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As filed with the Securities and Exchange Commission on December 17, 1996
Registration No. 33-91228
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
ON FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CYTOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2836 04-3078125
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
TWO RICHMOND SQUARE, PROVIDENCE, RHODE ISLAND 02906, (401) 272-3310
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
FREDERIC A. EUSTIS, III, ESQ.
Secretary
CYTOTHERAPEUTICS, INC.
Two Richmond Square
Providence, Rhode Island 02906
(401) 272-3310
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
GEOFFREY B. DAVIS, ESQ.
ROPES & GRAY
30 Kennedy Plaza
Providence, Rhode Island 02903
(401) 455-4400
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of
this Registration Statement.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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PROSPECTUS
SUBJECT TO COMPLETION DATED DECEMBER 17, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
CYTOTHERAPEUTICS, INC.
2,434,500 SHARES OF COMMON STOCK
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This Prospectus relates to the issuance by CytoTherapeutics, Inc. (the
"Company") of shares of its Common Stock, $.01 par value ("Common Stock") from
time to time upon the exercise of a Common Stock Purchase Warrant (the
"Warrant") issued by the Company. The Warrant entitles the holder, subject to
adjustment as set forth in the Warrant, to purchase up to 434,500 shares of
Common Stock at a price of $8.00 per share, at any time through April 30, 2000,
when the Warrant expires. The Warrant is nontransferable and, subject to certain
exceptions, may be redeemed by the Company upon 30 days written notice at a
price of $.05 per warrant share, if the average last sale prices of the Common
Stock (as reported by the Nasdaq National Market) exceeds $12.00 per share for
any period of thirty (30) consecutive trading days ending within thirty (30)
days of the notice of redemption. This Prospectus also relates to the issuance
by the Company of additional shares of its Common Stock pursuant to the exercise
by the holder of the Warrant of certain Additional Antidilution Rights granted
pursuant to the Warrant. See "Description of Warrants."
The exercise price of the Common Stock underlying the Warrant and the
terms of the Warrant were determined by negotiations between the Company and
purchaser of the Warrant. The Common Stock of the Company is listed on the
Nasdaq National Market under the symbol "CTII." On December 13, 1996, the last
reported sale price for the Common Stock as reported by the Nasdaq National
Market was $8.875.
The shares of Common Stock offered hereby are offered directly by the
Company. All expenses of the Offering will be paid by the Company.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1996
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AVAILABLE INFORMATION
CytoTherapeutics, Inc. ("CytoTherapeutics" or the "Company"), is
subject to the information requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, is required to
file periodic reports, proxy materials and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at its regional offices located at Suite 1400,
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661, and
at 7 World Trade Center, New York, New York 10048, and copies of such material
can be obtained from the Public References Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, material
that the Company files electronically with the Commission is available at the
Commission's Web Site, http://www.sec.gov, which contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference into this Prospectus and made a part hereof:
(i) Annual Report on Form 10-K for the fiscal year ended December
31, 1995, including portions of the Company's definitive Proxy
Statement filed in connection with the Company's 1996 Annual
Meeting of Stockholders.
(ii) Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 30, 1996.
(iii) Current Report on Form 8-K filed with the Commission on July
16, 1996.
(iv) The description of the Company's Common Stock contained in its
registration statement on Form 8-A, File No. 1-19871.
All documents 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 the Offering shall be incorporated by reference into this
Prospectus and shall be deemed to be a part of this Prospectus from the date of
filing of such documents. Any statement contained in a document incorporated by
reference shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or supersedes such statement.
The Company will provide, upon request, without charge to each person
to whom a copy of this Prospectus has been delivered, a copy of any or all of
the documents which have been or may be incorporated in this Prospectus by
reference, other than certain exhibits to such documents. Requests for such
copies should be directed to: Investor Relations, CytoTherapeutics, Inc., Two
Richmond Square, Providence, Rhode Island 02906 (401) 272-3310.
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THE COMPANY
CytoTherapeutics is a leader in the development of proprietary products
and technology designed to deliver therapeutic substances to the central nervous
system ("CNS"). The Company's CNS-focused technology is designed to provide
controlled, site-specific and safe delivery of a variety of novel therapeutic
substances across the blood-brain barrier, potentially overcoming a fundamental
obstacle to effective treatment of CNS disease. The Company is currently
developing products for the treatment of chronic pain, Parkinson's disease,
Huntington's disease and amyotrophic lateral sclerosis , with additional
research efforts directed to several other CNS disorders. Through its 50% owned
Swiss subsidiary, Modex Therapeutiques SA, the Company is also developing
applications of its technology to treat diabetes, blood disorders and obesity.
CytoTherapeutics was incorporated under Delaware law in August 1988.
The Company's executive offices are located at Two Richmond Square, Providence,
Rhode Island 02906, and its telephone number is (401) 272-3310.
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RISK FACTORS
Prospective investors in the securities offered hereby should carefully
consider the following risk factors, in addition to the other information
appearing in this Prospectus. This Prospectus and the documents incorporated by
reference into this Prospectus contain forward-looking statements relating to
the Company's product development programs, need for and timing of, additional
capital, capital expenditures, intellectual property rights, the need for
additional facilities and regulatory approvals that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the
following "Risk Factors."
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES
The Company has developed no products, has derived no revenues from the
sale of any products and does not expect to generate any such revenues in the
near future. Substantially all of the Company's revenues to date have been
derived from collaborative agreements, research grants and income earned on
invested funds. To achieve profitable operations, the Company, alone or with
others, must successfully develop, obtain regulatory approval for, manufacture,
market and sell products. There can be no assurance that any of the Company's
product development efforts will be successful or, if successful, that required
regulatory approvals will be obtained.
The Company had losses from operations of approximately $15.0 million,
$17.0 million and $7.6 million for the years ended December 31, 1993, 1994 and
1995, respectively, and had an accumulated deficit of approximately $68.5
million at September 30, 1996. The Company will continue to incur substantial
operating losses in the future as the Company conducts its research,
development, clinical trial and manufacturing activities. Such losses may
fluctuate significantly from quarter to quarter. There can be no assurance that
the Company will achieve revenues from product sales or become profitable.
Furthermore, based on changes in the Company's ownership, utilization of net
operating loss carryforwards and research and development credits for Federal
income tax purposes may be subject to annual limitations.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The development of the Company's products will require the commitment
of substantial resources to conduct the time-consuming research, preclinical
development and clinical trials that are necessary for regulatory approvals and
to establish production and marketing capabilities if such approvals are
obtained. In addition, with respect to certain of the Company's proposed
products, the Company believes it may be necessary to access third party
technologies which may require substantial funds. The Company will need to raise
substantial additional funds to continue its product development efforts and
intends to seek such additional funds through partnership, collaborative or
other arrangements with corporate sponsors, public or private equity or debt
financings, or from other sources. Any equity financing could result in dilution
to the Company's then existing shareholders. A large number of biotechnology
companies are competing with the Company for access to limited capital. Lack of
necessary funds may require the Company to delay, reduce or eliminate some or
all of its research and product development programs or to license its potential
products or technologies to third parties. No assurance can be given that
funding will be available when needed, if at all, or on terms acceptable to the
Company.
The Company may also need additional funding earlier than anticipated,
and its cash requirements, in general, may vary materially from those now
contemplated. Future cash requirements may vary based on changes in the
Company's research and development programs, progress in preclinical and
clinical testing, the Company's ability to enter into, and perform successfully
under, collaborative agreements, competitive and technological advances, the
need to contest or obtain proprietary rights owned by third parties, facilities
requirements, regulatory approvals and other factors.
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UNCERTAINTIES OF NEW MODE OF THERAPY
The development of new pharmaceutical products is generally subject to
a number of significant risks. Potential products that appear to be promising at
an early stage of research or development may not reach the market for a number
of reasons. Potential products may prove to be ineffective, have adverse side
effects, fail to receive necessary regulatory approvals, fail to gain market
acceptance, be difficult or uneconomical to manufacture or market on a
commercial scale, be adversely affected by government regulations, government
price controls or limitations on reimbursement, be precluded from
commercialization by proprietary rights of third parties or be subject to
significant competition from other products.
In addition, the Company's proposed products represent a novel
therapeutic approach. All of the Company's research and product development
efforts are in an early stage and, to succeed, the Company must make significant
advances in a number of areas. To the Company's knowledge, no product similar to
the Company's proposed products has ever been approved by regulatory agencies or
been successfully commercialized. The success of the Company's products will
depend upon the Company's ability to demonstrate the commercial validity of
encapsulated cell therapy. To do so, the Company must show that its implants,
among other things: (i) successfully isolate transplanted cells from the
recipient's immune system; (ii) remain biocompatible with the tissue into which
they are implanted; (iii) maintain the viability of cells contained within the
membrane; (iv) safely permit the therapeutic substances produced by the cells
within the membrane to pass through the membrane into the patient; and (v) are
sufficiently durable for the intended indication and to allow the implants to be
retrieved intact. While the Company believes it has developed implants which
demonstrate each of these qualities in animal models and early human testing, a
number of its implants have not been successful. The reasons for failure of
these implants have not always been definitively identified.
It is expected that the Company's implants may differ substantially
from application to application, depending on, among other things, the targeted
disease or condition, the site of implantation and the type of encapsulated
cell. Even if regulatory approvals can be obtained for one type of implant,
there can be no assurance that other implants can be successfully developed and
approved.
The Company's proposed products are expected to have high unit costs,
and implantation of these products may require costly surgical procedures. The
Company's potential products are expected to consist, in part, of living cells,
which the Company and medical personnel using the product must keep viable from
the time the cells are encapsulated through their distribution and implantation
in the patient. There can be no assurance that the medical community or patients
will accept the Company's products, even if the Company's products are
successfully developed, are shown to be safe and effective in clinical trials
and are approved for marketing by the FDA and other regulatory authorities in
the United States and abroad.
UNCERTAINTIES OF CLINICAL DEVELOPMENT
Before obtaining required regulatory approvals for the commercial sale
of products, the Company must demonstrate through clinical trials that such
products are safe and efficacious for use in each target indication. The Company
has limited experience in conducting clinical trials and expects to enter into
arrangements with third parties or collaborators for assistance in the conduct
of clinical trials. There can be no assurance that the Company will be able to
negotiate such arrangements on acceptable terms, if at all, or that such
arrangements will be successfully completed. None of the products under
development by the Company has received regulatory approval. There can be no
assurance that such regulatory approval will be received on a timely basis, if
at all, or that necessary clinical trials will commence in the time frames
anticipated by the Company, if at all.
The results of preclinical tests, including animal model studies, are
not necessarily predictive of the safety or efficacy of a therapeutic candidate
in humans, and the results of initial clinical trials will not necessarily
predict results that may be obtained from larger-scale, later-stage clinical
trials. Further, there can be no assurance that any products developed by the
Company will be safe and efficacious in humans, or that the administration to
humans of any product under development by the Company will not produce
undesirable side effects. The effects of transplanting unencapsulated cells or
organs, including their potential to cause tumors, disease, such as bovine
spongiform encephalopathy or BSE, or other adverse side effects, are not
well understood. As a result, in order to achieve regulatory approval for
clinical trials and commercialization of its proposed products, it may be
necessary for the Company to demonstrate to a high degree of certainty that its
implants will not release the cells they contain and there
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can be no assurance that the Company will be able to achieve the necessary level
of certainty. Failure to obtain such certainty or the occurrence of such side
effects or lack of safety and efficacy could interrupt or delay clinical testing
of such products and could ultimately prevent their approval by the FDA or
foreign regulatory authorities. Many biotechnology products have failed to
demonstrate safety and efficacy in later-stage clinical trials. The Company, its
principal investigators, its corporate collaborators or the FDA may suspend
clinical trials at any time if it is believed that the patients participating in
such trials are being exposed to unacceptable health risks. Even after approval
by the FDA and foreign regulatory authorities, products may exhibit adverse side
effects that prevent their widespread use, necessitate their withdrawal from the
market and subject the Company to liability.
DEPENDENCE ON OUTSIDE PARTIES
The Company is dependent on a number of important arrangements with
outside parties. The Company's strategy for the research, development,
commercialization and marketing of its products contemplates that the Company
will enter into various arrangements with corporate sponsors, pharmaceutical
companies, universities, research groups and others. The Company, in particular,
has licensed technology from Brown University and certain researchers associated
with Brown University. Dr. Patrick Aebischer, at the Centre Hospitalier
Universitaire Vaudois in Switzerland, has conducted, and is currently conducting
clinical trials of the Company's implants, and is also conducting further
research sponsored by the Company. There can be no assurance that the Company
will be able to continue any arrangements such as its agreements with Brown
University, the Centre Hospitalier Universitaire Vaudois, Dr. Aebischer or other
institutions or researchers on terms acceptable to the Company, if at all. None
of the Company's founding scientists or Scientific Advisory Board members is
employed by the Company, and all may have commitments to or consulting contracts
with others.
The Company is seeking and expects to seek third party funding through
corporate partnerships or similar arrangements for some or all of the research,
development, clinical trial and commercialization expenses associated with its
products. The Company has established collaborations with Astra AB, Genentech,
Inc., and Akzo Nobel Fraser AG, and intends to enter into additional
collaborations relating to the research, development and commercialization of
its potential products. There can be no assurance that the Company can enter
into such additional arrangements on terms acceptable to the Company, or that
the Company will successfully fulfill its obligations under any such
arrangements. The Company's failure to enter into such arrangements and to
continue them on terms acceptable to the Company, or successfully to perform its
obligations under such arrangements, could have a material adverse effect on the
Company. In addition, there can be no assurance that any funds received under
the Company's collaborative arrangements will be sufficient, individually or in
the aggregate, to cover the costs incurred by the Company in support of the
related collaborative programs. Although the Company believes its collaborative
partners would have an economic incentive to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted
to these activities by such partners is not within the control of the Company.
There can be no assurance that the interests of the Company will coincide with
those of its collaborators or that disagreements over rights to technology or
other proprietary information will not occur. 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 and
effective manner, the development or commercialization of the product candidate
or research program under such collaborative 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.
Further, termination of an agreement could result in the loss of certain
technology rights. Any such event could adversely affect the Company's financial
condition, intellectual property position and operations.
The collaborative arrangements that the Company has entered into and
may enter into in the future have or may place responsibility for conducting
clinical trials, obtaining regulatory approval for potential pharmaceutical
products and commercializing such products on the collaborative partner. Should
a collaborative partner fail to develop or commercialize successfully any
potential product to which it has rights, on a timely basis, the Company's
business may be adversely affected. There can be no assurance that the
collaborators will not pursue alternative technologies or develop products
either on their own or in collaboration with others, as a means for developing
treatments for the diseases or disorders targeted by the Company's programs.
Furthermore, the Company has granted to certain of its existing
collaborators and expects to grant to future collaborators certain exclusive
(even as to the Company) or near exclusive rights to commercialize the Company's
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technology within specified areas, such as the treatment of a particular disease
state or condition (e.g., in the case of the Company's agreement with Astra AB,
the treatment of pain through encapsulated cell therapy) or the treatment of a
particular disease through the use of a particular category of technology (e.g.,
in the case of the Company's collaboration with Genentech, the use of certain
neurotrophic factors in connection with particular diseases). These arrangements
make the Company's ability to commercialize its technology in such areas heavily
dependent on the performance of such collaborators, prevent the Company from
seeking to commercialize its technology in such areas with others and may make
it more difficult or impossible for the Company to reach agreement with
desirable collaborators in other related or potentially overlapping areas.
NEED FOR AND UNCERTAINTY OF OBTAINING PATENT PROTECTION AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to establish,
protect and enforce proprietary rights relating to the design, use and
manufacture of its proposed products. While the Company has obtained certain
patent rights, there can be no assurance that any patent application will mature
into an issued patent or that any existing patent or patents which may issue in
the future will adequately protect the Company's products and technology.
Patent protection for products such as those the Company proposes to
develop is highly uncertain and involves complex factual and evolving legal
questions. No assurance can be given that any patents issued or licensed to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted under such patents will provide competitive advantages to the Company.
In addition to patent protection, the Company also relies substantially on trade
secrets and proprietary know-how which it seeks to protect, in part, by
confidentiality agreements with collaborators, employees and consultants. There
can be no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or independently discovered by competitors.
EXISTENCE OF THIRD PARTY PATENTS AND PROPRIETARY RIGHTS; NEED TO OBTAIN LICENSES
There are pending patent applications or issued patents held by others
relating to the Company's proposed products or the technology to be utilized by
the Company in the development of its proposed products. If such patents or
other patents are determined by the Company or a court to be valid and
infringed, the Company may be required to alter its products or processes, pay
licensing fees or royalties or cease certain activities. In particular, a third
party has informed the Company that it will receive a United States Patent which
such third party asserts will claim a method for alleviating chronic pain in
humans using implanted cells. The Company is not able to evaluate the scope,
validity or enforceability of such third party's alleged patent position until
such patent issues, if ever. The Company is also aware of one issued patent
claiming certain methods for treating defective, diseased or damaged cells in
the mammalian CNS by grafting genetically modified donor cells from the same
mammalian species. In addition, each of the neurotrophic factors which the
Company is currently investigating for use in its proposed products is the
subject of one or more claims in patents or patent applications of third
parties, and certain other neurotrophic factors are the subject of third party
patent applications. Many of such third parties are developing products using
such factors that would be directly competitive with the Company's proposed
products. The Company expects that it may need to obtain one or more licenses in
order to use such neurotrophic factors in certain of its proposed products. The
Company hopes to obtain such licenses through collaborative arrangements or
licensing agreements with the parties owning such rights, such as its agreements
with Genentech. The Company may also be required to seek licenses in regard to
other cell lines, the techniques used in creating or obtaining such cell lines,
the materials used in the manufacture of its implants or otherwise. There can be
no assurance that the Company will be able to establish collaborative
arrangements or obtain licenses to necessary or desirable technology on
acceptable terms, if at all, or that the patents underlying any such licenses
will be valid and enforceable.
Litigation, arbitration or regulatory proceedings, which could result
in substantial cost and uncertainty to the Company, may also be necessary to
enforce patent or other intellectual property rights of the Company or to
determine the scope and validity of other parties' proprietary rights. If the
outcome of any such litigation or proceeding is adverse to the Company, the
Company's business could be adversely affected. To determine priority of
invention, the Company may be required to participate in interference
proceedings declared by the United States Patent and Trademark Office, which
could result in substantial cost and uncertainty to the Company.
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GOVERNMENT REGULATION
The Company's research, preclinical development and clinical trials, as
well as the manufacturing and marketing of its potential products, are subject
to extensive regulation by governmental authorities in the United States and
other countries. Clinical trials and manufacturing of the Company's potential
products will be subject to the rigorous testing and approval processes of the
FDA and the independent processes of foreign regulatory authorities. The process
of obtaining FDA and other required regulatory approvals is lengthy, expensive
and uncertain. There can be no assurance that the Company or its collaborators
will be able to obtain the necessary approvals to commence or continue clinical
testing or to manufacture or market its potential products in anticipated time
frames, if at all. Because the Company's proposed products represent a new
therapeutic mode which combines certain aspects of biologics, drugs and devices,
the regulatory environment is likely to be particularly complex, uncertain and
time-consuming.
Moreover, if regulatory approval of a product is granted, such approval
may include significant limitations on the indicated uses for which the product
may be marketed. Even if regulatory approval is obtained, a marketed product and
its manufacturer are subject to continual review, and discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. Failure to comply with applicable regulatory requirements may, among
other things, result in fines, suspensions of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
Present or future government regulation may delay or prevent clinical trials and
the manufacture or marketing of the Company's potential products. In addition,
such regulation may impose costly procedures upon the Company's activities or
furnish a competitive advantage to other companies more experienced in
regulatory affairs than the Company.
The U.S. Public Health Service has published "Draft Guidelines on
Infectious Disease Issues in Xenotransplantation," which propose recommendations
to minimize any potential public health associated with xenotransplantation.
Xenotransplantation, in this case, is the transplantation of living cells,
tissues or organs from a non- human animal source into humans. There have also
been several legislative proposals to reform the FDA. If such guidelines and/or
proposals are adopted they may result in significant changes in the regulatory
environment the Company faces. These changes could (i) result in different, more
costly or more time consuming approval requirements for the Company's products,
(ii) adversely affect the Company's ability to recruit subjects for clinical
trials, (iii) result in the dilution of FDA resources available to review the
Company's products, or (iv) result in other unpredictable consequences.
The Company has exported and expects to continue to export certain
materials for incorporation by its collaborators in products used in foreign
clinical trials. The Company believes its export of these materials has been in
compliance with applicable FDA policies. The Company expects to seek FDA
approval for exports of finished products for clinical trials. Both the
Company's past and future export practices could be subject to FDA challenge and
there can be no assurance that the FDA would agree that such practices are in
compliance with applicable law and regulations or that such exports would be
allowed. If the Company were to be prohibited from exporting materials for use
in foreign clinical trials, such trials could be delayed or prevented, which
could have an adverse effect on the Company. Proposed regulations of the FDA and
other governmental agencies, which would place restrictions on researchers who
have a financial interest in the outcome of their research, could limit the
ability of the Company to include studies conducted by certain of its
collaborators in applications by the Company to the FDA, which could have an
adverse effect on the Company.
The Company is subject to numerous environmental and safety laws and
regulations. Any violation of, and the cost of compliance with, these
regulations could adversely impact the Company's operations. While the Company
believes that its procedures comply with applicable regulatory standards, the
risk of accidental contamination or injury cannot be completely eliminated. If
such an accident were to occur, the Company could be held liable for any
resulting damages, and any such liability could exceed the resources of the
Company.
SOURCES OF CELLS AND OTHER MATERIALS
The Company's potential products require genetically engineered cell
lines or living cells harvested from animal or human sources. The selection and
growth of living cells for human implantation is a relatively new field. There
can be no assurance that the Company will successfully identify or develop
sources of the cells required for its potential products and obtain such cells
in quantities sufficient to satisfy the requirements of its potential products.
These supply
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limitations may apply, in particular, to primary cells which must be drawn
directly from animal or human sources, such as the bovine adrenal chromaffin
cells currently used in the Company's pain product. Moreover, the use of primary
cells may entail the risk of infection arising from such cells. There can be no
assurance that the Company will be able to commercialize the cells and cell
lines used in animal studies or clinical trials to date or that the Company will
be successful in identifying and obtaining appropriate cell lines for its
research programs and proposed products. Failure to identify and obtain or
develop the cells or cell lines required for its potential products would have a
material adverse effect on the Company.
As an alternative to primary cells, the Company is developing products
based on the use of genetically altered cells. Intellectual property rights to
important genetic constructs used in developing such cells, including the
constructs used to develop cells producing neurotrophic factors, may be claimed
by one or more companies, which could prevent the Company from using such cells.
Concerns about the risks of using certain materials in human implants
have caused many suppliers of such materials to restrict their use in patients
or to cease manufacturing such materials. The failure to obtain reasonable
sources of such materials at reasonable prices, if at all, could have a material
adverse effect on the Company.
MANUFACTURING UNCERTAINTIES
The Company's pilot manufacturing plant, without additional expansion,
may not have sufficient capacity to permit the Company to produce all the
products for clinical trials it anticipates developing. In addition, the Company
has not developed the capability to commercially manufacture any of its proposed
products and is unaware of any other company which has manufactured any
membrane-encapsulated cell product on a commercial scale. Manufacture of the
Company's proposed products is expected to require specialized, automated
equipment capable of forming complex polymer membranes into implants which
combine media, matrices and living cells, all of which must be carried out on a
precisely controlled basis, under sterile conditions in a clean-room
environment. Failure to achieve manufacturing capability or to demonstrate
consistent results using manufactured prototypes in preclinical animal studies
or clinical trials could prevent or delay submission of products for regulatory
approval and initiation of new product development programs, which could have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to develop the capability of manufacturing any of its
proposed products at a cost or in the quantities necessary to make a
commercially viable product, if at all.
The implants for the Company's preclinical studies and the initial
clinical trial have generally been constructed using labor-intensive and
time-consuming techniques. There can be no assurance that the Company will be
successful in developing an effective and efficient manufacturing capability for
any of its products. Even if the Company develops techniques for manufacturing
its products, the Company's current facilities and staff are inadequate for
commercial scale production of its products under development. The Company will
be required to develop manufacturing capabilities on its own or identify and
contract with manufacturers to produce its products in commercial quantities.
There can be no assurance that the Company can develop such facilities or
contract with third party manufacturers on acceptable terms, if at all.
TECHNOLOGICAL CHANGE AND COMPETITION
The development of human therapeutic products is marked by rapid and
significant technological change. The Company expects that the technologies
associated with its research and development will continue to develop rapidly,
and the Company's future success will depend in large part on its ability to
maintain a competitive position with respect to these technologies.
Technological development by the Company or others may result in the
obsolescence of products or processes before the Company recovers the research,
development and commercialization expenses it has incurred. There can be no
assurance that the Company will successfully address these technological
challenges or others that may arise in the course of development.
Competitors of the Company are numerous and include major
pharmaceutical and chemical companies, biotechnology companies, universities and
other research institutions. Currently, several of these competitors market and
sell therapeutic products for the treatment of chronic pain, Parkinson's disease
and other CNS conditions. In addition, most of the Company's competitors have
substantially greater capital resources, research and development staffs,
facilities, experience in conducting clinical trials and obtaining regulatory
approvals and, in the case of
-10-
<PAGE> 11
commercial entities, experience in manufacturing and marketing pharmaceutical
products, than the Company. These competitors may now have or in the future
develop new technologies or use existing technologies that are or may in the
future be the basis for competitive products that are alternative or superior
treatments for the diseases or conditions which the Company's products are
intended to address. The Company's competitors may possess or obtain patent
protection or other intellectual property or other rights that block the
Company's ability to develop its potential products or may obtain regulatory
approval for commercialization of competitive products earlier than the Company.
A number of other companies are attempting to develop methods of delivering
therapeutic substances within or across the blood brain barrier. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than those being developed by
the Company or that would render the Company's technology and products obsolete
or non-competitive.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its
management and scientific staff and certain of its outside consultants. Loss of
the services of any of these individuals could have a material adverse effect on
the Company's operations. The Company has no long-term employment or consulting
contracts with any of its employees or consultants and does not maintain key
person life insurance on any employee or consultant. In addition, the Company's
operations are dependent upon its ability to attract and retain additional
qualified scientific and management personnel. There can be no assurance the
Company will be able to attract and retain such personnel on acceptable terms
given the competition among pharmaceutical, biotechnology and healthcare
companies, universities and research institutions for experienced personnel.
SALES AND MARKETING UNCERTAINTIES
If the Company is successful in developing and obtaining regulatory
approval for its products, it may market and sell its proposed products
primarily through co-marketing, licensing or other arrangements with third
parties. There can be no assurance that the Company will be successful in
entering into such arrangements. The Company currently has no experience in
sales, marketing or distribution. To the extent that the Company markets its
products directly, the Company must develop a marketing staff and sales force
with technical expertise. There can be no assurance that the Company will be
able to build such a marketing staff or sales force, that the cost of
establishing a marketing staff or sales force will not exceed any product
revenues or that the Company's sales and marketing efforts will be successful.
REIMBURSEMENT AND HEALTHCARE REFORM
In both domestic and foreign markets, sales of the Company's potential
products will depend in part upon the availability and amounts of reimbursement
from third-party healthcare payor organizations, including government agencies,
private healthcare insurers and other healthcare payors such as health
maintenance organizations and self-insured employee plans. There is considerable
pressure to reduce the cost of therapeutic products. In particular,
reimbursement from government agencies and insurers and large health
organizations may become more restrictive in the future. The Company's potential
products represent a new mode of therapy, and, while the cost-benefit ratio of
the products may be favorable, the Company expects that the costs associated
with its products will be substantial. There can be no assurance that the
Company's proposed products will be considered cost-effective by third party
payors, that reimbursement will be available or, if available, that such payors'
reimbursement policies will not adversely affect the Company's ability to sell
its products on a profitable basis, or at all. There can be no assurance that
reimbursement will be provided by such payors at all or without substantial
delay, or, if such reimbursement is provided, that the approved reimbursement
amounts will provide sufficient funds to enable the Company to become
profitable.
The revenues and profitability of healthcare related companies,
including the Company, may be affected by the continuing efforts of governmental
and third party payors to contain or reduce the cost of healthcare through
various means. For example, in certain foreign markets pricing or profitability
of prescription pharmaceuticals is subject to government control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of Federal and state proposals to implement government control over
healthcare costs. It is uncertain what legislative proposals will be adopted or
what actions Federal, state or private payors for healthcare goods and services
may take in response to any healthcare reform proposals or legislation. The
Company cannot predict the effect healthcare reforms may have on its business.
Any such reforms, as well as the uncertainty the proposal of reforms has
engendered, could have a material adverse effect on the Company.
-11-
<PAGE> 12
PRODUCT LIABILITY
Clinical testing, marketing and sale of the Company's products will
expose the Company to the risk of liability resulting from the use of such
products, including claims resulting from risks associated with the surgical
procedures, materials or cells required for use of the Company's products. There
can be no assurance that substantial product liability claims will not be
asserted against the Company. While the Company has obtained clinical trial
insurance in limited amounts and expects to obtain product liability insurance
when its products are commercialized, there can be no assurance that adequate
insurance coverage for any product liability purpose will be available at any
cost, if at all. Even if insurance is obtained there can be no assurance that
product liability claims would be covered by such insurance or that such claims
would not have a material adverse effect on the business or financial condition
of the Company.
POTENTIAL VOLATILITY OF STOCK PRICE
The market prices of many publicly traded biotechnology companies have
been and may continue to be highly volatile. A variety of events, directly and
indirectly affecting the Company and the biotechnology industry, such as
announcements of technological innovations or new therapeutic products by the
Company or its competitors, clinical trial results, legislative developments,
government regulations, developments in patent or other proprietary rights,
public concern as to the safety of products developed by the Company or others,
fluctuations in the Company's operating results and general market conditions
may have a significant impact on the market price of the Company's Common Stock.
In recent years, the stock markets have experienced extreme price and volume
fluctuations, which have particularly affected the stock market prices for many
biotechnology companies and which have often been unrelated to the operating
performances of those companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. Because of the limited
trading volume in the Company's Common Stock, the market price of such Common
Stock is particularly subject to price fluctuations. This limited volume may
also make it difficult for investors to buy or sell larger blocks of Common
Stock without price dislocation.
SHARES ELIGIBLE FOR FUTURE SALE AND DILUTION
Upon the issuance of all of the shares offered hereby, the Company will
have approximately 18,694,887 shares of Common Stock outstanding, assuming no
exercise of other outstanding warrants or options to purchase Common Stock.
Substantially all shares of the Company's outstanding Common Stock are and will
remain eligible for immediate resale as a result of having been registered for
resale under the Securities Act of 1933, pursuant to the provisions of Rule 144
or otherwise.
The shares of Common Stock issuable upon the exercise of the Warrant
will, upon completion of the offering, be immediately issuable upon the exercise
of the Warrant. Upon exercise, such shares will be eligible for immediate
resale, as well as any additional shares that may become issuable under the
adjustment and antidilution provisions of the Warrant. See "Description of
Warrants." An additional 1,038,861 shares of Common Stock are immediately
issuable upon the exercise of options outstanding on November 30, 1996. The
shares of Common Stock issuable upon the exercise of options have been
registered under the Securities Act of 1933 and, upon exercise, will be eligible
for immediate resale.
Sales of shares of Common Stock by the Company's stockholders could
adversely affect the prevailing market price of the Company's Common Stock.
Under the Company's agreements with Genentech relating to ALS and
Parkinson's disease, Genentech, under certain circumstances, is obligated to
loan a substantial amount of money to the Company in order to provide the
Company sufficient funds to pay certain product development expenses for which
the Company is responsible under such agreements. At the option of the Company,
these loans may be repaid, with interest, in cash or in shares of the Company's
Common Stock (based on the market price of the Company's Common Stock at the
time the loan is repaid). In the event the Company had insufficient cash to
repay such loans or chooses to repay such loans through the issuance of Common
Stock, the Company's existing shareholders could experience substantial
dilution.
-12-
<PAGE> 13
EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Company's Restated Certificate of
Incorporation (the "Charter") and By-laws and Delaware law could delay or
prevent a change in control of the Company and discourage certain attempts to
acquire the Company or to remove incumbent management even if some or a majority
of the Company's stockholders deem such an attempt to be in the Company's best
interest. These provisions include staggered terms for the Company's Board of
Directors, restrictions on the ability of stockholders to act by written consent
or to call special meetings of stockholders, limitations on the matters to be
considered at special meetings of stockholders and the ability of the Board of
Directors to consider factors in addition to the economic benefit to
stockholders when evaluating a tender offer or merger or acquisition proposal,
as well as the "business combination" provisions of Section 203 of the Delaware
General Corporation Law. In addition, the Company's Board of Directors, without
further stockholder approval, may issue preferred stock or rights to acquire
Common Stock or preferred stock, which could have the effect of delaying,
deterring or preventing a change in control of the Company. The issuance of
preferred stock could also adversely affect the voting power of the holders of
Common Stock. While the Company has no present plans to issue shares of
preferred stock, the Company may consider from time to time the issuance of
preferred stock in connection with corporate collaborations or other
transactions.
USE OF PROCEEDS
If and when the Warrant is exercised, the proceeds to the Company from
the sale of the 434,500 shares of Common Stock issuable upon the exercise of the
Warrant at a price of $8.00 per share will be approximately $3,476,000. The
Company may also receive additional proceeds in the event the holder of the
Warrant exercises the Additional Antidilution Rights granted pursuant to the
Warrant.
The Company intends to use the net proceeds of this offering to fund
research and development activities, including preclinical and clinical testing,
related to its proposed products for the treatment of chronic pain, Parkinson's
disease, Huntington's disease and ALS and other products; to fund product
development and additional research and development activities relating to
neurotrophic factors, neural stem cells and further technology development; to
provide continued funding for contract research programs; to fund capital
expenditures; and for working capital and other general corporate purposes.
The proceeds of this offering may also be used in part to acquire
additional rights to technology related to the Company's product development
programs, and to fund additional collaborative arrangements with other companies
and universities when the Company believes such opportunities would enhance its
competitive position or complement the Company's current research programs.
The Company expects to use all of the net proceeds of this offering for
the purposes described above and will require substantial additional funds in
the future. The amounts and timing of the Company's expenditures for these
purposes will depend upon a number of factors, including the progress of the
Company's research and development, the scope and results of preclinical studies
and clinical trials, the cost and timing of regulatory approvals, the need for
and availability of third party patent rights, the rate of technological
advances, determinations as to the commercial potential of the Company's
products under development, the status of competitive products and the
establishment of manufacturing capacity. In addition, expenditures will depend
on the establishment of collaborative research arrangements with other
companies, the availability of other financing and other factors.
Pending application of the proceeds as described above, the Company
intends to invest the net proceeds of this offering primarily in government and
investment grade debt securities.
DILUTION
The net tangible book value of the Company as of September 30, 1996,
was $34,623,082 or $2.24 per share of Common Stock. "Net tangible book value"
per share represents the amount of tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of the 434,500 shares of Common Stock
issuable upon exercise of the Warrant (assuming no exercise of the Additional
Antidilution Rights set forth in the Warrant), the pro forma net tangible book
value of the Company as of September 30, 1996 would have been $38,099,082, or
$2.40 per share of Common Stock. This represents an immediate
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<PAGE> 14
increase in the net tangible book value of $.16 per share to existing
stockholders and an immediate dilution of $5.60 per share to the holder of the
Warrant (assuming the Warrant is exercised in full). The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share of Common Stock(1).......................... $8.00
Net tangible book value per share as of September 30, 1996.......................... $2.24
Increase per share attributable to the Warrant holder (upon exercise of the Warrant) .16
-----
Pro forma net tangible book value per share after offering.......................... 2.40
-----
Dilution per share to the Warrant holder (upon exercise of the Warrant)............. $5.60
=====
</TABLE>
- ---------
(1) Before deduction of offering expenses payable by the Company.
The following table summarizes as of September 30, 1996 on a pro forma
basis the difference between existing stockholders and the holder of the Warrant
with respect to the number of shares purchased from the Company and the total
consideration and the average price per share paid (assuming exercise of the
Warrant in full at $8.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 15,423,480 97% $111,815,092 97% $7.25
Warrant holder..................... 434,500 3% 3,476,000 3% 8.00
---------- ---- ------------ ----
Total........................ 15,857,980 100% $115,291,092 100%
========== ==== ============ ====
</TABLE>
Excludes shares of Common Stock reserved for issuance upon exercise of
the Additional Antidilution Rights granted pursuant to the Warrant and 829,171
shares of Common Stock issued in December 1996 to Genentech, Inc. at a per
share price of $10.01. Also, excludes 2,039,163 shares of Common Stock reserved
for issuance pursuant to stock options outstanding on September 30, 1996 at a
weighted average exercise price of $8.17 per share, of which options to purchase
997,541 shares were exercisable. Also excludes 31,545 shares of Common Stock
reserved for issuance pursuant to warrants outstanding on September 30, 1996 at
a weighted average exercise price of $6.70 per share, all of which were
exercisable. Shares issued pursuant to certain outstanding options awarded under
such plans may have a dilutive effect on investors purchasing shares in this
offering.
Upon the exercise of Additional Antidilution Rights set forth in the
Warrant, the holder of the Warrant may experience additional dilution if the per
share purchase price of the shares issuable upon the exercise of the Additional
Antidilution Rights is greater than the net tangible book value per share of the
Company's Common Stock at the time of such exercise.
-14-
<PAGE> 15
DESCRIPTION OF WARRANT
The following summary of the provisions of the Warrant is qualified in
its entirety by reference to the form of Warrant Certificate, a copy of which is
filed as an Exhibit to the Registration Statement of which this Prospectus is a
part.
RIGHTS TO PURCHASE COMMON STOCK
The Warrant entitles the holder (the "Warrant Holder") to the right
(the "General Warrant Right") to purchase 434,500 shares of Common Stock at a
price of $8.00 per share (subject to adjustment as described below) at any time
through April 30, 2000, when the Warrant expires. The holder of the Warrant may
exercise all or a portion of the Warrant held by such holder by executing the
appropriate subscription form attached to the Warrant Certificate and
delivering the form to the Company, together with the payment of the exercise
price for the shares of Common Stock purchased. The exercise price may be paid
by certified or bank check or by wire transfer. The Warrant may be exercised on
more than one occasion prior to expiration of the Warrant.
The Company has authorized and reserved for issuance a number of shares
of Common Stock sufficient to provide for the exercise of the right to purchase
shares currently represented by the Warrant. When issued against receipt of the
payment provided for in the Warrant, each share of Common Stock will be fully
paid and non-assessable.
The Warrant holder will not have any voting or other rights as
stockholders of the Company.
Redemption Rights. The Warrant may, subject to certain exceptions, be
redeemed by the Company at a price of $.05 each, upon 30 days prior written
notice, if the average of the closing sale prices of the Common Stock (as
reported by the Nasdaq National Market System) exceeds $12.00 per share for any
thirty (30) consecutive trading days ending within 30 days of the notice of
redemption. The General Warrant Rights contained in the Warrant so called for
redemption will be forfeited unless such Warrant is exercised prior to the
date specified in the notice of redemption.
Transferability. The Warrant is nontransferable and no public market
for trading the Warrant is expected to exist.
Adjustments. The exercise price of the Warrant, the number of shares
of Common Stock issuable upon the exercise of the General Warrant Rights and the
price at which the Company may redeem the Warrant are subject to adjustment in
the event of a stock dividend, stock split, reverse stock split,
recapitalization, merger, consolidation or certain other events. In the event of
the complete liquidation and dissolution of the Company, the Warrant will
terminate.
Additional Antidilution Rights. In addition to the foregoing
adjustments, each Warrant Holder has the right, in the event the Company issues
additional shares of Common Stock or other securities convertible into Common
Stock, to purchase, at the then market price for such Common Stock, sufficient
additional shares of Common Stock to maintain the Warrant Holder's percentage
ownership of the Company's Common Stock at the same percentage as was obtained
by the Warrant Holder solely by the purchase of the Common Stock. These rights
do not apply in the case of any issuance by the Company under any Stock option,
equity incentive, Stock bonus, Stock purchase, employee benefit, profit sharing,
401(k), retirement or similar plan or by the Company in the ordinary course of
business in connection with lease or bank financings or consulting arrangements.
In addition, these rights do not apply in the case of any issue of shares to a
single purchaser to the extent that any of such shares (the "Excluded Shares")
represent an increase in the purchaser's ownership of the Company's Common Stock
above 30% (giving effect to completion of the issuance and assuming conversion
of all securities of the Company convertible into common Stock but not including
any shares issuable on the exercise of options or warrants) and all such
Excluded Shares shall be excluded in determining the Warrant Holder's percentage
ownership of the Company's Common Stock. The additional antidilution rights
described in this paragraph apply to any issuance by the Company occurring on or
before April 30, 2000 and survive redemption of the warrants. Such additional
antidilution rights, however, expire in the event that the Warrant Holder (i) in
the case of any issuance giving rise to such rights, fails to fully exercise
such rights by purchasing substantially all of the shares of Common Stock which
such Warrant Holder is entitled to purchase thereunder or (ii) at any time sells
any shares of Common Stock or any other security of the Company which is
convertible into shares of Common Stock. Under certain
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<PAGE> 16
circumstances, exercise of such rights is subject to the Warrant Holder's prior
exercise of such Holder's General Warrant Rights. The Company has registered the
sale of 2,000,000 shares of Common Stock issuable on exercise of the additional
antidilution rights described in this paragraph under the Registration Statement
of which this Prospectus is a part.
FEDERAL INCOME TAX CONSEQUENCES
No gain or loss will be recognized upon the exercise of a Warrant. The
holder's basis in the Common Stock received on exercise of a Warrant will equal
the holder's basis in the Warrant plus the amount of the exercise price. The
holding period of the Common Stock acquired on exercise of a Warrant will
commence on the date of the exercise.
Assuming that the holder of a Warrant is not a dealer in warrants and
that the Common Stock would have constituted a capital asset in the hands of the
holder had the holder exercised the Warrant, any gain or loss realized on a sale
or exchange of a Warrant (including a loss realized due to the failure of a
holder to exercise a Warrant prior to its expiration) will generally be treated
as a capital gain or capital loss for Federal income tax purposes. Gain or loss
will be measured by the difference between the amount realized on the sale,
exchange or expiration and the holder's basis in the Warrant.
If the Warrants are redeemed by the Company, the holder of a Warrant
will recognize gain or loss equal to the difference between his basis in the
Warrant and the redemption price of the Warrant. The Internal Revenue Service
has taken the position that the termination of a contractual obligation does not
constitute a sale or exchange for Federal income tax purposes. If this position
is correct and were applied to a redemption of the Warrants, any gain or loss
realized on such a redemption would constitute ordinary income or ordinary loss.
If, however, a redemption of a Warrant constitutes a sale or exchange for
Federal income tax purposes, and if the Common Stock receivable upon exercise of
the Warrant would have been a capital asset in the holder's hands if the Warrant
had been exercised, then any gain or loss realized by the holder will be capital
gain or loss.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby are being offered for sale
directly by the Company upon the exercise of the Warrant and the exercise of
certain Additional Antidilution Rights granted pursuant to the Warrant. See
"Description of Warrants." The exercise price of the Common Stock underlying the
Warrant has been determined through negotiations between the Company and the
purchaser of the Warrant.
There can be no assurance that the Company will be successful in
selling any or all of the shares of Common Stock offered hereby. The Company has
not fixed a minimum number of shares of Common Stock to be sold pursuant to this
Prospectus. Therefore, the Company may sell less than all of the shares of
Common Stock offered hereby, which may significantly reduce the amount of
proceeds to be received by the Company. Funds received by the Company on the
sale of less than all of the shares of Common Stock offered hereby will not be
placed in an escrow, trust or similar account.
The Chief Executive Officer and Chief Financial Officer of the Company,
with the assistance of other officers as needed, will participate in the sale of
the shares of Common Stock to the purchasers. These participants, who will not
receive any compensation for these activities, will not be deemed to be brokers
pursuant to Rule 3a4-1 under the Securities Exchange Act of 1934, as amended.
The Company does not expect to offer or sell shares of Common Stock in any state
whose securities laws would require that the shares of Common Stock only be sold
through licensed brokers or dealers.
-16-
<PAGE> 17
VALIDITY OF SECURITIES
The legality of the securities offered hereby will be passed upon for
the Company by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The financial statements of the Company incorporated by reference in
the Company's Annual Report (Form 10-K) for the year ended December 31, 1995,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report incorporated by reference therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits and schedules thereto) on Form S-3 under the Securities Act of 1933, as
amended, with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Statements
made in this Prospectus as to the contents of any document referred to are not
necessarily complete. With respect to each such document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission referred to above in "Available Information."
-17-
<PAGE> 18
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION................................................................ 3
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE................................................................ 3
THE COMPANY.......................................................................... 4
RISK FACTORS......................................................................... 5
USE OF PROCEEDS..................................................................... 13
DILUTION ........................................................................... 13
PLAN OF DISTRIBUTION................................................................ 16
VALIDITY OF SECURITIES.............................................................. 17
EXPERTS ........................................................................... 17
ADDITIONAL INFORMATION.............................................................. 17
</TABLE>
2,434,500 shares of Common Stock
CytoTherapeutics, Inc.
------------------------------------
PROSPECTUS
December __, 1996
------------------------------------
-18-
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Estimated expenses (other than fees and commissions) payable in
connection with the sale of the Common Stock offered hereby are as follows*:
<TABLE>
<S> <C>
SEC Registration Fee................................................................ $ 4,828
NASDAQ National Market Additional Listing Fee....................................... 17,500
Blue Sky Fees and Expenses.......................................................... 10,000
Legal Fees and Expenses............................................................. 100,000
Accounting Fees and Expenses........................................................ 30,000
Printing, Engraving and Mailing Expenses............................................ 40,000
Transfer Agent Fees and Expenses.................................................... 5,000
Miscellaneous....................................................................... 17,672
---------
Total.......................................................................... $ 225,000
</TABLE>
* Substantially all of these expenses were incurred and paid in connection with
offering of certain units of the Company in May 1995 that were registered on
this Registration Statement and of which the Warrant was a part.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
II-1
<PAGE> 20
The Registrant's Restated Certificate of Incorporation provides that
the Registrant's directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that exculpation from liabilities is not permitted under
the DGCL as in effect at the time such liability is determined. The Restated
Certificate of Incorporation further provides that the Registrant shall
indemnify its directors and officers to the full extent permitted by the law of
the State of Delaware.
II-2
<PAGE> 21
Item 16. Exhibits and Financial Statement Schedules.
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Title or Description
----------- --------------------
<S> <C>
3.1* Restated Certificate of Incorporation of the Registrant.
3.2+ Amended and Restated By-laws of the Registrant.
4* Specimen Common Stock Certificate.
4.1++ Form of Warrant Certificate issued to a certain purchaser of the
Registrant's Common Stock in April 1995.
5! Opinion of Ropes & Gray.
23.1 Consent of Ernst & Young LLP.
23.2! Consent of Ropes & Gray (included in the opinion filed as Exhibit 5).
24 Power of Attorney (included on signature page).
</TABLE>
* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, Registration Statement on Form S-1, File No.
33-45739.
+ Previously filed with the Commission as Exhibits to, and incorporated by
reference to, Registration Statement on Form S-1, File No. 33-85494.
++ Previously filed with the Commission, as an Exhibit to this Registration
Statement on April 14, 1995.
! Previously filed with the Commission on Exhibit to Pre-Effective
Amendment No. 1 to this Registration Statement on April 27, 1995.
(b) Financial Statement Schedules -- None
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions described above in Item 15,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes (1) that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of the 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 Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective; and (2) that for the purpose of determining any liability under the
Act, each post-effective amendment that
II-3
<PAGE> 22
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
CytoTherapeutics, Inc. certifies that it has reasonable grounds to believe that
it meets all the requirements for filing Post-Effective Amendment No. 1 to Form
S-1 on Form S-3 (the "Amendment") and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Providence, Rhode Island on the 16th day of December, 1996.
CYTOTHERAPEUTICS, INC.
By: /s/Daniel E. Geffken
-------------------------
Daniel E. Geffken
Vice President, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
* Chairman, Chief Executive December 16, 1996
- ------------------------------- Officer, and Director
Seth A. Rudnick, M.D. (principal executive officer)
/s/Sandra Nusinoff Lehrman President, Chief Operating December 16, 1996
- ------------------------------- Officer and Director
Sandra Nusinoff Lehrman, M.D.
/s/Daniel E. Geffken Vice President, Chief Financial December 16, 1996
- ------------------------------- Officer and Treasurer (principal
Daniel E. Geffken financial and accounting officer)
* Director December 16, 1996
- -------------------------------
Edwin C. Cadman, M.D.
* Director December 16, 1996
- -------------------------------
Donald R. Conklin
* Director December 16, 1996
- -------------------------------
Mark J. Levin
* Director December 16, 1996
- -------------------------------
Richard J. Ramsden
Director December 16, 1996
- -------------------------------
Peter Simon
Director December 16, 1996
- -------------------------------
Patrick Aebischer, M.D., Ph.D.
</TABLE>
II-5
<PAGE> 24
*By: /s/Daniel E. Geffken
--------------------
Daniel E. Geffken
Attorney-In-Fact
We, the undersigned directors and officers of CytoTherapeutics, Inc.,
hereby severally constitute and appoint Seth A. Rudnick, Daniel E. Geffken, and
Frederic A. Eustis, III, and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement (including
other post-effective amendments), and generally to do all such things in our
name and behalf in our capacities as officers and directors to enable
CytoTherapeutics, Inc. to comply with the provisions of the Securities Act of
1933, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.
<TABLE>
<S> <C> <C>
President, Chief Operating December 16, 1996
- ----------------------------- Officer and Director
Sandra Nusinoff Lehrman, M.D.
Director December 16, 1996
- -----------------------------
Patrick Aebischer, M.D., Ph.D.
Director December 16, 1996
- -----------------------------
Peter Simon
</TABLE>
II-6
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title or Description
----------- --------------------
<S> <C>
3.1* Restated Certificate of Incorporation of the Registrant.
3.2+ Amended and Restated By-laws of the Registrant.
4* Specimen Common Stock Certificate.
4.1++ Form of Warrant Certificate issued to a certain purchaser of the
Registrant's Common Stock in April 1995.
5! Opinion of Ropes & Gray.
23.1 Consent of Ernst & Young LLP.
23.2! Consent of Ropes & Gray (included in the opinion filed as Exhibit 5).
24 Power of Attorney (included on signature page).
</TABLE>
* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, Registration Statement on Form S-1, File No.
33-45739.
+ Previously filed with the Commission as Exhibits to, and incorporated by
reference to, Registration Statement on Form S-1, File No. 33-85494.
++ Previously filed with the Commission, as an Exhibit to this Registration
Statement on April 14, 1995.
! Previously filed with the Commission on Exhibit to Pre-Effective
Amendment No. 1 to this Registration Statement on April 27, 1995.
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
Post-Effective Amendment No. 1 to the Registration Statement (Amendment to Form
S-1 on Form S-3 No. 33-91228) and related Prospectus of CytoTherapeutics, Inc.
for the registration of 2,434,500 shares of its common stock and to the
incorporation by reference therein of our report dated January 22, 1996 with
respect to the financial statements of CytoTherapeutics, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
December 13, 1996
