400,000,
respectively, which will expire in 2005 through 2010. At June 30, 1996, the
Company had a net operating loss carryforward of approximately $28,700,000. Use
of the net operating losses and research and development credits will be subject
to a substantial annual limitation due to the ownership provisions of the Tax
Reform Act of 1986. The annual limitation is expected to result in the
expiration of a portion of net operating losses and credits before utilization,
which has been considered by the Company in its computations under Statement No.
109. Additional sales of the Company's equity securities may result in further
annual limitations on the use of operating loss carryforwards and research and
development credit carryforwards against taxable income in future years.
NOTE 8 -- STOCKHOLDERS' EQUITY
The Company was incorporated on November 17, 1989 as a Nevada corporation.
On December 29, 1989, the Company exchanged 384,901 shares of its common stock
and 33,350 shares of its 8% Cumulative Convertible Preferred Stock, Series 1989
for the predecessor partnership interests of the general partner and limited
partners. The partnership was dissolved as of January 15, 1990 and its assets
and liabilities were transferred to the Company in an exchange accounted for in
a manner similar to a pooling of interests. In 1991, the Company formed a
wholly-owned subsidiary, BioCryst
F-10
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY--(CONTINUED)
Pharmaceuticals, Inc., a Delaware corporation; thereafter the Company was merged
into BioCryst Pharmaceuticals, Inc., the surviving corporation.
WARRANTS
As part of financing arrangements, the Company has, at certain times, issued
warrants to purchase 1,314,341 shares of the Company's common stock at no less
than its estimated fair value at the date of grant. In return for their
guarantees of an expired line of credit, three directors each received warrants
(included in the 1,314,341 warrants) to purchase 49,400 shares of common stock
at $6.00 per share. All warrants are exercisable at various five-year periods
through 1998. In lieu of a cash exercise, the warrant holder may elect a net
issue exercise. Under a net issue exercise, the shares to be issued are equal to
the product of (a) the number of shares of common stock purchasable under the
warrant being exercised, and (b) the fair market value of one share of common
stock minus the exercise price divided by (c) the fair market value of one share
of common stock. At December 31, 1995 and 1994 1,314,341 shares of the Company's
common stock were reserved for issuance under warrant agreements and the
weighted average per share exercise price was $4.95 on those dates. At June 30,
1996, 1,313,541 shares of the Company's common stock were reserved for issuance
under warrant agreements and the weighted average per share exercise price was
$4.94.
OPTIONS
In November 1991, the Board of Directors adopted the 1991 Stock Option Plan
(the "Plan") for
key employees and consultants of the Company and reserved 500,000 shares of
common stock for the Plan. The Plan was approved by the stockholders on December
19, 1991. The term of the Plan is for ten years and includes both incentive
stock options and non-statutory options. The option price for the incentive
stock options shall not be less than the fair market value of common stock on
the grant date. The option price per share for non-statutory stock options may
not be less than 85% of the fair market value of common stock on the date of
grant. The options generally vest 25% after one year and monthly thereafter on a
pro rata basis over the next three years until fully vested after four years.
There are 3,378,886 and 3,336,454 shares reserved for future issuance for
the options and warrants discussed above and the Stock Purchase Plan discussed
in Note 9 as of December 31, 1995 and June 30, 1996, respectively.
The stockholders on April 16, 1993 and on March 1, 1994 (approving the Board
of Directors' action of December 1993) authorized an amended and restated 1991
Stock Option Plan and approved an additional 1,000,000 shares of common stock
for issuance (the "Amended Plan"). The Amended Plan includes an increase of
common stock reserved for issuance to 1,500,000 shares and establishes an
automatic option grant program. The automatic option grant program grants
options to new non-employee Board members to purchase 25,000 shares of common
stock at an exercise price of the fair market value at the grant date for a
maximum of ten years and is subject to vesting restrictions and early
termination upon the optionee's cessation of Board service. The vesting and
exercise provisions of the options issued under the Amended Plan are subject to
acceleration, under certain circumstances, upon the occurrence of a hostile
tender offer for more than 50% of the outstanding stock of the Company or if the
Company is acquired. On May 29, 1995, the stockholders approved extending the
automatic option grant to cover non-employee Board members not previously
eligible for an automatic grant and approved an additional 500,000 shares of
common stock for issuance, increasing the common
F-11
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY--(CONTINUED)
stock reserved for issuance to 2,000,000 shares. The following is an analysis of
stock options for the three years and six months ending June 30, 1996.
<TABLE>
<CAPTION>
AVERAGE
OPTIONS OPTIONS EXERCISE
AVAILABLE OUTSTANDING PRICE
--------- ----------- --------
<S> <C> <C> <C>
BALANCE 12/31/92............................................. 148,862 351,138 $ 2.19
Option plan amended...................................... 1,000,000
Options granted.......................................... (610,915) 610,915 5.37
Options exercised........................................ (8,750) 2.00
Options canceled......................................... 6,906 (6,906) 2.39
--------- -----------
BALANCE 12/31/93............................................. 544,853 946,397 4.24
Options granted.......................................... (515,850) 515,850 4.72
Options exercised........................................ (99,540) 2.01
Options canceled......................................... 58,532 (58,532) 5.79
--------- -----------
BALANCE 12/31/94............................................. 87,535 1,304,175 4.53
Option plan amended...................................... 500,000
Options granted.......................................... (384,800) 384,800 8.57
Options exercised........................................ (13,834) 3.66
Options canceled......................................... 45,079 (45,079) 4.63
--------- -----------
BALANCE 12/31/95............................................. 247,814 1,630,062 5.49
Options granted.......................................... (38,650) 38,650 10.36
Options exercised........................................ (33,887) 4.33
Options canceled......................................... 60,209 (60,209) 4.29
--------- -----------
BALANCE JUNE 30, 1996........................................ 269,373 1,574,616 5.71
--------- -----------
--------- -----------
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLAN
On January 1, 1991, the Company adopted an employee retirement plan (the
"401(k) Plan") under Section 401(k) of the Internal Revenue Code covering all
employees. Employee contributions may be made to the 401(k) Plan up to limits
established by the Internal Revenue Service. Company matching contributions may
be made at the discretion of the Board of Directors. The Company did not make a
contribution to the 401(k) Plan during the years ended December 31, 1995 and
1994. The Company made a contribution of $10,000 in 1993.
On May 29, 1995, the stockholders approved an employee stock purchase plan
(the "Stock Purchase Plan") effective February 1, 1995. The Stock Purchase Plan
qualifies under Section 423 of the Internal Revenue Code and thus is
non-compensatory. The Company has reserved 200,000 shares of common stock under
the Stock Purchase Plan. Eligible employees may authorize up to 15% of their
salary to purchase common stock at the lower of 85% of the beginning or 85% of
the ending price during the six-month purchase intervals. No more than 3,000
shares may be purchased by any one employee at the six-month purchase dates and
no employee may purchase stock having a fair market value at the commencement
date of $25,000 in any one calendar year. On July 31, 1995, 13,331 shares of
common stock were purchased under the Stock Purchase Plan at a price of $4.94
per share. On January 31, 1996, 7,745 shares of common stock were purchased
under the Stock Purchase Plan at a price of $7.97 per share.
F-12
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10 -- COLLABORATIVE AND OTHER RESEARCH AND DEVELOPMENT CONTRACTS
The Company granted Ciba-Geigy ("Ciba") an option for $100,000 in February
1990 to acquire exclusive licenses to a class of inhibitors arising from
research performed by the Company by February 1991. The option was exercised on
April 15, 1993 and a $500,000 fee was paid to the Company in June 1993.
Milestone payments are due upon approval of a new drug application. The Company
will also receive a royalty based upon a percentage of sales of any resultant
products. Up to $300,000 of the initial fee received is refundable if sales of
any resultant products are below specified levels.
Prior to 1994, the Company received funding for three Phase I Small Business
Innovation Research Program (the "SBIR") grants with the National Institutes of
Health (the "NIH") for $50,000 each. The Company was awarded a Phase II SBIR
grant for factor D from the NIH in February 1994. The Phase II SBIR grant is for
$500,000 over a two-year period.
In 1990, the Company entered into several contracts with The University of
Alabama at Birmingham ("UAB") to perform research for the Company for an
aggregate amount of approximately $188,000, which has been paid as of December
31, 1993. On November 7, 1991, the Company entered into a joint research and
license agreement with UAB. UAB will perform specific research on factor D for
the Company for a period of approximately three years in return for research and
license fees. The agreement was replaced by a new agreement on July 18, 1995
granting the Company a worldwide license in exchange for funding UAB research in
the amount of $188,000 annually and sharing any royalties or sublicense fees
arising from the joint research. In 1995, 1994 and 1993, the Company expensed
$68,638, $85,456, and $85,456, respectively, under the original agreement and
expensed $47,000 in 1995 under the new agreement. The Company is required to
expend $1,000,000 on the project under the new agreement over a three-year
period in order to maintain its exclusive worldwide license. On November 17,
1994, the Company entered into another agreement for a joint research and
license agreement on influenza neuraminidase granting the Company a worldwide
license. Under this agreement, the Company funds UAB research in the amount of
$300,000 annually and UAB shares any royalties or sublicense fees arising from
the joint research. Under the agreement, $300,000 was expensed in 1995 and no
amounts were expensed in 1994. The Company is required to expend $6,000,000 on
the project over a three-year period in order to maintain its exclusive
worldwide license.
In May 1996, the Company entered into an exclusive license agreement with
Torii Pharmaceutical Co., Ltd. ("Torii") to develop, manufacture and
commercialize BCX-34 and certain other PNP inhibitor compounds in Japan for the
treatment of rheumatoid arthritis, T-cell cancers and atopic dermatitis. Upon
entering into the agreement, Torii paid the Company $1.5 million in license fees
and made a $1.5 million equity investment in the Company, purchasing 76,608
shares of Common Stock at a purchase price of $19.58 per share. The agreement
further provides for potential milestone payments of up to $19.0 million and
royalties on future sales of licensed products in Japan. Torii is responsible
for all development, regulatory and commercialization expenses in Japan. The
agreement is subject to termination by Torii at any time and by the Company in
certain circumstances. Pursuant to the agreement, Torii may negotiate a license
with the Company to develop BCX-34 and certain other PNP inhibitor compounds for
additional indications.
F-13
<PAGE>
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands, except per share)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994 QUARTERS:
Revenues............................................... $ 42 $ 52 $ 113 $ 62
Net loss............................................... (1,564) (1,866) (1,633) (1,875)
Net loss per share..................................... (.35) (.25) (.22) (.24)
1995 QUARTERS:
Revenues............................................... $ 31 $ 64 $ 64 $ 63
Net loss............................................... (2,908) (1,584) (1,915) (2,169)
Net loss per share..................................... (.37) (.18) (.20) (.23)
1996 QUARTERS:
Revenues............................................... $ 21 $ 1,500
Net loss............................................... (1,913) (1,211)
Net loss per share..................................... (.20) (.11)
</TABLE>
F-14
<PAGE>
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH 2,000,000 SHARES
INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES [BIOCRYST PHARMACEUTICALS, INC. LOGO]
OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR COMMON STOCK
SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-------------------
--------
TABLE OF CONTENTS
PAGE PROSPECTUS
----
Prospectus Summary................... 3 , 1996
Risk Factors......................... 5
The Company.......................... 14
Use of Proceeds...................... 14 --------
Dividend Policy...................... 14
Price Range of Common Stock.......... 15
Dilution............................. 15
Capitalization....................... 16
Selected Financial Data.............. 17
Management's Discussion and Analysis SMITH BARNEY INC.
of Financial Condition and Results
of Operations...................... 18
Business............................. 22
Management........................... 39 NEEDHAM & COMPANY, INC.
Certain Transactions................. 42
Underwriting......................... 43
Legal Matters........................ 44
Experts.............................. 44
Incorporation of Certain Information
by Reference....................... 44
Available Information................ 45
Index to Financial Statements........F-1
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the expenses to be incurred by
the Company in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
Securities and Exchange Commission Registration Fee....... $ 13,384
National Association of Securities Dealers, Inc. Filing
Fee....................................................... 4,381
Nasdaq National Market Listing Fee........................ 17,500
Legal Fees and Expenses................................... 125,000
Accounting Fees and Expenses.............................. 50,000
Printing and Engraving.................................... 50,000
Blue Sky Fees and Expenses................................ 20,000
Miscellaneous............................................. 19,735
--------
Total................................................. $ 300,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article Eight of the Registrant's Composite Certificate
of Incorporation provides for indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Selling Stockholders have
agreed to indemnify officers, directors and controlling persons of the
Registrant against certain liabilities, including liabilities under the
Securities Act under certain circumstances. The Company has liability insurance
for its Directors and Officers.
ITEM 16. EXHIBITS
The following is a list of Exhibits filed as part of the Registration
Statement:
<TABLE>
<CAPTION>
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Specimen certificate for shares of the Registrant's Common Stock, incorporated
herein by reference to Exhibit 4.1 to Registration Statement No. 33-73868.
4.2 Provisions of the Composite Certificate of Incorporation and By-Laws of the
Registrant defining rights of holders of Common Stock of the Registrant,
incorporated herein by reference to Exhibits 3.1 and 3.2 to the Company's Form 10-Q
for the second quarter ending June 30, 1995 dated August 11, 1995.
5. Opinion and Consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Pollock, Vande Sande & Priddy, R.L.L.P.
Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as
Exhibit 5).
24.** Powers of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ------------------
** Previously filed.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Composite Certificate of
Incorporation of the Registrant, the Bylaws of the Registrant, 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
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 hereunder, the Registrant will,
unless in the opinion of 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, 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 and 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.
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,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Birmingham, State of
Alabama, on this 24th day of September, 1996.
BIOCRYST PHARMACEUTICALS, INC.
By:
*
..................................
Charles E. Bugg
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities indicated on September 24, 1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman, President, Chief Executive Officer
............................................. and Director
(Charles E. Bugg)
* Executive Vice President, Secretary, Chief
............................................. Scientific Officer and Director
(John A. Montgomery)
/s/ RONALD E. GRAY Chief Financial Officer (Principal Financial
............................................. and Accounting Officer)
(Ronald E. Gray)
* Director
.............................................
(William W. Featheringill)
* Director
.............................................
(Edwin A. Gee)
* Director
.............................................
(Zola P. Horovitz)
* Director
.............................................
(Lindsay A. Rosenwald)
* Director
.............................................
(Joseph H. Sherrill, Jr.)
* Director
.............................................
(William M. Spencer, III)
* Director
.............................................
(Randolph C. Steer)
*By /s/ RONALD E. GRAY
.............................................
Ronald E. Gray
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement
4.1 Specimen certificate for shares of the Registrant's Common Stock,
incorporated herein by reference to Exhibit 4.1 to Registration Statement No.
33-73868
4.2 Provisions of the Certificate of Incorporation and By-Laws of the Registrant
defining rights of holders of Common Stock of the Registrant, incorporated
herein by reference to Exhibits 3.1 and 3.2 to the Company's Form 10-Q for
the second quarter ending June 30, 1995 dated August 11, 1995
5. Opinion and Consent of Brobeck, Phleger & Harrison LLP
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Pollock, Vande Sande & Priddy, R.L.L.P.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as
Exhibit 5)
24. ** Powers of Attorney
27.1** Financial Data Schedule
</TABLE>
- -------------------
** Previously filed.
Exhibit 1.1
Draft of 9/20/96
2,000,000 Shares
BIOCRYST PHARMACEUTICALS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1996
SMITH BARNEY INC.
NEEDHAM & COMPANY, INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
BioCryst Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 2,000,000 shares (the
"Firm Shares") of its common stock, par value $0.01 per share (the "Common
Stock"), to the several Underwriters named in Schedule I hereto (the
"Underwriters"). In addition, solely for the purpose of covering over-
allotments, the Company proposes to sell to the Underwriters, upon the terms and
conditions set forth in Section 2 hereof, up to an additional 300,000 shares
(the "Additional Shares") of Common Stock. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreement with you, in
connection with the several purchases of the Shares by the Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion, relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective or, if the registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares may commence, the term "Registration Statement" as used
in this Agreement means the registration statement as amended
<PAGE>
by said post-effective amendment. If an abbreviated registration statement
relating to the offering of the Shares is prepared and filed with the Commission
in accordance with Rule 462(b) under the Act (an "Abbreviated Registration
Statement"), the term "Registration Statement" as used in this Agreement
includes the Abbreviated Registration Statement. The term "Prospectus" as used
in this Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b) under
the Act, the term "Prospectus" as used in this Agreement means the prospectus in
the form included in the Registration Statement as supplemented by the addition
of the Rule 430A information contained in the prospectus filed with the
Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in
this Agreement means the prospectus subject to completion in the form included
in the registration statement at the time of the initial filing of the
registration statement with the Commission and as such prospectus shall have
been amended from time to time prior to the date of the Prospectus. Any
reference herein to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Form S-3 under the
Act, as of the date of the registration statement, the Registration Statement,
such Prepricing Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to the registration statement, the
Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder (collectively, the "Exchange Act") and deemed
incorporated by reference pursuant to Form S-3 under the Act. As used herein,
the term "Incorporated Documents" means the documents which at the time are
incorporated by reference in the registration statement, the Registration
Statement, any Prepricing Prospectus, the Prospectus or any amendment or
supplement thereto.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $ per share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 p.m., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 300,000
Additional Shares from the Company. Additional Shares may be purchased solely
to cover over-allotments made in connection with the offering of the Firm
Shares. Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments as you may determine in order to
avoid fractional shares) which bears the same proportion to the number of
Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 10 hereof) bears to
the aggregate number of Firm Shares.
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3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on , 1996 (the "Closing Date"). The place
of closing for the Firm Shares and the Closing Date may be varied by agreement
among you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement among you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice, it being understood that a facsimile
transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be delivered to
you on the Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or any Abbreviated Registration Statement to be declared or, in the case of an
Abbreviated Registration Statement, to become effective before the offering of
the Shares may commence, the Company will endeavor to cause the Registration
Statement or such post-effective amendment or Abbreviated Registration Statement
to become effective as soon as possible and will advise you promptly and, if
requested by you, will confirm such advice in writing, when the Registration
Statement or such post-effective amendment or Abbreviated Registration Statement
has become effective.
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(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, of which the Company has or should reasonably be expected to have
knowledge, which makes any statement of a material fact made in the Registration
Statement (as then amended) untrue or which requires the making of any additions
to or changes in the Registration Statement or the Prospectus (as then amended)
in order to state a material fact required by the Act or the regulations
thereunder to be stated therein or necessary in order to make the statements
therein not misleading, or which makes any statement of a material fact made in
the Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or of the necessity to
amend or supplement the Prospectus (as then amended or supplemented) to comply
with the Act or any other law. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such order
at the earliest possible time.
(c) The Company will furnish to you, without charge, four signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits and
Incorporated Documents thereto and will also furnish to you, without charge,
such number of conformed copies of the registration statement as originally
filed and of each amendment thereto, but without exhibits, and Incorporated
Documents thereto as you may reasonably request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall reasonably object
after being so advised or (ii) so long as, in the reasonable opinion of counsel
for the Underwriters, a prospectus is required to be delivered in connection
with sales by any Underwriter or dealer, file any information, documents or
reports pursuant to the Exchange Act which upon filing becomes an Incorporated
Document, without delivering a copy of such information, documents or reports to
you, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have reasonably requested or may hereafter reasonably request, copies of
each form of the Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may reasonably request. The Company
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consents to the use of the Prospectus (and of any amendment or supplement
thereto) in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. If during such period of
time any event shall occur that in the judgment of the Company or in the opinion
of counsel for the Underwriters is required to be set forth in the Prospectus
(as then amended or supplemented) or should be set forth therein in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary to supplement or amend the
Prospectus, or to file under the Exchange Act any document which upon filing
becomes an Incorporated Document, to comply with the Act, the Exchange Act or
any other law, the Company will forthwith prepare and, subject to the provisions
of paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto or Incorporated Document and will expeditiously furnish copies
thereof to the Underwriters and dealers in such quantities as you shall request.
In the event that the Company and you agree that the Prospectus should be
amended or supplemented, or that a document should be filed under the Exchange
Act which upon filing becomes an Incorporated Document, the Company, if
requested by you, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission and (ii) from time to time
such other information concerning the Company as you may reasonably request,
provided, however, that the Company shall not be required to furnish any
information deemed confidential by the Company.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof), or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Underwriters for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
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(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus under "Use of Proceeds."
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not (and
will not announce or disclose any intention to) sell, offer to sell, contract to
sell or otherwise transfer or dispose of any Common Stock (or any securities
convertible into or exercisable or exchangeable for Common Stock), other than
upon the exercise of options or warrants outstanding on the date hereof and
disclosed in the Prospectus, or grant any options or warrants to purchase Common
Stock, other than to purchase shares of Common Stock pursuant to option plans
existing on the date hereof and disclosed in the Prospectus, for a period of 90
days after the date of the Prospectus, without the prior written consent of
Smith Barney Inc.; provided, however, that the Company may sell shares of its
-------- -------
Common Stock in connection with corporate partnering or collaboration
arrangements where such purchaser agrees not to sell, offer to sell or otherwise
transfer or dispose of such Common Stock for a period of 90 days after the date
of the Prospectus.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will timely file with The Nasdaq Stock Market a
notification form for listing of additional shares on The Nasdaq National Market
with respect to the Shares.
(q) Any Incorporated Documents filed subsequent to the date hereof
will, when so filed, be filed in a timely manner and conform with the
requirements of the Exchange Act and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) The Company meets the requirements for use of Form S-3 under the
Act. The registration statement in the form in which it became or becomes
effective and also in such form as it may be when any post-effective amendment
thereto or any Abbreviated Registration Statement shall become effective
complied or will comply in all material respects with the provisions of the Act
and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required
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to be stated therein or necessary to make the statements therein not misleading,
and the Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the registration statement or the Prospectus
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable, are
free of any preemptive or similar rights (other than such rights as shall
terminate upon completion of the offering contemplated hereby, as set forth in
the Registration Statement and the Prospectus) and have been issued and sold in
compliance with all Federal and state securities laws; the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable and free of any preemptive or similar rights; and the capital
stock of the Company conforms in all material respects to the description
thereof in the Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure to so register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company (a "Material Adverse Effect"). The Company
has no subsidiaries (as defined in the Act).
(e) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company, or to which the
Company or any of its properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required. There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act. The Company is not involved
in any strike, job action or labor dispute, and to the Company's knowledge no
such action or dispute is threatened.
(f) The Company is not (i) in violation of its certificate of
incorporation or by-laws, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or of any decree of
any court or governmental agency or body having jurisdiction over the Company,
which violation would have a Material Adverse Effect, or (ii) in default in any
material respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any material agreement, indenture, lease or other instrument to which the
Company is a party or by which it or any of its properties may be bound.
(g) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of, or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except
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such as may be required for the registration of the Shares under the Act, which
has been or will be effected in accordance with this Agreement, and compliance
with the securities or Blue Sky laws of various jurisdictions) or conflicts or
will conflict with or constitutes or will constitute a breach of, or a default
under, the certificate of incorporation or bylaws, or other organizational
documents, of the Company or (ii) conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Company is a party or by which the
Company or any of its properties may be bound, or violates or will violate any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of its properties and which would have a
Material Adverse Effect, or will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to the terms of any agreement or instrument to which it is a party or by which
it may be bound or to which any of the property or assets of it is subject.
(h) The accountants, Ernst & Young LLP, who have certified or shall
certify the financial statements filed or to be filed as part of the
Registration Statement or the Prospectus (or any amendment or supplement
thereto), or incorporated by reference therein are independent public
accountants as required by the Act and the Exchange Act.
(i) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and any
amendment or supplement thereto), comply in all material respects with the
requirements of the Act and present fairly the financial position, results of
operations and changes in stockholders' equity and cash flows of the Company on
the basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(j) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement; the execution and
delivery of, and the performance by the Company of its obligations under, this
Agreement have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws or
principles of public policy and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and by general
equitable principles.
(k) Except as disclosed in or contemplated by the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
subsequent to the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), the Company has not incurred any liability or obligation, direct or
contingent, or entered into any transaction that is material to the Company, and
there has not been any change in the capital stock, or material increase in the
short-term or long-term debt, of the Company, or any material adverse change, or
any development involving or which may reasonably be expected to involve a
prospective material
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adverse change, in the condition (financial or otherwise), business, prospects,
properties, net worth or results of operations of the Company.
(l) The Company has good and marketable title to all property (real
and personal) described in the Prospectus as being owned by it, free and clear
of all liens, claims, security interests or other encumbrances except such as
are described in the Registration Statement and the Prospectus or in a document
filed as an exhibit to the Registration Statement, and all the property
described in the Prospectus as being held under lease by the Company is held by
it, to the extent material, under valid, subsisting and enforceable leases.
(m) The Company has not distributed and, prior to the later to occur
of the Closing Date and completion of the distribution of the Shares, will not
distribute any offering material in connection with the offering and sale of the
Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act; provided, however,
that nothing contained herein is intended to prohibit the Company from making
required or permitted filings with the Commission pursuant to the Exchange Act.
(n) The Company has such permits, licenses, franchises,
authorizations and clearances ("Permits") of governmental or regulatory
authorities, including, without limitation, the Food and Drug Administration
(the "FDA") of the U.S. Department of Health and Human Services and/or any
committee thereof, as are necessary to own, lease and operate its properties and
to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus; subject to such
qualifications as may be set forth in the Prospectus, the Company has fulfilled
and performed all its material obligations with respect to the Permits, and no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any Permit, subject in each case to such
qualification as may be set forth in the Prospectus. Except as described in the
Prospectus, none of the Permits contains any restriction that is materially
burdensome to the Company.
(o) Except to the extent disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), the clinical, pre-
clinical and other studies and tests conducted by or on behalf of or sponsored
by the Company or in which the Company or the Company's products under
development have participated that are described in the Prospectus or the
results of which are referred to in the Prospectus were and, if still pending,
are being conducted in accordance with standard medical and scientific research
procedures. The descriptions of the results of such studies and tests are
accurate and complete in all material respects and fairly present the data
derived from such studies and tests, and the Company has no knowledge of any
other studies or tests the results of which are inconsistent with or otherwise
call into question the results described or referred to in the Prospectus.
Except to the extent disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), the Company has operated and currently
is in compliance in all material respects with all applicable FDA rules,
regulations and policies. Except to the extent disclosed in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), the
Company has not received any notices or other correspondence from the FDA or any
other governmental agency requiring the termination, suspension or modification
of any clinical or pre-clinical studies or tests that are described in the
Prospectus or the results of which are referred to in the Prospectus.
(p) The Company has not received nor is it aware of any communication
(written or oral) relating to the termination or modification or threatened
termination or modification of any of the
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agreements described or referred to in the Prospectus under the captions "Risk
Factors-Dependence on Collaborative Partner; Relationship with the University of
Alabama at Birmingham" and "Business--Collaborative Arrangements," nor is it
aware of any communication (written or oral) relating to any determination or
threatened determination not to renew or extend any agreement described or
referred to under such captions at the end of the current term of any such
agreement.
(q) The property, assets and operations of the Company comply in all
material respects with all applicable federal, state and local laws, rules,
orders, decrees, judgments, injunctions, licenses, permits or regulations
relating to environmental matters (the "Environmental Laws"). To the Company's
knowledge, none of the Company's property, assets or operations is the subject
of any federal, state or local investigation evaluating whether any remedial
action is needed to respond to a release of any substance regulated by or form
the basis of liability under any Environmental Laws (a "Hazardous Material")
into the environment or is in contravention of any federal, state, local or
foreign law, order or regulation. The Company has not received any notice or
claim, nor are there any pending or, to the Company's knowledge, threatened or
reasonably anticipated lawsuits or other proceedings against it with respect to
violations of an Environmental Law or in connection with the release of any
Hazardous Material into the environment. The Company has no knowledge of any
material contingent liability in connection with any release of Hazardous
Material into the environment.
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amount as are customary
in the business in which it is engaged. All policies of insurance insuring the
Company or its business, assets, employees, officers and directors are in full
force and effect, and the Company is in compliance with the terms of such
policies in all material respects. There are no claims by the Company under any
such policy or instrument as to which any insurance company is denying liability
or defending under a reservation of rights clause.
(s) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) Neither the Company nor, to the Company's knowledge, any employee
or agent of the Company has made any payment of funds of the Company or received
or retained any funds in violation of any law, rule or regulation, which
payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
(u) The Company has filed all federal, state, local and foreign tax
returns and tax forms required to be filed, such returns and forms are complete
and correct in all material respects, and all taxes shown by such terms or
otherwise assessed that are due or payable have been paid, except such taxes as
are being contested in good faith and as to which adequate reserves have been
provided. All payroll withholdings required to be made by the Company with
respect to employees have been made. The charges, accruals and reserves on the
books of the Company in respect of any tax liability for any year not finally
determined are adequate to meet any assessments or reassessments for additional
taxes. There have been no tax deficiencies asserted and, to the best knowledge
of the Company, no tax deficiency might be
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reasonably asserted or threatened against the Company that could, individually
or in the aggregate, have a Material Adverse Effect.
(v) No holder of any security of the Company has any right (other
than a right that has been waived or any other right set forth in the Prospectus
which is not exercisable for a period of at least 90 days after the date of the
Prospectus) to require registration of shares of Common Stock or any other
security of the Company because of the filing of the registration statement or
the consummation of the transactions contemplated by this Agreement and, except
as disclosed in the Prospectus, no person has the right to require registration
under the Act of any shares of Common Stock or other securities of the Company.
No person has the right, contractual or otherwise, to cause the Company to
permit such person to underwrite the sale of any of the Shares. Except as
described in or contemplated by the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable or exercisable for
capital stock of the Company.
(w) The Company owns or has obtained licenses (which such licenses
are enforceable against the Company and, to the Company's best knowledge, the
other parties thereto) for the patents, patent applications, inventions,
technology, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, trade secrets and rights described in
the Prospectus as being owned or used by or licensed to it or necessary for the
conduct of its business as currently conducted (collectively, the "Intellectual
Property"). Except as set forth in the Prospectus (i) there are no rights of
third parties to any such Intellectual Property; (ii) to the Company's best
knowledge there is no infringement by third parties of any such Intellectual
Property; (iii) there is no pending or, to the Company's best knowledge,
threatened action, suit, proceeding or claim by others challenging the Company's
rights in or to any such Intellectual Property, and the Company is unaware of
any facts which would form a reasonable basis for any such claim; (iv) there is
no pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others challenging the validity or scope of any such
Intellectual Property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim; (v) there is no pending or, to the
Company's best knowledge, threatened action, suit, proceeding or claim by others
that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the Company
is unaware of any facts which would form a reasonable basis for any such claim;
(vi) to the Company's best knowledge there is no patent or patent application
which contains claims that dominate or may dominate any Intellectual Property
described in the Prospectus as being owned by or licensed to the Company or that
is necessary for the conduct of its business as currently conducted or that
interferes with the issued or pending claims of any such Intellectual Property;
and (vii) there is no prior art of which the Company is aware that may render
any patent held by the Company invalid or any patent application held by the
Company unpatentable which has not been disclosed to the U.S. Patent and
Trademark Office.
(x) The Company is not, and, upon the sale of the Shares to be issued
and sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds," will not be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(y) The Company is in compliance with all provisions of Florida
Statutes Sec.517.075 and the regulations thereunder, relating to issuers doing
business with Cuba.
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(z) The Incorporated Documents heretofore filed were filed in a
timely manner and, when they were filed (or, if any amendment with respect to
any such document was filed, when such document was filed), conformed with the
requirements of the Exchange Act and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in or in the Registration Statement or in any amendment thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus or in the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter expressly for use in connection therewith; provided, however, that
the indemnification contained in this paragraph (a) with respect to any
Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any person controlling such Underwriter) on account of any such
loss, claim, damage, liability or expense arising from the sale of Shares by
such Underwriter to any person if (i) a copy of the Prospectus shall not have
been delivered or sent to such person within the time required by the Act and
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such Prepricing Prospectus was corrected in the
Prospectus and (ii) the Company has delivered the Prospectus to the several
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending. The foregoing indemnity agreement shall be in addition to any
liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses,
(ii) the Company has failed to assume the defense and employ counsel or
(iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit
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or proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel, as deemed
necessary or appropriate) at any time for all such Underwriters and controlling
persons not having actual or potential differing interests with you or among
themselves, which firm shall be designated in writing by Smith Barney Inc., and
that all such fees and expenses shall be reimbursed as they are incurred. The
Company shall not be liable for any settlement of any such action, suit or
proceeding effected without its written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company agrees to indemnify and hold harmless
any Underwriter and any such controlling person, to the extent provided in the
preceding paragraph, from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing to
the Company by or on behalf of such Underwriter expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above.
The foregoing indemnity agreement shall be in addition to any liability which
the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters,
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from the sale of such Additional Shares, in each case computed on the basis of
the respective amounts set forth in the notes to the table on the cover page of
the Prospectus. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or by the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by a
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule I hereto (or such numbers of Firm Shares increased as set forth in
Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or an Abbreviated Registration Statement to
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be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment or Abbreviated
Registration Statement shall have become effective not later than 5:30 P.M., New
York City time, on the date hereof, or at such later date and time as shall be
consented to in writing by you, and all filings, if any, required by Rules 424
and 430A under the Act shall have been timely made.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business, prospects,
properties, net worth, or results of operations of the Company not contemplated
by the Prospectus, which in your opinion would materially, adversely affect the
market for the Shares, or (ii) any event or development relating to or involving
the Company, or any officer or director of the Company, which makes any
statement made in the Prospectus untrue or which, in the opinion of the Company
and its counsel or the Underwriters and their counsel, requires the making of
any addition to or change in the Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion,
materially, adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion of Brobeck
Phleger & Harrison LLP, counsel for the Company, dated the Closing Date and
addressed to you, that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification, except
where the failure so to register or qualify does not have a Material
Adverse Effect;
(ii) The authorized capital stock of the Company is as set forth
under the caption "Capitalization" in the Prospectus;
(iii) All the shares of capital stock of the Company outstanding
prior to the issuance of the Shares have been duly authorized and validly
issued, are fully paid and nonassessable and were issued and, based solely
as to factual matters on the representations and warranties of the Company
and the purchasers set forth in the applicable purchase agreement, sold in
compliance with all applicable federal and state securities laws;
(iv) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable and
free of (A) any preemptive rights arising under the Company's certificate
of incorporation or the Delaware General Corporation Law or (B) to the
knowledge of such counsel, similar rights that entitle or will entitle any
person to acquire any shares of capital stock of the Company upon the
issuance and sale of the Shares by the Company;
(v) The form of certificate for the Shares conforms in all
material respects to the requirements of the Delaware General Corporation
Law;
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(vi) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company;
(viii) To the knowledge of such counsel, the Company is not in
default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or other evidence of indebtedness
included as an exhibit to the Registration Statement or any Incorporated
Document, which default would have a Material Adverse Effect;
(ix) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by the
Company with the provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
certificate of incorporation or bylaws, or other organizational documents,
of the Company or any agreement, indenture, lease or other instrument to
which the Company is a party or by which the Company or any of its
properties is bound that is an exhibit to the Registration Statement, or is
known to such counsel after reasonable inquiry, or to the knowledge of such
counsel will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, nor will any such
action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky
laws), judgment, injunction, order or decree known to such counsel and
applicable to the Company or any of its properties;
(x) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the
part of the Company (except as have been obtained under the Act or such as
may be required under state securities or Blue Sky laws governing the
purchase and distribution of the Shares) for the valid issuance and sale of
the Shares to the Underwriters as contemplated by this Agreement;
(xi) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements and
the notes thereto and the schedules and other financial and statistical
data included therein, as to which such counsel need not express any
opinion) comply as to form in all material respects with the requirements
of the Act;
(xii) To the knowledge of such counsel, (A) there are no legal or
governmental proceedings pending or threatened against the Company, or to
which the Company or any of its properties is subject, which are required
to be described in the Registration Statement or Prospectus (or any
amendment or supplement thereto) that are not described as required and (B)
there are no agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;
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(xiii) The Company has all necessary Permits (except where the
failure to so have any such Permits, individually or in the aggregate,
would not have a Material Adverse Effect to own its properties and to
conduct its business as now being conducted as described in the Prospectus;
(xiv) The statements in: (A) the Registration Statement and the
Prospectus under the captions "Risk Factors-Control by Existing Management
and Stockholders; Effect of Certain Anti-Takeover Considerations", "Risk
Factors-Shares Eligible for Future Sale", and (B) the Annual Report of the
Company on Form 10-K/A for the fiscal year ended December 31, 1995 under
the captions "Business-Properties" and "Executive Compensation-Employment
Agreement", insofar as they are descriptions of specific contracts,
agreements or other legal documents to which the Company is a party, or
refer to statements of law or legal conclusions applicable to the Company,
are accurate in all material respects and present fairly the information
purported to be shown;
(xv) Except as described in the Prospectus, such counsel does not
know of any holder of any securities of the Company or any other person who
has the right, contractual or otherwise, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any
of the Shares or the right to have any Common Stock or other securities of
the Company included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to require the Company
to register under the Act any shares of Common Stock or other securities of
the Company, and any registration rights in connection with the offering
contemplated hereby have been waived;
(xvi) The Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; and
(xvii) All documents incorporated by reference in the Prospectus
(excluding any financial statements and footnotes thereto and other
financial or statistical data included or incorporated by reference
therein, as to which such counsel need express no opinion), at the time
they were filed with the Commission, complied as to form in all material
respects with the requirements of the Exchange Act.
In addition, such counsel shall state that although such counsel does
not assume any responsibility for the accuracy, completeness or fairness of the
statements in the Registration Statement, such counsel has participated in the
preparation of the Registration Statement and the Prospectus, including review
and discussion of the contents thereof with representatives of the Underwriters
and their counsel, officers and representatives of the Company, and
representatives of the independent certified public accountants of the Company,
and nothing has come to the attention of such counsel that has caused it to
believe that the Registration Statement, at the time the Registration Statement
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date and as
of the Closing Date or the Option Closing Date, as the case may be, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or that any
amendment or supplement to the Prospectus, as of its date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the
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circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely as to
matters of fact upon certificates of officers of the Company and public
officials and upon an opinion or opinions, each dated the Closing Date, of other
counsel retained by them or the Company as to laws of any jurisdiction other
than the United States or the State of New York or the corporation law of the
State of Delaware, provided that (1) each such local counsel is acceptable to
the Underwriters, (2) such reliance is expressly authorized by each opinion so
relied upon and a copy of each such opinion is delivered to the Underwriters and
is, in form and substance, satisfactory to them and counsel for the Underwriters
and (3) counsel shall state in their opinion that they believe that they and the
Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of
Pollock, Vande Sande & Priddy, R.L.L.P., patent counsel for the Company, dated
the Closing Date and addressed to you, that:
(i) to the knowledge of such counsel after reasonable inquiry,
the Company owns or has obtained licenses for all applications relating to
the Intellectual Property described in the Prospectus as being owned or
used by or licensed to the Company;
(ii) to the best knowledge of such counsel after reasonable
inquiry (A) except as described in the Prospectus, there are no rights of
third parties to any Intellectual Property described in the Prospectus as
being owned by or licensed to the Company or that is necessary for the
conduct of its business; (B) there is no infringement by third parties of
any such Intellectual Property; (C) there is no pending or threatened
action, suit, proceeding or claim by others challenging the rights of the
Company in or to such Intellectual Property, and such counsel is unaware of
any facts which would form a reasonable basis for any such claim; (D) there
is no pending or threatened action, suit, proceeding or claim by others
challenging the validity or scope of such Intellectual Property, and such
counsel is unaware of any facts which would form a reasonable basis for any
such claim; (E) there is no pending or threatened action, suit, proceeding
or claim by others that the Company infringes or otherwise violates any
patent, trademark, copyright, trade secret or other proprietary right of
others, and such counsel is unaware of any facts which would form a
reasonable basis for any such claim; (F) there is no patent or patent
application which contains claims that dominate or may dominate any
Intellectual Property described in the Prospectus as being owned or used by
or licensed to the Company or that is necessary for the conduct of its
business or that interferes with the issued or pending claims of any such
Intellectual Property; and (G) there is no prior art that may render any
patent held by the Company invalid or any patent application held by the
Company unpatentable which has not been disclosed to the U.S. Patent and
Trademark Office; and
(iii) the statements in: (A) the Prospectus under the captions
"Risk Factors--Uncertainty of Protection of Patents and Proprietary
Rights", "Business--Patents and Proprietary Information" and other
references therein to patent and licensing matters, and (B) the Annual
Report of the Company on Form 10-K for the fiscal year ended December 31,
1995 under the caption "Business-Patents and Proprietary Information," and
other references therein to patent and licensing matters, insofar as such
statements constitute a summary of legal matters, documents or proceedings
referred to therein, are accurate and fairly present the information
purported to be shown.
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(e) You shall have received on the Closing Date an opinion of Fenwick
& West, regulatory counsel for the Company, dated the Closing Date and addressed
to you, to the effect that the statements in: (A) the Prospectus under the
captions "Risk Factors--Uncertainty Associated with Preclinical and Clinical
Testing," "Risk Factors--Government Regulation; No Assurance of Product
Approval," and "Business--Government Regulation" and (B) the Annual Report of
the Company on Form 10-K/A for the fiscal year ended December 31, 1995 under the
caption "Business-Government Regulation", insofar as such statements constitute
descriptions or summaries of the Federal Food, Drug, and Cosmetic Act ("FDC
Act") or the regulations of the Food and Drug Administration ("FDA") or of
relevant FDA requirements or procedures or the Form 483's, are accurate and
complete in all material respects and fairly present the information set forth
therein shown in light of the circumstances under which they were made.
(f) You shall have received on the Closing Date an opinion of
Bradley, Arant, Rose & White, counsel for the Company, dated the Closing Date
and addressed to you, to the effect that the statements in: (A) the Registration
Statement and the Prospectus under the caption "Business-Legal Proceedings" and
(B) the Annual Report of the Company on Form 10K/A for the fiscal year ended
December 31, 1995 under the captions "Legal Proceedings" insofar as they
describe legal proceedings, or refer to statements of laws or legal conclusions
applicable to the Company, are accurate in all material respects and present
fairly the information therein.
(g) You shall have received on the Closing Date an opinion of Dewey
Ballantine, counsel for the Underwriters, dated the Closing Date and addressed
to you, with respect to the matters referred to in clauses (iv) (other than
subclause (B) thereof), (vi), (vii), (xi) and the penultimate paragraph of
Section 8(c) hereof and such other related matters as you may request.
(h) You shall have received letters addressed to you and dated the
date hereof and the Closing Date from Ernst & Young LLP, independent certified
public accountants, substantially in the forms heretofore approved by you.
(i)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or, to the knowledge of the Company, contemplated by the
Commission at or prior to the Closing Date and any request of the Commission for
additional information (to be included in the registration statement or the
Prospectus or any Prepricing Prospectus or otherwise) shall have been complied
with; (ii) there shall not have been any change in the capital stock of the
Company nor any material increase in the short-term debt (other than in the
ordinary course of business) or long-term debt of the Company from that set
forth or contemplated in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in or contemplated by the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or otherwise), business, prospects, properties, net
worth or results of operations of the Company; (iv) the Company shall not have
any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company other than those
reflected in or contemplated by the Registration Statement or the Prospectus (or
any amendment or supplement thereto); and (v) all the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer
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of the Company (or such other officers as are acceptable to you), as to the
matters set forth in this Section 8(h) and in Section 8(i) hereof.
(j) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(k) The Company shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters.
Any certificate or document signed by any officer of the Company and
delivered to you, or to counsel for the Underwriters, shall be deemed a
representation or warranty by the Company to each Underwriter as to the
statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (i) and paragraph (k) shall be
dated the Option Closing Date in question and the opinions called for by
paragraphs (c), (d), (e), (f) and (g) shall be revised to reflect the sale of
Additional Shares.
9. EXPENSES. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, the Incorporated Documents and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the offering of the Shares; (iv)
the printing (or reproduction) and delivery of this Agreement, the preliminary
and supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of the
Shares; (v) the additional listing of the Shares on The Nasdaq National Market;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the reasonable fees and expenses of counsel for the Underwriters in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. in connection with the offering; (viii) the transportation and
other expenses incurred by or on behalf of representatives of the Company in
connection with presentations to prospective purchasers of the Shares; (ix) the
fees and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company; and (x) the
performance by the Company of its other obligations under this Agreement.
20
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10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto or an Abbreviated
Registration Statement to be declared or, in the case of any Abbreviated
Registration Statement, to become effective before the offering of the Shares
may commence, when notification of the effectiveness of the registration
statement or such post-effective amendment has been released by the Commission
or such Abbreviated Registration Statement has become effective pursuant to Rule
462(b) under the Act. Until such time as this Agreement shall have become
effective, it may be terminated by the Company, by notifying you, or by you, by
notifying the Company.
If any Underwriter shall fail or refuse to purchase Firm Shares which
it is obligated to purchase on the Closing Date and arrangements satisfactory to
the non-defaulting Underwriters and the Company for the purchase of such Firm
Shares by the non-defaulting Underwriters or by another party or parties
satisfactory to the non-defaulting Underwriters and the Company are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of the non-defaulting Underwriters or the Company. In any
such case which does not result in termination of this Agreement, either the
non-defaulting Underwriters or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven (7) days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve the defaulting Underwriter from liability in
respect of such default under this Agreement. The term "Underwriter" as used in
this Agreement includes, for all purposes of this Agreement, any party not
identified in this Agreement who purchases Firm Shares which a defaulting
Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or The
Nasdaq National Market shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth
in the last paragraph on the cover page, the stabilization and passive market
making legends on the inside front cover page and the statements in the first,
third and seventh paragraphs under the caption "Underwriting" in any Prepricing
Prospectus and in the Prospectus constitute the only information furnished by or
on behalf of the Underwriters as such information is referred to in Sections
6(b) and 7 hereof.
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13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10 and 11
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 2190 Parkway Lake Drive, Birmingham, Alabama 35244, Attention:
Charles F. Bugg, Ph.D., President and Chief Executive Officer, with a copy to
Brobeck, Phleger & Harrison LLP, 1301 Avenue of the Americas, New York, New York
10019, Attention: Richard R. Plumridge, Esq., or (ii) if to you, care of Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division, with a copy to Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York 10019, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors, its officers who sign the
Registration Statement and the controlling persons referred to in Section 7
hereof and, to the extent provided herein, their respective successors and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
BIOCRYST PHARMACEUTICALS, INC.
By:
------------------------------------------
Charles E. Bugg
President and Chief Executive Officer
Confirmed as of the date first
above-mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
NEEDHAM & COMPANY, INC.
By: SMITH BARNEY INC.
By:
---------------------------
Managing Director
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SCHEDULE I
BIOCRYST PHARMACEUTICALS, INC.
Number of
Underwriter Firm Shares
----------- -----------
Smith Barney Inc. . . . . . . . . . . . . .
Needham & Co., Inc. . . . . . . . . . . . .
__________
Total . . .
. . . . . . . . . . . . . . . . . . 2,000,000
==========
EXHIBIT 5
[BROBECK, PHLEGER & HARRISON LLP LOGO]
September 24, 1996
Biocryst Pharmaceuticals, Inc.
2190 Parkway Lake Drive
Birmingham, Alabama 35244
Ladies and Gentlemen:
We have assisted in the preparation and filing by Biocryst
Pharmaceuticals, Inc. (the "Company") of a Registration Statement on Form S-3,
as amended through August 21, 1966 (the "Registration Statement"), with the
Securities and Exchange Commission, relating to the sale of up to 2,300,000
shares (the "Shares") of Common Stock, $0.01 par value (the "Common Stock"), of
the Company. A form of underwriting agreement (the "Underwriting Agreement") is
filed as an exhibit to the Registration Statement.
We have examined such records and documents and have made such
examination of laws as we considered necessary to form a basis for the opinion
set forth herein. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with the originals of all documents submitted to us as copies
thereof.
Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized and, when sold and paid for in accordance
with the terms of the Underwriting Agreement, well be validly issued, fully paid
and nonassessable.
We hereby consent to the use of our name in the Registration Statement
under the caption "Legal Matters" in the related Prospectus and consent to the
filing of this opinion as an exhibit thereto.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated January 24, 1996,
in Amendment No. 2 to the Registration Statement (Form S-3 No. 333-07183) and
related Prospectus of BioCryst Pharmaceuticals, Inc. for the registration of
2,300,000 shares of its common stock.
/s/ERNST & YOUNG LLP
Birmingham, Alabama
September 20, 1996
EXHIBIT 23.2
CONSENT OF EXPERTS
We hereby consent to the reference to our firm under the caption "Experts"
in the Prospectus which is part of the Registration Statement.
/s/ Burton A. Amernick
POLLOCK, VANDE SANDE & PRIDDY,
R.L.L.P.
Washington, D.C.
September 24, 1996
