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PROSPECTUS
[LOGO]
25,323,853 SHARES OF COMMON STOCK
11,309,722 CLASS C WARRANTS
This Prospectus relates to an offering (the "Offering") by the Securityholders
named herein under the caption "Selling Securityholders" (collectively, the
"Selling Securityholders") for sale to the public of the following securities of
Sparta Pharmaceuticals, Inc. (the "Company"): (i) 11,309,822 shares of the
Company's Common Stock, $.001 par value ("Common Stock"), issuable upon the
conversion of currently outstanding shares of the Company's Series B'
Convertible Preferred Stock, $.001 par value ("Series B' Preferred Stock"), (ii)
11,309,722 of the Company's redeemable Common Stock Class C Warrants ("Class C
Warrants"), (iii) 11,309,722 shares of Common Stock issuable upon the exercise
of the Class C Warrants, (iv) 1,131,000 shares of Common Stock issuable upon the
conversion of the shares of Series B' Preferred Stock issuable upon exercise of
certain preferred stock warrants issued to the placement agent in respect of the
offering of the Series B' Preferred Stock and Class C Warrants (the "Preferred
Stock Warrants"), (v) 1,131,000 shares of Common Stock issuable upon the
exercise of certain common stock warrants issued to such placement agent (the
"Common Stock Warrants" and, together with the Preferred Stock Warrants, the
"Placement Warrants"), (vi) 155,100 shares of Common Stock issuable upon the
exercise of a unit purchase option ("UPO") issued to the underwriters of the
Company's initial public offering, (vii) 132,000 shares of Common Stock issuable
upon the exercise of Class A Warrants and 132,000 Shares of Common Stock
issuable upon the exercise of the Class B Warrants of the Company issuable upon
the exercise of the UPO and (viii) 23,209 shares of Common Stock held by Yale
University. This Prospectus also relates to the issuance by the Company of
11,309,722 shares of Common Stock issuable upon the exercise of the Class C
Warrants (other than an exercise by the original holder thereof). The number of
shares of Common Stock issuable upon conversion of the Series B' Preferred Stock
and upon exercise of the Class C Warrants, the Placement Warrants, the UPO, the
Class A Warrants and the Class B Warrants is subject to adjustment in certain
events.
The Common Stock and Class C Warrants are separately tradable. Each Class C
Warrant entitles the registered holder thereof to purchase one share of Common
Stock at a price of $1.50, subject to adjustment, at any time from issuance
until August 23, 2001 (the "Expiration Date"). The Class C Warrants are subject
to redemption by Sparta commencing August 23, 1997 at a redemption price of
$0.10 per Class C Warrant upon 60 days' prior written notice, provided that the
average closing bid price (or last sales price) of the Common Stock as reported
on the National Association of Securities Dealers Automated Quotation System
("Nasdaq") (or on such exchange on which the Common Stock is then traded),
equals or exceeds $3.00 per share (being 200% of the exercise price per share),
subject to adjustment, for any 20 trading days within a period of 30 consecutive
trading days ending on the 3rd trading day prior to the date of notice of
redemption. See "Description of Securities." The Common Stock is traded on The
Nasdaq SmallCap Market under the symbol "SPTA." On September 30, 1996 the last
sale price of the Common Stock was $1.65625 per share. The Company has applied
for quotation of the Class C Warrants on The Nasdaq SmallCap Market.
The Company will not receive any proceeds from the sale of shares of Common
Stock or Class C Warrants by the Selling Securityholders. In the event that all
the Class C Warrants are exercised, net cash proceeds (after estimated expenses
associated with the exercise of the Class C Warrants of $1,025,000) to the
Company would be approximately $15,940,000. The Company intends to use any such
net cash proceeds for general working capital purposes. The Company is not
expected to receive any proceeds from the exercise of the Placement Warrants
since the Placement Warrants may be exercised pursuant to a cashless exercise
provision. In the event that the Placement Warrants are exercised for cash, the
Company intends to use such net cash proceeds for general working capital
purposes. Proceeds, if any, from the exercise for cash of all the Placement
Warrants, before deduction of estimated expenses of this Offering, would be
approximately $3,756,950. Whether, how and to what extent any of the Class C
Warrants or Placement Warrants will be exercised, and whether the Placement
Warrants are exercised for cash or not, cannot be predicted by the Company.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. The Company will pay all other
expenses of this Offering. See "Plan of Distribution."
The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company also has
advised the Selling Securityholders of the requirement for delivery of this
Prospectus in connection with any sale of the shares offered hereby.
THE DATE OF THIS PROSPECTUS IS OCTOBER 22, 1996
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock and the Class C Warrants offered by this Prospectus. Certain
portions of the Registration Statement have not been included in this
Prospectus. For further information, reference is made to the Registration
Statement and the Exhibits thereto. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration statement (with exhibits), as
well as such reports, proxy statements and other information, can be inspected
and copied at the public reference facilities maintained by the Commission at
its principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and its regional offices at 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Commission maintains a site on World Wide Web at http://www.sec.gov
that contains reports, proxy and other information statements regarding
registrants that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1995; Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996; Current Reports on Form 8-K dated March 15, 1996, April 30,
1996, May 15, 1996, August 7, 1996, August 23, 1996, August 28, 1996, September
3, 1996, September 23, 1996 and September 24, 1996; Amended Current Reports on
Form 8-K/A dated March 15, 1996 and all other reports filed by the Company
pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31, 1995
are hereby incorporated herein by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering covered hereby will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus 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 replaces such
statement.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the documents incorporated by reference in this Prospectus, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates. In
addition, a copy of the Company's most recent annual report to stockholders will
be promptly furnished, without charge, upon written or oral request. All such
requests should be directed to Sparta Pharmaceuticals, Inc., 111 Rock Road,
Horsham, Pennsylvania 19044, Attention: Ronald H. Spair, telephone number (215)
442-1700.
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PROSPECTUS SUMMARY
THE COMPANY
The Company is a development stage pharmaceutical company engaged in the
business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life threatening
diseases including cancer, cardiovascular disorders and acute inflammation. The
Company has focused on acquiring compounds that have been previously tested in
humans or animals and technologies that may improve the delivery or targeting of
previously tested, and in some cases marketed, anticancer agents. The Company
has received approval of Investigational New Drug ("IND") applications by the
United States Food and Drug Administration ("FDA") with respect to three of its
product candidates, one of which is currently in phase I clinical trials. On
March 15, 1996, the Company acquired (the "Lexin Purchase") the assets and
business of Lexin Pharmaceutical Corporation ("Lexin"). The assets acquired in
the Lexin Purchase are designed primarily as potential therapeutic agents for
acute inflammatory and cardiovascular diseases.
The Company's lead products under development are:
PRODUCT CANDIDATE
SPARTAJECt-TM- busulfan
RII retinamide
L.A.D.D.-TM- 5-FP
LEX032
INDICATION
Providing injectable
delivery of drug for
ablating bone marrow
prior to bone
marrow transplant
Treatment of
Myelodysplastic Syndromes
(MDS)
Providing oral delivery
of 5-FU for the treatment
of colorectal, breast,
liver and other cancers
Treatment of reperfusion
injury, (e.g., occurring
after myocardial
infarction and stroke)
STAGE OF DEVELOPMENT
IND approved
Phase I Clinical Trial
Commenced
IND approved
Preclinical
In addition to the Company's lead product candidates, the Company has also
identified, and in some instances has undertaken some development of, other
applications of its licensed technologies and other product candidates, one of
which is in joint Phase I clinical trials in the United Kingdom.
The technology acquired in the Lexin Purchase is licensed exclusively from two
universities and directed at the potential treatment of a number of life
threatening diseases. LEX032 is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs, e.g., the lung and pancreas, where uncontrolled inflammation may
be fatal. LEX032 has exhibited what may be a unique spectrum of activity in
certain animal models of reperfusion injury. A drug with such a spectrum of
activity may be useful in the treatment of myocardial infarction, stroke,
shock-resuscitation, replantation surgery, frostbite, burns and organ
transplants. The compound is currently under evaluation, pursuant to an option
granted to Astra Merck Inc., for the treatment of acute pancreatitis, or
inflammation of the pancreas.
The Company was incorporated in Delaware on June 12, 1990 under the name MediRx
Pharmaceuticals, Inc. and commenced operations in January 1991. It changed its
name to Sparta Pharmaceuticals, Inc. on May 31, 1991.
SPARTAJECT-TM- and L.A.D.D.-TM- are trademarks of the Company.
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THE OFFERING
Securities Offered by Selling Securityholders...25,323,853 shares of Common
Stock and 11,309,722 Class C
Warrants. The Common Stock
and Class C Warrants are
separately tradable. Each
Class C Warrant entitles the
registered holder thereof to
purchase one share of Common
Stock at a price of $1.50
subject to adjustment, from
issuance until August 23, 2001
(the "Expiration Date"). The
Class C Warrants are subject
to redemption by the Company
commencing August 23, 1997 at
a redemption price of $0.10
per Class C Warrant upon 60
days' prior written notice,
provided that the average
closing bid price (or last
sales price) of the Common
Stock as reported on the
National Association of
Securities Dealers Automated
Quotation System ("Nasdaq")
(or on such exchange on which
the Common Stock is then
traded), equals or exceeds
$3.00 per share (being 200% of
the exercise price per share),
subject to adjustment, for any
20 trading days within a
period of 30 consecutive
trading days ending on the 3rd
trading day prior to the date
of notice of redemption. The
Company will not receive any
proceeds from the sale of
these securities by the
Selling Securityholders. See
"Use of Proceeds,"
"Description of Securities,"
"Certain Transactions," and
"Selling Securityholders."
Securities Offered by the Company . . . . . . . 11,309,722 shares of Common
Stock issuable upon the
exercise of the Class C
Warrants (other than an
exercise by the original
holders thereof).
Common Stock Outstanding Prior to the Offering. 8,192,219 shares (1)
Common Stock Outstanding After the Offering . .19,502,041 shares (2)
Class C Warrants Outstanding After the Offering.11,309,722
Nasdaq SmallCap symbols. . . . . . . . . . . . . Common Stock: SPTA
Class C Warrants: SPTAL
Class A Warrants: SPTAW
Class B Warrants: SPTAZ
Previously Issued Units: SPTAU
(1) Does not include (i) 11,309,722 shares issuable upon conversion of the
Series B' Convertible Preferred Stock and (ii) 11,309,722 shares issuable
upon the exercise of the Class C Warrants, (iii)1,518,000 shares issuable
upon exercise of outstanding Class A Warrants, (iv) 1,518,000 shares
issuable upon exercise of outstanding Class B Warrants, (v) 64,415 shares
issuable upon exercise of outstanding private placement warrants, (vi)
419,100 shares issuable upon exercise in full of a unit purchase option
("UPO") issued to the underwriters of the Company's initial public
offering, (vii) 2,338,172 shares reserved for issuance under stock rights
granted or to be granted under the Company's 1991 Stock Plan, (viii) 56,042
shares reserved for issuance under several license and option agreements,
(ix) 93,576 shares reserved for issuance to Cato Research Ltd. under a
contract research agreement and (viii) 2,262,000 shares issuable upon the
exercise of the Placement Warrants.
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(2) Does not include (i) 1,518,000 shares issuable upon exercise of outstanding
Class A Warrants, (ii) 1,518,000 shares issuable upon exercise of
outstanding Class B Warrants, (iii) 64,415 shares issuable upon exercise of
outstanding private placement warrants, (iv) 419,100 shares issuable upon
exercise in full of the UPO, (v) 2,338,172 shares reserved for issuance
under stock rights granted or to be granted under the Company's 1991 Stock
Plan, (vi) 56,042 shares reserved for issuance under several license and
option agreements, (vii) 93,576 shares reserved for issuance to Cato
Research Ltd. under a contract research agreement and (viii) 13,571,722
shares issuable upon the exercise of the Class C Warrants and the Placement
Warrants.
Use of Proceeds: . . . . . . . . . . . . . . . .The Company will not receive
any proceeds from the sale of
Class C Warrants or shares of
Common Stock by the Selling
Securityholders. In the event
that all the Class C Warrants
are exercised, net cash
proceeds to the Company would
be approximately $15,940,000
(after estimated offering
expense of approximately
$1,025,000 associated with the
exercise of Class C Warrants
which includes a 6% commission
payable to the Placement Agent
upon the exercise of the Class
C Warrants and up to $5,000
payable to reimburse the
Placement Agent for
out-of-pocket costs incurred
in connection with the
solicitation of Class C
Warrant exercise or the
redemption of the Class C
Warrants.) The Company intends
to use any such net cash
proceeds for general working
capital purposes. The Company
is not expected to receive any
proceeds from the exercise of
the Placement Warrants since
the Placement Warrants may be
exercised pursuant to a
cashless exercise provision.
In the event that the
Placement Warrants are
exercised for cash, the
Company intends to use such
net cash proceeds for general
working capital purposes.
Proceeds, if any, from the
exercise for cash of all the
Placement Warrants, before
deduction of estimated
expenses of this Offering,
would be approximately
$3,756,950. Whether, how and
to what extent any of the
Class C Warrants or Placement
Warrants will be exercised,
and whether the Placement
Warrants are exercised for
cash or not, cannot be
predicted by the Company.
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND THE SECURITIES SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
EARLY STAGE OF DEVELOPMENT. The Company's product candidates are in the early
stages of research and development and no revenues have been generated to date
from product sales, nor are any product revenues expected for at least the next
several years, if at all. To date, only limited human testing has been
conducted on any of the Company's proposed product candidates. The Company has
received approval of Investigational New Drug ("IND") applications by the United
States Food and Drug Administration ("FDA") relating to proposed Phase I
clinical trials in the United States for three product candidates of which one
is currently in Phase I Clinical Trials. The Company's other product
candidates, are in the preclinical stage of development and testing or their
development has not yet commenced. As a result, the Company must be evaluated
in light of the problems, delays, uncertainties and complications encountered in
connection with a development stage biopharmaceutical business. The risks
include, but are not limited to, the possibilities that any or all of the
Company's potential products will be found to be ineffective or toxic, or fail
to receive necessary regulatory clearances. To achieve profitable operations,
the Company must successfully develop, obtain regulatory approval for, introduce
and successfully market at a profit products that are currently in the research
and development phase. The great majority of the preclinical research and
clinical development work and testing for the Company's product candidates
remains to be completed. The Company is currently not profitable, and no
assurance can be given that the Company's research and development efforts will
be successful, that required regulatory approvals will be obtained, that any of
the Company's proposed products will be safe and effective, that any such
products, if developed and introduced, will be successfully marketed or achieve
market acceptance, or that such products can be marketed at prices that will
allow profitability to be achieved. Failure of the Company to successfully
develop, obtain regulatory approval for, introduce and market its products under
development would have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business."
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS. The Company expects that existing
capital resources and interest earned on invested funds, will be sufficient to
fund its operations through March, 1998. However, the Company may be required
to seek additional financing to continue operations during such period in the
event of cost overruns or unanticipated expenses. The Company has experienced
delays in funding its planned research and development activities and will
require substantial additional funds to finance its business activities on an
ongoing basis. The Company's future capital requirements will depend on
numerous factors, including, but not limited to, progress in its research and
development programs, including preclinical and clinical trials, costs of filing
and prosecuting patent applications and, if necessary, enforcing issued patents
or obtaining additional licenses to patents, competing technological and market
developments, the cost and timing of regulatory approvals, the ability of the
Company to establish collaborative relationships, and the cost of establishing
manufacturing, sales and marketing capabilities. The Company has no current
commitment to obtain other additional funds and is unable to state the amount or
potential source of such other additional funds. Moreover, because of the
Company's potential long-term capital requirements, it may undertake additional
equity offerings whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. There can be no assurance
that the Company will be able to obtain additional funding when needed, or that
such funding, if available, will be obtainable on reasonable terms. Any such
additional funding may result in significant dilution to existing stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate research and development programs, capital expenditures, and
marketing and other operating expenses. The Company may be required to obtain
funds through arrangements with collaborative partners that may require the
Company to relinquish material rights to its products that it would not
otherwise relinquish.
HISTORY OF LOSSES; GOING CONCERN REPORTS; UNCERTAINTY OF FUTURE FINANCIAL
RESULTS. The Company has experienced significant operating losses since its
inception in June 1990. As of June 30, 1996, the Company's accumulated deficit
was $14,830,999. The majority of the Company's income to date has been derived
from interest earned on invested funds. The Company's former independent
auditors have included an explanatory paragraph in their report on the Company's
financial statements for each fiscal year since inception, including as of
December 31, 1995, which paragraph expresses substantial doubt concerning the
Company's ability to continue as a going concern. The Company has not
introduced any product commercially. The Company expects to incur increasing
operating losses over the next several years as its product research
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programs expand and various preclinical and clinical trials commence. The
amount of net losses may vary significantly from year-to-year and
quarter-to-quarter and depend on, among other factors, the timing of Company
payments in connection with sponsored research, and the progress of preclinical
and clinical development programs. The Company's ability to attain
profitability will depend, among other things, on its successfully completing
development of its product candidates, obtaining regulatory approvals,
establishing manufacturing, sales and marketing capabilities and obtaining
sufficient funds to finance its activities. There can be no assurance that the
Company will be able to achieve profitability or that profitability, if
achieved, can be sustained. See "Business."
RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS. The pharmaceutical industry
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes. The Company's success will
depend, in part, on its ability to enjoy or obtain protection for its products
and technologies under United States and foreign patent laws and other
intellectual property laws, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. The patent position of
pharmaceutical firms is often highly uncertain and usually involves complex
legal and factual questions.
Some of the planned product candidates or technologies that the Company has
licensed or has rights to license are covered by United States and foreign
patents issued, assigned or licensed to the Company's licensors, and
applications for additional United States and foreign patents for certain of its
products and technologies have been filed or are expected to be filed.
There is a substantial backlog of pharmaceutical and biotechnology patent
applications at the United States Patent and Trademark Office ("PTO") and
equivalent foreign agencies. There can be no assurance that patent applications
relating to the Company's potential products, or technologies licensed by the
Company from others or that it may license in the future or file itself will,
result in patents being issued, that any issued patents will afford adequate
protection to the Company or not be challenged, invalidated, infringed or
circumvented, or that any rights granted thereunder will provide competitive
advantages to the Company. Furthermore, patent applications in the United
States are maintained in secrecy until patents issue. Accordingly, there can be
no assurance that all United States and foreign patents or patent applications
that may pose a risk of infringement have been identified. Publication of
discoveries in the scientific or patent literature, if made, tends to lag actual
discoveries by several months. There can be no assurance that others have not
independently developed or will not independently develop similar products
and/or technologies, duplicate any of the Company's products or technologies or,
if patents are issued to or licensed by the Company, design around such patents.
There can be no assurance that patents issued to others will not adversely
affect the development or commercialization of the Company's products or
technologies, or that, if patents are issued in one jurisdiction, patents will
also issue in any other jurisdiction. Further, patents owned by or licensed to
the Company may expire prior to the Company's commercializing its technology
applications and product candidates covered by the applicable patents.
Moreover, the Company conducts some research through academic advisors and
collaborators, who may be prohibited from entering into inventors' rights
agreements by the academic institutions that employ them. Furthermore, there
can be no assurance that the validity of any of the patents licensed to, or that
may in the future be owned by, the Company would be upheld if challenged by
others in litigation or that the Company's activities would not infringe patents
owned by others. The Company could incur substantial costs in defending itself
in suits brought against it or any of its licensors, or in suits in which the
Company may assert its patents or patents in which it may have rights against
others or in suits contesting the validity of a patent. Any such proceedings
may be protracted. In any suit contesting the validity of a patent, the patent
being contested would be entitled to a presumption of validity and the
contesting party would be required to demonstrate invalidity of such patent by
clear and convincing evidence. The Company could also incur substantial costs
in connection with any suits relating to matters for which the Company has
agreed to indemnify its licensors. In addition, the Company may be required to
obtain licenses to patents or other proprietary rights of third parties. No
assurance can be given that any licenses required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. If the Company is required to, and does not obtain such licenses, it
could be prevented from or encounter delays in the development, manufacturing or
marketing of its products and technologies while it attempts to design around
such patents or other rights.
Some of the compounds the Company intends to or may develop are believed to be
in the public domain, or not presently subject to patent protection as
compounds, in the United States, including aphidicolin, busulfan, camptothecin,
etoposide, 5-FP, paclitaxel and RII retinamide. Where the Company chooses to
apply the SPARTAJECT Technology and L.A.D.D.
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Technology licensed by it to compounds that are not patented, any patent
protection for any products which may be so developed will be dependent upon the
patent protection, if any, applicable to the particular technology applied.
L.A.D.D. TECHNOLOGY AND IPDR. In June 1996 the PTO issued an office action on
the Company's application indicating that sixteen claims were allowed, which
claims are drawn to the administration of 5-FP and IPDR, and other compounds
with similar structures, for the treatment of liver associated diseases. Other
claims were finally rejected, including claims which relate to the application
of the L.A.D.D. Technology to the oral administration of 5-FP and other
compounds with similar structures. The Company believes that further
negotiation with the examiner or, if necessary, an appeal of the examiner's
position to the PTO Board of Patent Appeals and Interferences, will result in
the allowance of additional claims, including, at the least, a claim drawn to
the oral administration of 5-FP, although the Company cannot predict with
certainty whether or not a patent thereon will be granted.
Two patents (the "Antichymotrypsin Patents") were assigned to Sonoran Desert
Chemicals LLC in 1990 and 1991, respectively, relating to certain uses of
antichymotrypsin. The Antichymotrypsin Patents include claims covering methods
for treating pulmonary and/or bowel inflammations in a mammal using
alpha-1-antichymotrypsin, derivatives and salts thereof, methods for treating
inflammation using alpha-1-antichymotrypsin topically and pharmaceutical
compositions of alpha-1-antichymotrypsin, its salts or derivatives. To the
Company's knowledge, products embodying the Antichymotrypsin Patents have not
yet been developed. Claims of the Antichymotrypsin Patents may cover the use of
LEX032, the lead compound which the Company acquired in the purchase of the
assets and business of Lexin Pharmaceutical Corporation on March 15, 1996 (the
"Lexin Purchase"). The Company believes, however, that such claims would not
cover the Company's intended use of LEX032. Nevertheless, there can be no
assurance in this regard, and if such claims are found to cover the Company's
intended use of LEX032, and the Antichymotrypsin Patents are not invalid, then
the Company will require a license from the holders of the patents in order to
develop or commercialize LEX032 in the United States or any other country where
the Antichymotrypsin Patents may have issued. There can be no assurance that a
license will be obtainable on acceptable terms, if at all, and any negotiations
to obtain a license may be protracted. If the Company is unable to obtain such
a license on commercially reasonable terms, such inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.
Three patents (the "Third Party Patents") have been issued in the United States
(in September 1992 (No. 5,145,684), March 1995 (No. 5,399,363) and February 1996
(No. 5494683), respectively) and are believed by the Company to be assigned to
Eastman Kodak Company or a subsidiary thereof. The March 1995 patent is a
continuation-in-part of the September 1992 patent. The February 1996 patent is
a divisional of the March 1995 patent. The Third Party Patents include numerous
claims that, based on presently available information, may cover certain
embodiments of the SPARTAJECT Technology, including formulations of
camptothecins, etoposide and certain taxanes. If the Third Party Patents are
not invalid insofar as their claims relate to those embodiments of the
SPARTAJECT Technology, then (i) the Company will require a license from the
holder of the Third Party Patents to commercialize those embodiments of the
SPARTAJECT Technology and sell or sublicense products utilizing those
embodiments of the SPARTAJECT Technology in the United States and (ii) the
extent to which the Company might require such a license will depend on the
final formulations of its and any sublicensee's products and whether they
utilize those embodiments of the SPARTAJECT Technology that are covered by the
Third Party Patents. If the Company is required to obtain a license under the
Third Party Patents to practice those embodiments of the SPARTAJECT Technology
and sell or sublicense others to sell products utilizing those embodiments of
the SPARTAJECT Technology in the United States and is unable to do so on
commercially reasonable terms, then the inability to obtain such a license could
have a material adverse effect on the Company's business and its future results
of operations.
Patent applications corresponding to the Third Party Patents have been filed in
various countries outside the United States, including certain European
countries through the European Patent Office ("EPO"), in Japan and in Canada,
also with pending claims that, based on presently available information, may
cover certain embodiments of the SPARTAJECT Technology. The applications filed
by the holder of the Licensed Patent in various foreign countries, including
certain European countries through the EPO and, in Japan and in Canada, have
earlier effective filing dates than the application filed with the EPO, in Japan
and in Canada corresponding to the Third Party Patents. The Company believes
that generally, in most foreign countries, in the case of conflicting
applications claiming the same patentable invention, the application with the
earlier effective filing date (in this case the patent applications filed by the
holder of the Licensed Patent) is entitled to the issuance of the patent.
Accordingly, although there can be no assurance that foreign law will be applied
in this manner, the Company believes that a patent issued in such European
countries, Japan or Canada corresponding to the Third Party Patent should
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be invalid (or susceptible to cancellation) insofar as it pertains to the
practice of the SPARTAJECT Technology. Therefore, the Company believes it
should not be prevented ultimately from commercializing the SPARTAJECT
Technology in such European countries, Japan or Canada, respectively, solely by
reason of the issuance of such patent. However, if the Company is required to
obtain a license under any patent issued in such European countries, Japan or
Canada and is unable to do so on commercially reasonable terms, then the
inability to obtain such a license could have a material adverse effect on the
Company's business and its future results of operations.
A patent was issued in the United States (the "Orphan Patent") and a patent
application which designated various countries outside the United States was
published under the PCT (the "Orphan Application") which the Company understands
have been licensed exclusively to Orphan Medical, Inc. The Orphan Patent
includes claims, and the Orphan Application is seeking claims, covering methods
of treating patients with malignant conditions using an intravascularly
administrable busulfan preparation and treating leukemia or lymphoma patients
undergoing a bone marrow transplant using an intravenously administrable
busulfan preparation that the Company believes do not cover the use of
SPARTAJECT busulfan. However, there can be no assurances in this regard, and if
such claims do cover the Company's intended use of SPARTAJECT busulfan, and the
Orphan Patent is not invalid, then the Company may require a license from the
holder or exclusive licensee of such patent or patents in order to develop or
commercialize SPARTAJECT busulfan in the United States. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is
unable to do so on commercially reasonable terms, then the inability to obtain
such a license could have material adverse effect on the Company's business and
its future results of operations. Furthermore, there can be no assurances that
a different interpretation with respect to coverage of the use of SPARTAJECT
busulfan will not be obtained in countries outside the United States in the
event any claims are allowed pursuant to the Orphan Applications.
The Company is aware that two international patent applications by The Wellcome
Foundation Limited ("Wellcome") were published under the PCT in 1992,
designating the United States, major European countries and Japan, among other
countries. As published, the applications have broad claims that the Company
believes may cover certain of the prodrugs which may be used by the Company in
practicing the L.A.D.D. Technology licensed by the Company to which the prodrugs
are intended to be converted IN VIVO. A patent in Australia based on one of such
applications was issued on March 7, 1995 and expires in 2011. Two patent
applications in New Zealand based on one of such applications were allowed and
published for opposition in November 1995 and unless opposed will be granted and
will expire in 2011 (such Australian patent and potential New Zealand patent
being called collectively the "ANZ Patents"). The claims of the ANZ Patents do
not appear to cover the application of the L.A.D.D. Technology to 5-FP but may
cover its application to IPdR as a radiosensitizer. There can be no assurance
however that another patent or patents based on such published applications will
not issue in the United States or other jurisdictions or that the ANZ Patents
and any other such issued patent or patents would not contain claims which could
affect the practice of the L.A.D.D. Technology. The Company believes that if
the ANZ Patents are valid as issued or any such other patent or patents issue in
any jurisdiction, it may be required to seek a license under such claims in
order to develop, market and sell certain of the applications of its L.A.D.D.
Technology in such jurisdictions. There can be no assurance that such licenses
will be obtainable on reasonable terms to the Company, if at all. If any such
license were required to practice the L.A.D.D. Technology, the inability to
obtain such license could have a material adverse effect on the Company's
business.
All of the Company's product candidates and proposed technology applications are
in the early stage of development. Even if development of such product
candidates and technology applications is successful and approval for sale is
obtained, there can be no assurance that applicable patent coverage, if any,
will not have expired or will not expire shortly after such approval, which
expiration, in the absence of other regulatory protection, could have a material
adverse effect on the sales and profitability of such product or application.
The United States patent on asulacrine expires in 1999 and other United States
and foreign patents covering compounds or technologies the Company intends to
develop expire in 1998 and subsequent years. The Company also seeks to protect
its proprietary technology, including technology which may not be patented or
patentable, in part by confidentiality agreements and, if applicable, inventors'
rights agreements with its employees. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise be
disclosed to, or discovered by, competitors. There can also be no assurance
that others will not independently develop similar or superior products or
technologies or otherwise obtain access to the Company's proprietary products or
technologies.
Proprietary protection of the Company's products and technologies is important
to the Company's business, and the
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Company's failure or inability to maintain the proprietary nature of its
products and technologies could have a material adverse effect on the Company's
financial condition and the results of its operations. See "Business--Potential
Technology Applications and Product Candidates."
LICENSE AGREEMENTS; RISK OF LOSS OF SPARTAJECT TECHNOLOGY. The Company has
contractual rights to certain compounds and technologies through various license
agreements. These agreements are generally terminable by the licensor if the
Company does not meet its financial obligations thereunder or otherwise for
cause upon short notice or in the event the Company is insolvent or bankrupt,
does not apply minimum resources and efforts to develop the compounds and
technologies under licenses or does not achieve certain filing goals with
respect to new drug applications, the earliest of which is January 1997. There
can be no assurance that the agreements will not be so terminated and, if
terminated, that the Company will be able to enter into similar agreements on
terms as favorable to the Company as those contained in its existing license
agreements. Furthermore, the Company may seek additional licenses in the
future, and there can be no assurance that the Company will be able to enter
into similar license agreements for additional products in the future on terms
acceptable to it.
The Company is a party to a license with Research Triangle Pharmaceuticals Ltd.
("RTP"), a wholly-owned subsidiary of Cato Holding Co, relating to the
SPARTAJECT Technology. Such license requires the Company, subject to extensions
and qualifications in certain circumstances, to fund, prepare and file New Drug
Applications ("NDAs") for a fixed number of products by specified dates, the
earliest of which is January 1997. In the event that the Company is unable to
prepare and file such NDAs in accordance with the time requirements set forth in
the license, the Company's rights under the license could become subject to
termination and, if terminated, the Company would be unable to commercialize any
products utilizing the SPARTAJECT Technology.
RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY. The Company has received
approval by the FDA for IND applications relating to three product candidates,
SPARTAJECT busulfan, L.A.D.D., 5-FP and RII retinamide, one of which is
currently in Phase I clinical trials. LEX032, is in the preclinical stage of
development. One of the Company's product candidates, asulacrine, is in a
second Phase I clinical trial in England being conducted by the Cancer Research
Campaign ("CRC"). The Company has not filed an IND with the FDA for asulacrine.
Because of the incidence of vein inflammation apparently caused by the
injectable formulation of the compound used in the first clinical trial, CRC
developed an oral formulation of the compound which has recently entered a
second Phase I clinical trial in the U.K. Another potential product candidate,
IPDR, is a nucleoside analogue. It is possible that as a result of severe
complications and deaths associated with the use of another nucleoside analogue,
which was under clinical investigation for hepatitis, more extended preclinical
toxicity testing may be required by the FDA for any nucleoside analogues under
investigation for any use, and there can be no assurance that similar toxicities
from the use of IPDR will not result.
The Company has not commenced development of some of its other product
candidates and has done only limited development on others. None of the
products the Company proposes to develop or is developing has been approved for
marketing by regulatory authorities and all of the Company's products will
require significant research and development, including lengthy clinical
testing, prior to their commercialization. The results of clinical trial and
preclinical testing discussed in this Prospectus for the Company's compounds and
technologies are subject to varying interpretations. Furthermore, studies
conducted with alternative designs or on alternative populations could produce
results that vary from those discussed in this Prospectus. Therefore, there can
be no assurance that the results discussed in this Prospectus or the Company's
interpretation of them will be accepted by governmental regulators or the
medical community. Even if the development of the Company's products in the
preclinical phase advances to the clinical stage, there can be no assurance that
they will prove to be safe and effective. The products that are successfully
developed, if any, will be subject to requisite regulatory approval prior to
their commercial sale, and the approval, if obtainable, may take several years.
Generally, only a very small percentage of the number of new pharmaceutical
products initially developed is approved for sale. Even if they are approved
for sale, there can be no assurance that they will be commercially successful.
The Company may encounter unanticipated problems relating to development,
manufacturing, distribution and marketing, some of which may be beyond the
Company's financial and technical capacity to solve. The failure to address
such problems adequately could have a material adverse effect on the Company's
business and prospects. No assurance can be given that the Company will succeed
in the development and marketing of any new drug products, or that they will not
be rendered obsolete by products of competitors.
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This Prospectus includes estimates by the Company of the number of patients with
a particular type of cancer or other diseases, the number of patients who were
administered a particular drug and the number of patients who received or might
have been candidates for a particular type of treatment. There can be no
assurance of the extent to which any of the Company's products, if successfully
developed, will actually be used by patients. Furthermore, there can be no
assurance that the Company's sales of its products for such uses will be
profitable even if patient use occurs. See "Business--Potential Technology
Applications and Product Candidates."
UNCERTAINTY OF HEALTH CARE REFORM MEASURES. Federal, state and local officials
and legislators (and certain foreign government officials and legislators) have
proposed or are reportedly considering proposing a variety of reforms to the
health care systems in the United States and abroad. The Company cannot predict
what health care reform legislation, if any, will be enacted in the United
States or elsewhere. Significant changes in the health care system in the
United States or elsewhere are likely to have a substantial impact over time on
the manner in which the Company conducts its business. Such proposals and
changes could have a material adverse effect on the Company's ability to raise
capital. Furthermore, the Company's ability to commercialize its potential
products may be adversely affected to the extent that such proposals have a
material adverse effect on the business, financial condition and profitability
of other companies that are prospective corporate partners with respect to
certain of the Company's proposed products.
UNCERTAIN EXTENT OF PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT. The
Company's ability to commercialize its products successfully will depend in part
on the extent to which appropriate reimbursement levels for the cost of such
products and related treatment are obtained from government authorities, private
health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third party payers are increasingly challenging the
prices charged for medical products and services. Also the trend towards
managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reduce government insurance programs, may all result in lower prices for the
Company's products. The cost containment measures that health care providers
are instituting could affect the Company's ability to sell its products and may
have a material adverse effect on the Company.
GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVAL; ORPHAN DRUG
STATUS. Prior to marketing, each of the Company's drugs must undergo an
extensive regulatory approval process conducted by the FDA and applicable
agencies in other countries. The process, which focuses on safety and efficacy
and includes a review by the FDA of preclinical testing and clinical trials and
investigating as to whether good laboratory and clinical practices were
maintained during testing, takes many years and requires the expenditure of
substantial resources. The Company is, and will be dependent on the external
laboratories and medical institutions conducting its preclinical testing and
clinical trials to maintain both good laboratory practices established by the
FDA and good clinical practices. Data obtained from preclinical and clinical
testing are subject to varying interpretations which could delay, limit or
prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in FDA policy for drug approval during the period
of development and by the requirement for regulatory review of each IND and NDA.
There can be no assurance that even after such time and expenditures regulatory
approval will be obtained for any of the Company's product candidates.
Moreover, such approval may entail significant limitations on the indicated uses
for which a drug may be marketed. Even if such regulatory approval is obtained,
a marketed therapeutic product and its manufacturer are subject to continual
regulatory review, and later discovery of previously unknown problems with a
product or manufacturer may result in restrictions on such product or
manufacturing, including withdrawal of such product from the market. Change in
the manufacturing procedures used by the Company for any of the Company's
approved drugs are subject to FDA review, which could have an adverse effect
upon the Company's ability to continue the commercialization or sale of a drug.
The process of obtaining FDA approval is costly and time consuming, and there
can be no assurance that any product that the Company may develop will be deemed
to be safe and effective by the FDA. The Company will not be permitted to
market any product it may develop in any jurisdiction in which the product does
not receive regulatory approval.
The Company intends to seek orphan drug status for some of its product
candidates pursuant to the Orphan Drug Act of 1983 (the "Orphan Drug Act") and
has been granted orphan drug status for busulfan as preparative therapy for
malignancies treated with bone marrow transplantation and for RII retinamide for
the treatment of myelodysplastic syndromes. There can be no assurance orphan
drug status will be granted for other product candidates or that for any grant
of orphan drug status, such grant will provide the Company with any benefits.
Although under the Orphan Drug Act as now in effect orphan drug status may
provide an applicant exclusive marketing rights in the United States for a
designated indication for seven
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years following marketing approval, in order to obtain such benefits, the
applicant must be the sponsor of the first NDA approved for that drug and
indication. If a third party receives prior FDA approval for an orphan drug
indication, the Company may be precluded by the Orphan Drug Act from obtaining
market approval for seven years. Orphan Medical, Inc., a United States company
which is not affiliated with the Company's distributors of SPARTAJECT busulfan
in Europe and Sweden, has disclosed that it is in Phase I clinical trials with
an intravenous form of busulfan for use in bone marrow transplants using a
formulation with solvents licensed from a university. It cannot be predicted
whether such development by Orphan Medical, Inc., will be successful and whether
it will adversely affect the ability of the Company to obtain FDA approval of
SPARTAJECT busulfan for the orphan drug indication of use in bone marrow
transplants. In addition, amendments to the Orphan Drug Act have been
introduced in Congress, which if adopted, would limit the benefits available for
sellers of orphan drugs, including limiting the exclusivity period to four years
generally and providing for the loss or sharing of exclusivity in some
circumstances. There can be no assurance that such amendments or other
amendments will not be adopted, and therefore the Company is unable to predict
the extent to which or whether any benefits currently provided by the Orphan
Drug Act will continue to be available.
COMPETITION; TECHNOLOGICAL CHANGE. There is substantial competition in the
pharmaceutical field and in the areas of the Company's proposed business in
cancer, cardiovascular disorders and acute inflammation, engaged in by companies
with financial resources, and licensing, research and development staffs and
facilities substantially greater than those of the Company. Competitors include
pharmaceutical companies with recognized, well established development programs
in these areas, and biotechnology firms and pharmaceutical companies with
therapies in the development stage. Many such companies have extensive
experience in undertaking preclinical testing and clinical trials and obtaining
FDA and other regulatory approvals. There can be no assurance that the
Company's competitors will not succeed in developing similar technologies and
products more rapidly than the Company and that these technologies and products
will not be more effective than any of those that are being or will be developed
by the Company, or render the Company's technologies and products obsolete or
noncompetitive. The Company intends to or may apply its SPARTAJECT Technology
and L.A.D.D. Technology to compounds that are believed to be in the public
domain, or not presently subject to patent protection as compounds, in the
United States, including aphidicolin, busulfan, camptothecin, etoposide, 5-FU
and paclitaxel. As a result, the Company cannot prevent other companies from
developing products or applying delivery technologies other than the SPARTAJECT
Technology and the L.A.D.D. Technology to such compounds in a manner than
competes with technologies and product candidates under development by the
Company. Several pharmaceutical companies are developing protease inhibitors
with potential application in pulmonary inflammation, pancreatitis, coagulative
disorders and reperfusion injury. It is widely acknowledged that proteases are
a critical component in the inflammatory cascade and their inhibition has been
pursued by companies engaged in the development of both traditional
pharmaceuticals and biotech compounds.
DEPENDENCE UPON OTHERS FOR MANUFACTURING AND MARKETING. The Company currently
has no capability to manufacture any of its products for preclinical testing or
clinical trials, and, if appropriate, for commercial purposes, or to market
them. The Company does not intend to establish in the foreseeable future
manufacturing facilities to produce drug chemicals or product formulations,
except possibly with respect to its SPARTAJECT Technology, or marketing
capabilities, other than potentially in the United States to specialists in
oncology/hematology practices. Accordingly, the Company will be required to
enter into arrangements with other companies for the manufacture and marketing
of its products. If the Company is unable to obtain or maintain third party
manufacturing and marketing arrangements, it may not be able to commercialize
its product candidates as planned. In addition, manufacturers of the Company's
products will be subject to applicable current good manufacturing practices
("cGMP") prescribed by the FDA or other rules and regulations prescribed by
foreign regulatory authorities. There can be no assurance that the Company will
be able to enter into manufacturing agreements either domestically or abroad
with companies whose facilities and procedures comply with cGMP or applicable
foreign standards. Should such agreements be entered into, the Company will be
dependent on such manufacturers for continued compliance with cGMP and
applicable foreign standards. Failure by a manufacturer of the Company's
products to maintain cGMP or applicable foreign standards could result in
significant time delays or the inability of the Company to commercialize a
product and could have a material adverse effect on the Company. In addition,
the Company's dependence on third parties for the manufacture and marketing of
its products may adversely affect profit margins on its products.
PRODUCT LIABILITY. The testing, marketing and sale of human health care
products entail an inherent risk of adverse side effects and/or personal injury
and product liability, and there can be no assurance that product liability
claims will not be asserted against the Company. The Company currently has no
product liability insurance. Under the terms of most of its license agreements,
the Company is required both to indemnify its licensor against product liability
risks and to obtain such
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coverage prior to the sale of the products covered by the license, and in
certain instances, at coverage levels specified in the license agreement by the
licensor. If the Company fails to do so, its licensor will be entitled to
terminate the license. Although the Company will seek to carry reasonable
levels of product liability insurance, it is not certain that such coverage will
be obtainable on reasonable terms and at levels required by its licensors, or if
obtained, that such amounts ultimately will prove adequate or will be renewable
for any period. If such insurance is not obtained and maintained at sufficient
levels, or if any product liability claim against the Company were sustained,
the Company's business and prospects could be materially adversely affected and
its rights to market certain of its products could be terminated.
DEPENDENCE ON KEY PERSONNEL AND SCIENTIFIC ADVISORS. The Company is highly
dependent on having qualified experienced management, the loss of one or more of
whom could have a material adverse effect on the Company if an appropriate
successor is not available with reasonable promptness. The Company currently
holds "key person" insurance for coverage against the unanticipated death of
particular executives in the amount of $4,000,000. The Company has $2,000,000
of such coverage in respect of each of William M. Sullivan, Chairman of the
Board and Jerry B. Hook, Ph.D., the Company's President and Chief Executive
Officer. The relevant insurance policies name the Company as beneficiary. The
loss of services of a key person could have a material adverse effect on the
Company. Although the Company has employment agreements with Dr. Hook and Dr.
McCulloch, each such executive officer may terminate his employment at any time
upon thirty days notice, and there can be no assurance that such agreements will
not be so terminated.
The Company's scientific advisors are employed on a full time basis by unrelated
employers and some have one or more consulting or other advisory arrangements
with other entities which may conflict with their obligations to the Company.
Inventions or processes discovered by such persons, other than those to which
the Company's licenses relate or, those to which the Company is able to acquire
licenses for or those which were invented while performing consulting services
under contract to the Company, will most likely not become the property of the
Company, but will remain the property of such persons or such persons' full-time
employers. Failure to obtain needed patents, licenses or proprietary
information held by others could have a material effect on the Company. See
"Management--Scientific Advisory Board."
LIMITED PERSONNEL; DEPENDENCE ON CORPORATE AND ACADEMIC COLLABORATORS FOR
RESEARCH AND DEVELOPMENT. The Company has nine full-time employees. With these
exceptions, the Company relies, and for the foreseeable future will rely, on
contract development organizations, other academic collaborators and other
consultants for its preclinical and clinical planning, development, monitoring
and regulatory registration services. Contract development organizations and
the Company's advisors and consultants are employed or retained by other
entities, and they have commitments to, or consulting or advisory contracts
with, such entities that may limit their availability to the Company and that
may compete with the Company. There can be no assurance that their services
will be available to the Company on a timely basis when needed, or at all, and
as non-employees, the Company has limited control over their activities. In
addition, the academic collaborators are not actively involved in the Company's
business or in the development of its products from a commercial perspective.
Contract development organizations and the Company's advisors and consultants
generally sign agreements that provide for confidentiality of the Company's
proprietary information and results of studies. However, there can be no
assurance that the Company will be able to maintain the confidentiality of the
Company's technology, the dissemination of which could have a material adverse
effect on the Company's business. Because of the nature of its business, the
Company will require a wide range of skilled personnel to conduct its proposed
operations and will be dependent upon its ability to attract and retain
qualified management, scientific and marketing personnel. There is intense
competition among pharmaceutical companies for such personnel, and there is no
assurance that the Company will be successful in recruiting or retaining them.
CONDUCTING BUSINESS ABROAD. To the extent the Company conducts business outside
the United States, it intends to do so through licenses, joint ventures or other
contractual arrangements for the development, manufacturing and marketing of its
products. Although the Company has entered into a development and marketing
arrangement for SPARTAJECT busulfan for Europe and the Scandinavian countries,
no assurance can be given that the Company will be able to establish other
foreign operations successfully through such a plan, that the necessary foreign
regulatory approvals for its product candidates will be obtained, that foreign
patent coverage will be available or that the manufacturing and marketing of its
products through such licenses, joint ventures or other arrangements will be
commercially successful. The Company might also have greater difficulty
obtaining proprietary protection for its products and technologies outside the
United States rather than in it, and enforcing its rights in foreign courts
rather than in United States courts.
RISK OF REDEMPTION OF CLASS C WARRANTS. Commencing on August 23, 1997, the
Company may redeem the Class C
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Warrants for $0.10 per Class C Warrant upon 60 days prior written notice,
provided that the average closing bid price for the Common Stock exceeds 200% of
the Exercise Price for 20 consecutive trading days ending three days prior to
the notice of redemption. Notice of redemption of the Class C Warrants could
cause the holders thereof to exercise the Class C Warrants and pay the exercise
price at a time when it may be disadvantageous for the holders to do so, to sell
the Class C Warrants at the current market price when they might otherwise wish
to hold the Class C Warrants, or to accept the redemption price, which is likely
to be less than the market value of the Class C Warrants at the time of the
redemption. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Of the 8,192,219 shares
of Common Stock outstanding as of the date of this Prospectus, approximately
4,170,749 shares will be eligible for sale in the public market without
restriction on the date of this Prospectus. In addition to such outstanding
shares of Common Stock, there are 5,362,415 shares of Common Stock issuable
under currently outstanding warrants (excluding the Class C Warrants) and
approximately 3,000,000 shares of Common Stock issuable or reserved for issuance
under the Company's 1991 Stock Plan and under various license, option and
research agreements. No prediction can be made as to the effect, if any, that
sale or the availability for sale of such securities will have on the market
prices prevailing from time to time for the Common Stock and the Class C
Warrants, the Common Stock and/or the Class C Warrants. Nevertheless, the
possibility that substantial amounts of such securities may be sold in the
public market may adversely affect prevailing market prices for the Company's
equity securities, and could impair the Company's ability to raise capital in
the future through the sale of equity securities. Certain stockholders have
also been granted demand and piggy-back rights with respect to future
registrations by the Company. Sales of Common Stock, or the possibility of such
sales, in the public market may adversely affect the market price of the Common
Stock underlying the securities being offered hereby.
ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW.
The Board of Directors has the authority to issue shares of preferred stock with
rights and preferences senior to those of the Common Stock without further vote
or action by the stockholders of the Company. In addition, the Company's
Restated By-Laws and Restated Certificate of Incorporation contain certain
provisions (including a classified Board of Directors) that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Common Stock or other equity securities.
These provisions could also make it more difficult for stockholders to change
the management of the Company or to effect certain transactions. See
"Management" and "Description of Securities."
ABSENCE OF DIVIDENDS. The Company has never declared or paid any cash dividends
and does not anticipate paying dividends on its Common Stock or other equity
securities for the foreseeable future. Management of the Company anticipates
that all earnings and other resources of the Company, if any, will be retained
by the Company for investment in its business.
POTENTIAL VOLATILITY OF PRICE; LOW TRADING VOLUME. The market price of the
Common Stock, like that of many other development-stage public pharmaceutical or
biotechnology companies, has been highly volatile and may be in the future.
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of preclinical
and clinical testing, adverse reactions to products, governmental regulation and
approvals, developments in patent or other proprietary rights, public or
regulatory agency concerns as to the safety of products developed by the Company
and general market conditions may have a significant effect on the market price
of the Common Stock and its other equity securities. In addition, in general,
the Common Stock has been thinly traded on the Nasdaq SmallCap Market, which may
affect the ability of the Company's stockholders to sell shares of the Common
Stock in the public market. There can be no assurance that a more active
trading market will develop in the future.
CONTROL BY DIRECTORS AND OTHERS. Prior to consummation of the Offering, the
Company's directors, executive officers and principal stockholders will
beneficially own (excluding exercisable options, warrants and convertible
securities) approximately 44% of the outstanding shares of Common Stock.
Accordingly, although such percentage will be reduced as a result of the
Offering, the Company's executive officers, directors, principal stockholders
and certain of their affiliates will have the ability to exert substantial
influence over the election of the Company's Board of Directors, and to control
the outcome of substantially all issues submitted to the Company's stockholders.
LIMITED AVAILABILITY OF NET OPERATING LOSS CARRY FORWARDS. At December 31,
1995, the Company had accumulated
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approximately $9,427,000 in net operating loss carry forwards. Based on the
number of shares of Common Stock, convertible notes and shares of convertible
preferred stock issued in 1993, the Company exceeded the limits allowable under
the Tax Reform Act of 1986 related to changes in ownership percentage governing
future utilization of net operating loss carry forwards under Internal Revenue
code Section 382. The effect of these occurrences is to limit the annual
utilization of the net operating loss carry forwards to an amount determined by
multiplying the fair market value of the Company immediately prior to the change
in ownership percentage by the Federal long term tax exempt interest rate at the
time of the change. There can be no assurance that further limitations on
utilization of net operating loss carry forwards will not occur resulting from
ownership changes that have taken place subsequent to December 31, 1996 and
those that may occur in the future.
POSSIBLE DELISTING FROM NASDAQ AND MARKET ILLIQUIDITY. Continued inclusion of
the Common Stock and, if accepted for quotation, the Class C Warrants, for
quotation on The Nasdaq SmallCap Market will require that (i) the Company
maintain at least $2,000,000 in total assets (the "Minimum Asset Requirement")
and $1,000,000 in capital and surplus, (ii) the minimum bid price for the Common
Stock be at least $1.00 per share, (iii) the public float consist of at least
100,000 shares of Common Stock, valued in the aggregate at more than $200,000,
(iv) the Common Stock have at least two active market makers and (v) the Common
Stock be held by at least 300 holders. As of December 31, 1995, the Company did
not meet all of the criteria for continued listing. The listing qualifications
committee of The Nasdaq Stock Market granted the Company a temporary exception
from such requirements subject to meeting certain conditions (including
completion of the offering by the Company of the Series A Convertible Preferred
Stock), which conditions have been satisfied. The Company anticipates that the
proceeds of the recently concluded private placement of Series B' Preferred
Stock and Class C Warrants will enable the Company to satisfy the Minimum Asset
Requirement for continued listing until December 31, 1997. In the event that the
Company does not raise additional funds in addition to those received in the
recently concluded private placement, the Company may be required to reduce
materially its planned research and development expenditures in order to
continue to satisfy the Minimum Asset Requirement. However, if the Company is
unable to continue to satisfy the Minimum Asset Requirement or the other
maintenance requirements, the securities may be delisted from Nasdaq. In such
event, trading, if any, in the Common Stock and Class C Warrants would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board", and it would be more
difficult to dispose of the securities or to obtain as favorable a price for the
securities. Consequently, the liquidity of the securities could be impaired,
not only in the number of securities that could be bought and sold at a given
price, but also through delays in the timing of transactions and reduction in
security analysts' and the media's coverage of the Company, which could result
in lower prices for the securities than might otherwise be attained and in a
larger spread between the bid and asked prices for the securities.
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY
FOR THE COMPANY'S SECURITIES. If the Company's securities were delisted from
Nasdaq, they may become subject to Rule 15g-9 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors." For transactions
covered by this Rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, such Rule may affect
the ability of broker-dealers to sell the Company's securities and may affect
the ability to sell any of the Company's securities in the secondary market.
The Commission has adopted regulations which define a "penny stock" to be any
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.
The foregoing required penny stock restrictions will not apply to the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis, or if the Company
meets certain minimum net tangible assets or average revenue criteria. There
can be no assurance that the Company's securities will qualify for exemption
from the penny stock restrictions. In any event, even if the Company's
securities were exempt
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from such restrictions, the Company would remain subject to Section 15(b)(6) of
the Exchange Act, which gives the Commission the authority to prohibit any
person that engages in unlawful conduct while participating in a distribution of
penny stock from associating with a broker-dealer or participating in a
distribution of penny stock, if the Commission finds that such a restriction
would be in the public interest.
If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities would be materially adversely
affected.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Class C Warrants or
shares of Common Stock by the Selling Securityholders. In the event that all
the Class C Warrants are exercised, net cash proceeds to the Company would be
approximately $15,940,000 (after estimate offering expense of approximately
$1,025,000 which includes a 6% commission payable to the Placement Agent upon
the exercise of the Class C Warrants and up to $5,000 payable to reimburse the
Placement Agent for out-of-pocket costs incurred in connection with the
solicitation of Class C Warrant exercise or the redemption of the Class C
Warrant). The Company intends to use any such net cash proceeds for general
working capital purposes. The Company is not expected to receive any proceeds
from the exercise of the Placement Warrants since the Placement Warrants may be
exercised pursuant to a cashless exercise provision. In the event that the
Placement Warrants are exercised for cash, the Company intends to use such net
cash proceeds for general working capital purposes. Proceeds, if any, from the
exercise for cash of all the Placement Warrants, before deduction of estimated
expenses of this Offering, would be approximately $3,756,937. Whether, how and
to what extent any of the Class C Warrants or Placement Warrants will be
exercised, and whether the Placement Warrants are exercised for cash or not,
cannot be predicted by the Company.
DIVIDEND POLICY
The Company has never declared or paid any dividends and does not anticipate
paying dividends on the Common Stock in the foreseeable future. The Company
currently intends to retain future earnings, if any, for use in the Company's
business. The payment of any future dividends will be determined by the Board
of Directors taking into account the Company's financial condition and
requirements, its future prospects, restrictions in its financing agreements,
business conditions and other factors deemed relevant by the Board of
Directors.
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BUSINESS
GENERAL
The Company is a development stage biopharmaceutical company engaged in the
business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life threatening
diseases including cancer, cardiovascular disorders and acute inflammation. The
Company has focused on acquiring compounds that have been previously tested in
humans or animals and technologies that may improve the delivery or targeting of
previously tested, and in some cases marketed, anticancer agents. The Company
has received approval of IND applications by the FDA relating to proposed Phase
I clinical trials in the United States for three of its product candidates, one
of which has commenced such trials. On March 15, 1996, the Company acquired the
assets and business of Lexin Pharmaceutical Corporation ("Lexin"). The assets
acquired in the Lexin Purchase are designed primarily as potential therapeutic
agents for acute inflammatory and cardiovascular diseases.
The Company's lead product candidates under development are:
PRODUCT CANDIDATE
SPARTAJECT-TM-
busulfan
RII retinamide
L.A.D.D.-TM- 5-FP
LEX032
INDICATION
Providing injectable
delivery of drug for
ablating bone marrow
prior to bone marrow
transplant
Treatment of
myelodysplastic
syndromes (MDS).
Providing oral
delivery of 5-FU for
the treatment of
colorectal, breast,
liver and other
cancers
Treatment of
reperfusion injury
(e.g. occurring
after myocardial
infarction and
stroke)
STAGE OF DEVELOPMENT
IND approved
Phase I Clinical
Trial
Commenced
IND approved
Preclinical
In addition to the Company's lead products, the Company has also identified, and
in some instances has undertaken some development of, other applications of its
licensed technologies and other product candidates, one of which is in joint
Phase I clinical trials in the United Kingdom.
The technology acquired in the Lexin Purchase is licensed exclusively from two
universities and directed at the potential treatment of a number of life
threatening diseases. LEX032, is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs, e.g., the lung and pancreas, where uncontrolled inflammation may
be fatal. LEX032 has exhibited what may be a unique spectrum of activity in
certain animal models of reperfusion injury. A drug with such a spectrum of
activity may be useful in the treatment of myocardial infarction, stroke,
shock-resuscitation, replantation surgery, frostbite, burns and organ
transplants. The compound is currently under evaluation, pursuant to an option
granted to Astra Merck Inc., for treatment of acute pancreatitis, or
inflammation of the pancreas.
While numerous innovative biotechnology approaches are being explored for the
treatment of cancer, the Company believes that chemotherapeutic drugs will
continue to make substantial contributions to the treatment of cancer in the
near-to-mid-term. Furthermore, the Company believes that the application of
technologies that improve the delivery or targeting of chemotherapeutic agents
may provide greater commercial opportunities for such agents. Moreover, advances
in biotechnology that have already been made, such as the development of growth
factors, may facilitate the development of more promising chemotherapeutic
compounds.
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In addition to the Company's anticancer program, the Company's strategy also
currently includes the planned development of viral disease applications of the
L.A.D.D. Technology and certain compounds. Such development will depend on the
Company's ability to raise funds in addition to the proceeds of this Offering or
engage in out-licensing, joint development or other collaborative arrangements.
The treatment of antiviral diseases may present a significant market opportunity
because currently there are relatively few effective medications available.
OVERVIEW OF CANCER
Cancer afflicts millions of people worldwide and caused 6 million deaths in 1995
according to The World Health Organization. It is the second leading cause of
mortality in the industrialized world. The American Cancer Society estimates
that in the United States in 1996 there will be about 1.3 million new cases of
cancer and approximately 555,000 deaths attributed to the disease. In addition,
it is estimated that one in three Americans will eventually contract cancer, and
the disease will affect three out of four families.
Cancer is a generic term used to describe a number of related diseases. There
are many different forms of cancer that attack different parts of the body.
Cancer generally is characterized by the uncontrolled, abnormal growth and
spread of malignant tumors or by the proliferation of immature cells in blood or
bone marrow. Tumors in a tissue or organ result from rapid growth of immature
and essentially nonfunctional cells that are not controlled by the body's normal
regulatory functions. A tumor is considered malignant, and therefore a cancer,
when it demonstrates unrestrained local growth and a capacity to invade remote
areas of the body (metastasis).
CHEMOTHERAPY. Chemotherapy, surgery and radiation are the three most common
forms of cancer treatment. Each year in the United States, over 800,000
patients with cancer receive chemotherapy, which involves the administration of
drugs designed to kill or inhibit the growth of cancer cells. Chemotherapeutic
drug research focuses mainly on identifying agents that negatively impact tumor
cell growth and have the ability to distinguish between growing cancer cells and
normal cells. In general, the difference between a drug's effectiveness at
combating a disease and its toxicity to the system is known as its therapeutic
index. When chemotherapeutic drugs or new formulations of such drugs act to
impact tumor cell growth to a greater extent than previously available therapies
and/or reduce the harm to healthy cells as compared to previously available
therapies, the therapeutic index has been expanded.
METHODS OF ADMINISTERING CHEMOTHERAPEUTICS. Chemotherapeutics are administered
primarily by injection, usually into veins. This method has traditionally been
preferred by practitioners when it is feasible, because it generally ensures
more timely administration of the required medication and provides more
consistent and predictable availability of the drug within the body. To be
delivered by injection, the compound must be placed in a liquid solution, blend
or mixture that can readily pass through the body's circulatory system.
Unfortunately, many chemotherapeutic agents are poorly soluble in water, and
therefore either are not available in injectable form or require the use of
potentially toxic solubilizing agents to facilitate the preparation of
injectable formulations. Some patients experience adverse side effects
associated with the solubilizing chemicals used in the delivery of
chemotherapeutics.
Although less frequently used, oral administration of chemotherapeutics is also
employed if possible, primarily in outpatient cancer treatment, but also in a
hospital setting when an intravenous form of a chemotherapeutic is not
available. Generally, oral administration is more convenient and less expensive
than other methods, and the Company believes such administration will achieve
wider use in the future if more severe cost constraints are imposed on cancer
treatment. However, those chemotherapeutics which are available only in oral
form and administered in a hospital setting may have limited use in that form
because of variability in patient absorption, nausea and difficulties in
administering them to debilitated patients or children.
MARKET FOR CHEMOTHERAPEUTICS. The market for chemotherapeutics consists
primarily of cytotoxic (literally, cell toxic) and other drugs used to treat
cancer. This market is estimated to have generated United States sales of
approximately $1.5 billion and worldwide sales of approximately $5.0 billion in
1992. Worldwide sales of anticancer chemotherapeutic agents have been
forecasted to reach approximately $11.8 billion in 1999.
It is estimated that the costs associated with treating cancer currently account
for approximately 10% of total annual health-care costs in the United States.
The National Cancer Institute ("NCI") estimates the economic impact of cancer at
$104 billion in 1990, of which $35 billion represents direct medical costs.
Nevertheless, while total costs associated
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with cancer treatment are substantial, in 1992 chemotherapy costs represented
only approximately 4% of such costs and other treatment costs, including those
occasioned by the relative efficacy and toxicity of existing cancer treatments,
accounted for approximately 96%. To the extent improved chemotherapy reduces
these other treatment costs, the total cost of cancer care is likely to be
positively impacted.
POTENTIAL TECHNOLOGY APPLICATIONS AND PRODUCT CANDIDATES
The Company's development efforts in 1995 were directed almost exclusively to
seeking and obtaining FDA approval to commence initial clinical trials of
SPARTAJECT busulfan and RII retinamide and preparatory work related to seeking
clearance for initial clinical trials of L.A.D.D. 5-FP. The Company's rights
with respect to the product candidates and technologies described herein have
been generally acquired by license, and in one instance, under an option to
license. Rights with respect to the serine protease inhibitors were acquired
pursuant to the Lexin Purchase. The Company is aware of patents that have been
issued to or applied for by third parties which may affect the Company's ability
to commercialize certain of its technology applications and product candidates.
The Company's other technology applications and product candidates are targeted
at the treatment of various cancers (use of the SPARTAJECT Technology with
etoposide, taxanes and camptothecin, use of the L.A.D.D. Technology with IPdR,
and PT-523) and various inflammatory conditions and clotting disorders
(recombinant and small molecule serine protease inhibitors). All such
technology applications and product candidates are in the preclinical stage of
development.
USE OF THE SPARTAJECT TECHNOLOGY. Many anticancer drugs either are poorly water
soluble or are literally water insoluble. Some are currently available only in
tablet or capsule form, and may be limited in their potential use because of
variability in patient absorption, nausea or other difficulty in administering
them to debilitated patients or children. Others that are poorly water soluble
have been formulated for administration intravenously using undesirable
detergents and other organic solvents that can create irritation at the site of
administration, sensitivity reactions and other side effects.
The Company's SPARTAJECT Technology is a drug delivery system that accommodates
poorly water soluble and water insoluble compounds by encapsulating them with a
fatty (phospholipid) layer. The technology involves coating particles of drug
which are of submicron or near micron size with a membrane-forming phospholipid
layer, thereby permitting the creation of a suspension of the drug rather than a
solution, and its intravenous injection without the use of potentially toxic
solubilizing agents. As a result, the SPARTAJECT Technology may reduce toxicity
created by other injectable forms of delivery and potentially increase efficacy
by facilitating delivery of compounds whose prior intravenous administration was
impractical because of solubility-related formulation difficulties.
The Company believes this technology can be used in a number of ways, including:
- improving the delivery of existing drugs by allowing injectable
forms to be used that previously may have been unavailable;
- improving existing injectable dosage forms of anticancer drugs by
reducing formulation associated toxicities; and
- permitting the renewed development of anticancer agents whose
investigation may have been halted because of formulation
difficulties attributable to poor solubility.
In addition to such improvements, formulations of unpatented compounds with the
SPARTAJECT Technology may be covered by the already issued patents relating to
the SPARTAJECT Technology thereby affording the drugs renewed protection. New
formulations of patented, approved and investigational drugs with the SPARTAJECT
Technology be afforded longer periods of patent protection than they would
without such reformulation.
SPARTAJECT Busulfan. The Company has received approval for an IND in respect of
its development program for SPARTAJECT intravenous delivery of busulfan.
Busulfan is currently marketed in an oral dosage form by Glaxo Wellcome Inc.
("GW"). It is frequently used "off-label" as a bone marrow ablating agent prior
to bone marrow transplants
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("BMT"). However, due to poor solubility in water, busulfan has been available
only in tablets containing a small amount of drug, and BMT requires high dosage
of drug, necessitating patients to take large numbers of tablets, usually more
than one hundred per day for four days, in order to absorb enough active drug to
achieve the desired effect on the bone marrow. The need to swallow large
numbers of tablets is one of the major limitations on the wider use of busulfan
for BMT procedures, especially in children. Furthermore, oral administration of
busulfan may result in variations in the amount of drug actually absorbed
(bioavailablity) leading to widely variable blood levels and some unpredictable
and serious toxicities.
The Company believes that an intravenous form of busulfan is needed to overcome
these limitations. GW has supplied the Company with busulfan for the Company's
testing program and formulations of SPARTAJECT busulfan have been prepared.
Although an IND has been approved by the FDA, the Company has not yet commenced
Phase I clinical trials. In addition, the Company has been granted orphan drug
status by the FDA for the use of busulfan as preparative therapy for
malignancies treated with bone marrow transplantation. The Orphan Drug Act, as
now in effect, can provide a period of market exclusivity for seven years
following approval, if the compound is initially approved by the FDA for use in
malignancies treated with bone marrow transplantation under the Company's
sponsorship. (See "Risk Factors").
In December 1995, the Company signed an agreement with Orphan Europe SARL,
Paris, and Swedish Orphan, AB, Stockholm, for the exclusive clinical testing,
registration, distribution and marketing of SPARTAJECT busulfan in certain
countries outside the United States. Under the agreement, Orphan Europe will be
the Company's exclusive distributor in Western European countries outside of
Scandinavia and will handle clinical testing and product registration for those
countries. Swedish Orphan will have similar rights and responsibilities for
Scandinavian countries. Orphan Europe and Swedish Orphan are obligated at their
own expense to use their best efforts to clinically test and register SPARTAJECT
busulfan in Europe and Scandinavia and to distribute and market the product in
those territories. The Orphan companies must also make certain milestone
payments to the Company upon achievement of specified development and
registration objectives. The Company is obligated to use its best efforts to
supply SPARTAJECT busulfan for clinical testing and marketing on terms to be
established from time to time.
The Company estimates that in 1995 there were 9,000 bone marrow transplants
performed in the United States and that the number of such procedures will grow
at the rate of about 1,000 transplants per year. The Company believes there is a
similar or greater number of such procedures performed elsewhere in the world,
and the frequency of such transplants is increasing worldwide.
RII RETINAMIDE (RETINOID). In trials in China, conducted by the Company's
licensor, involving more than 600 patients, RII retinamide has shown activity
against myelodysplastic syndromes ("MDS") and a number of other conditions. The
Company is developing the compound in the United States for MDS and began a
Phase I clinical trial in August, 1996. MDS are a related group of conditions
that have in common an abnormality in the blood-producing cells of the bone
marrow. The conditions are invariably fatal, although patients can live for
several years after diagnosis. Treatment of patients with MDS has generally
proven disappointing and no chemotherapy has impacted survival to date. The
most common current treatment is management by supportive measures, such as
blood transfusion, or the administration of antibiotics to fight infections.
RII retinamide may be effective because retinoids have a cell differentiating
effect that potentially can cause abnormal cells in the bone marrow to become
normal. The Company has also been granted orphan drug status for RII retinamide
for the treatment of MDS. The Orphan Drug Act as now in effect can provide a
period of market exclusivity for seven years following approval, if the compound
is initially approved by the FDA for treatment of MDS under the Company's
sponsorship. The Company estimates that in 1995 there were at least 12,000
patients in the United States with MDS.
L.A.D.D. TECHNOLOGY. L.A.D.D. Technology involves administering an inactive
compound, known as a prodrug, which passes through the body and is converted in
the liver to an active agent by an enzyme located there. L.A.D.D. Technology
may enable adjusting the dosage of the prodrug so that either: (i) appropriate
therapeutic levels of the active agent remain in the liver allowing targeted
treatment of liver-associated cancers and viral diseases, with only low levels
entering the system, thereby reducing the agent's potential for harming healthy
cells elsewhere in the body, or (ii) higher levels of the activated agent pass
out of the liver into the circulation, thereby allowing chemotherapy to occur
throughout the body. The Company is applying the technology to prodrugs
selected for their potential either to treat liver cancer
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and metastases to the liver from primary tumors occurring elsewhere in the body,
or to serve as oral delivery agents for certain systemically active
chemotherapeutic drugs previously available only in intravenous form.
USE OF L.A.D.D. TECHNOLOGY WITH 5-FP. 5-FP, or 5-fluoro pyrimidinone, is a
pyrimidinone-based prodrug that converts into 5-FU, or 5-fluorouracil. 5-FU is
currently sold generically only in an intravenous form. It is widely used in
the treatment of breast, colorectal and other cancers.
Many current schedules of intravenous administration of 5-FU require prolonged
infusion of the drug, sometimes over several weeks, which can be costly and
inconvenient for patients. The Company believes that an oral form of the drug
could provide the advantages of convenience of administration and potential cost
saving, and it is developing 5-FP as an oral form of 5-FU for treatment of
breast, colorectal and other cancers. The Company has received approval by the
FDA of an IND application to commence Phase I clinical trials and expects to
commence such trials in the latter part of 1996. Based on those studies, the
Company should learn from the FDA whether the compound will be treated as a new
chemical entity or a new method of administration for the generic drug.
The intravenous formulation of 5-FU is available generically. Accordingly, an
oral form of 5-FU that may be more costly than the intravenous formulation is
likely to have more limited use than it otherwise might experience. The Company
estimates that of the approximately 195,000 patients with breast, colorectal,
liver or other cancers who might have been candidates for treatment with 5-FU in
1995 in the United States, approximately 30,000 might have been candidates for
treatment with an oral form of 5-FU.
The Company also expects to investigate the use of 5-FP using the L.A.D.D.
Technology for targeted treatment of liver tumors and tumors that metastasize to
the liver. The targeted approach is intended to achieve effective 5-FU
concentrations in the liver, while decreasing the presence, and therefore the
side effects, of 5-FU elsewhere in the body. The Company estimates that in the
United States in 1995 there were approximately 190,000 patients who were
candidates for a targeted liver chemotherapeutic directed at primary liver
cancer or liver cancer from primary tumors occurring elsewhere in the body which
first metastasize to the liver. In addition, the incidence of these cancers is
particularly high in the Pacific Rim countries. Although the development of
5-FP as an oral form of 5-FU is expected to have applicability to the Company's
development of 5-FP for targeted treatment of liver cancer, the Company does not
expect to separately develop 5-FP for targeted treatment of liver cancer until
and unless the development of 5-FP as an oral form of 5-FU advances into late
stage clinical trials. The separate development of 5-FP for targeted treatment
of liver cancer will be dependent upon receipt of funding from a financing
(other than the Offering) or out-licensing, joint development or other
collaborative arrangements, of which there can be no assurance.
LEX032. The technology and compounds acquired in the Lexin Purchase were
licensed to Lexin exclusively from the University of Pennsylvania and Wichita
State University and are directed at the potential treatment of a number of life
threatening diseases. LEX032 is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs, e.g., the lung and pancreas, where uncontrolled inflammation may
be fatal. LEX032 has exhibited what may be a unique spectrum of activity in
certain animal models of reperfusion injury. A drug with such a spectrum of
activity may be useful in the treatment of myocardial infarction, stroke,
shock-resuscitation, replantation surgery, frostbite, burns and organ
transplants. The compound is currently under evaluation pursuant to an option
granted to Astra Merck Inc. for treatment of acute pancreatitis, or inflammation
of the pancreas.
USE OF LEX032 IN REPERFUSION INJURY. Reperfusion injury occurs when blood flow
is restored to the heart, brain, or other tissue after flow has been blocked.
Cellular damage takes place in the organ not only during the time of oxygen
deprivation but also occurs during the reperfusion period. Several mechanisms
appear to play a role in the generation of reperfusion injury. Most involve, to
some extent, a class of white blood cells known as neutrophils. These cells are
activated and then are attracted to the injured site as part of the inflammatory
response. Neutrophils release proteases in order to fight bacteria and to
remove damaged tissue prior to wound healing. Unfortunately, if not properly
controlled, the presence of a large number of neutrophils can have damaging
consequences. As part of the acute phase of the inflammatory response, balance
is maintained by the synthesis and release of inhibitory proteins by the liver.
These proteins bind to and thus inactivate the protein digesting proteases
released from invading neutrophils. In many severe inflammatory conditions,
control of this activity is lost due to insufficient or untimely synthesis of
inhibitors,
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resulting in extensive, life-threatening multi-organ damage. The infiltration
of neutrophils into the previously ischemic area has been implicated as playing
a major role in tissue damage following reperfusion. A preliminary and
necessary step to block reperfusion injury is the attachment of the neutrophil
onto the lining of the blood vessels, a process requiring the breakdown of a
key cellular protein. In addition to the extracellular release of intracellular
proteolytic enzymes, a second type of tissue damage is caused by other enzymes
within the neutrophils that produce tissue-damaging free radicals.
Administration of a drug that prevents excessive neutrophil accumulation at a
site of inflammation should result in a reduction in the degree of reperfusion
injury.
OTHER PRODUCT CANDIDATES
The Company's other technology applications and product candidates are focused
on at the treatment of various cancers (use of the Spartaject Technology with
etoposide, taxanes and campothecin, use of the L.A.D.D. Technology with IPdR,
and PT-523) and various inflammatory conditions and clotting disorders
(recombinant and small molecule serine protease inhibitors). All such
technology applications and product candidates are in the preclinical stage of
development, other than asulacrine which is in Phase I clinical trials in the
United Kingdom.
RESEARCH AND DEVELOPMENT
Since the Company's business strategy includes acquiring the rights to
therapeutic product candidates that have demonstrated potential efficacy in
preclinical or clinical testing, the Company does not have its own research
facilities and does not plan to establish them in the foreseeable future. The
Company has funded and may from time to time fund research programs in
collaboration with academic and other institutions, primarily those with which
it has or will have established license agreements. The Company supported
research at four institutions with which it has entered into license agreements,
Yale University ("Yale"), the Institute of Materia Medica, Beijing, China
("BIMM"), the University of Pennsylvania ("Penn") and Wichita State University
("Wichita State"). The University of Pennsylvania and Wichita State University.
At Yale, the Company supported work in the laboratory of Dr. Yung-chi Cheng,
Co-Chairman of the Company's Scientific Advisory Board, some of which was
directed at synthesizing and characterizing compounds to which the L.A.D.D.
Technology may be applicable. The Company should have rights to the results of
such work to the extent the results are embodied in any of the licensed patents
covered by the Company's existing license agreement with Yale. In the event
there are other patentable inventions arising out of the research, in order to
obtain rights to such inventions, the Company will be required to negotiate new
licensing arrangements, and there can be no assurance that such negotiations
will be successful. See "Licensing -- Licenses of L.A.D.D. Technology to the
Company." The Company has also funded research at BIMM directed by its special
consultant to the Scientific Advisory Board, Professor Jui (Rui) Han, M.D.,
which focuses on synthesizing and characterizing new retinoid compounds with
reduced teratogenic (fetal malformation) potential from that experienced with
many existing retinoid compounds. Some compounds have been synthesized under
the program. The Company expects to have exclusive rights (outside of China) to
the results of such work under the terms of its existing license agreement with
BIMM.
At Penn, the Company is supporting the work of Dr. Harvey Rubin, a member of the
Company's Scientific Advisory Board aimed at the development of new variants of
protein based serine proteases for the treatment of inflammation and other life
threatening diseases. The Company has the rights to all future related
inventions developed at Penn. At Wichita State, the Company is supporting the
work of Dr. William Groutas which focuses on the discovery of new small molecule
inhibitors of serine proteases. The advantages of these new compounds are their
novel heterocyclic templates which provide flexibility with respect to: potency;
protease specificity; aqueous solubility; toxicity; oral activity and ease and
cost of synthesis. The Company has exclusive rights to any patents resulting
from this program.
Under the terms of its agreement with Dana-Farber Cancer Institute, Inc. ("Dana
Farber"), the Company also has a right of first refusal to negotiate exclusive,
worldwide licenses on certain new compounds developed during the term of the
agreement by, under the direction of, or in the laboratories of, Dr. Andre
Rosowsky, who is a special consultant to the Company. See "Licensing --Other
Licenses and Options."
To assist with the development of its products while permitting the Company to
maintain a minimal infrastructure, it has established a relationship with Cato
Research Ltd. ("Cato") which extends until June 1997 (with provision for earlier
termination by the Company, and in certain circumstances, Cato), to provide
preclinical and clinical planning,
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development and drug registration services. Cato's services to the Company are
paid for with a combination of cash and Common Stock up to a maximum total of
150,000 shares, of which 93,576 shares remain available for issuance to Cato for
services provided after August 31, 1996. See Note 11 of Notes to Financial
Statements. Cato is an independent clinical research and drug development
company providing the following services: planning, implementing and analyzing
preclinical and clinical trials, and devising and conducting regulatory
strategies for obtaining FDA approval for the testing and marketing of new
drugs. The Company has also contracted with other independent clinical research
organizations besides Cato.
The Company also depends upon academic, research and non-profit institutions,
and some commercial service organizations, for chemical synthesis and analysis,
product formulation, assays and preclinical and clinical testing of its
compounds. Preclinical work has been, is currently being or is expected to be
conducted at the Roswell Park Cancer Institute, the Southern Research Institute,
the Universities of Iowa and Wisconsin, RTP and other organizations.
For the years ended December 31, 1993, 1994 and 1995, the Company expended
$1,434,956, $2,013,934 and $1,819,887 respectively, on research and development
activities. From its inception in June 1990 through June 30, 1996 the Company
expended $7,038,407 on research and development.
MANUFACTURING AND MARKETING
The Company does not have, and does not intend to establish in the foreseeable
future, manufacturing facilities to produce either drug chemicals or product
formulations (except possibly with respect to its SPARTAJECT Technology).
Accordingly, it will have to rely on third parties to manufacture its product
candidates. There can be no assurance that third party manufacturers will be
available and perform as required or, if available, will give the Company's
orders the highest priority, or that the Company would be able to readily find a
substitute manufacturer, if needed, on short notice. The Company will be
dependent upon contract manufacturers to meet the Company's manufacturing
standards and to comply with cGMP or other applicable requirements imposed by
United States or foreign regulators and with health, safety and environmental
regulations. There can be no assurance that such compliance will be achieved or
that the FDA and other regulators would not take action against a contract
manufacturer for violating cGMP or similar standards or regulations.
The market for oncology therapeutics in the United States is highly
concentrated. There are approximately 3,000 to 3,500 oncology practices in the
United States. Many are concentrated geographically in populated areas near the
approximately 50 major cancer centers in the United States. Currently, the
Company has no marketing personnel or arrangements, other than for the marketing
of SPARTAJECT busulfan in Europe and Scandinavia. It plans to market its
products, if successfully developed, with its own sales force, with co-marketers
or through distributors, licensees or strategic partners.
LICENSING
The Company's license or sublicense agreements (the "Licenses") generally
require the Company to undertake and pursue with diligence and best efforts
development of the compounds and technologies licensed, and to report on a
regular basis on the Company's development progress and plans. Each of the
Licenses requires payments of royalties on sales of products covered by the
License and, in several instances, minimum annual royalties. Under most of the
Licenses, the licensor has the first right to sue for infringement of, and
defend invalidity charges against, the licensed patents. All of the Licenses
provide that in the event of the Company's default of its obligations, including
the obligations to diligently pursue and apply best efforts to the development
of the licensed compound or technology, and, in some instances, in the event of
its insolvency or bankruptcy, all or a portion of the license or sublicense may
be terminated by the licensor or sublicensor. A termination of any of the
Licenses could have a material adverse effect upon the Company. The Company
believes it has complied in all material respects with the terms of all of its
Licenses to date. The Company intends to continue its licensing program and
engage in product acquisitions with a primary focus on clinical stage or
marketed anticancer compounds. There can be no assurance that any such licenses
or acquisitions will be on terms similar to the Licenses.
The Company was obligated to make minimum royalty and annual maintenance fee
payments in the aggregate amount of $137,000 during 1995, and is obligated to
make payments of $232,000 during 1996.
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SUBLICENSE OF SPARTAJECT DRUG DELIVERY TECHNOLOGY TO THE COMPANY. On July 1992,
RTP granted the Company a worldwide patent and know-how sublicense under RTP's
license with Pharma-Logic, Inc. to make, have made, use and sell pharmaceutical
formulations embodying the SPARTAJECT Technology for use as anticancer agents
for cancer treatment in humans, for use as agents for ancillary care related to
cancer treatment in humans and for any use of busulfan in humans (the "RTP
License"). The Company's sublicense is exclusive, subject to RTP's exclusive
right to make, have made, use and sell, and to contract to make, have made, use
and sell, products based on any anti-cancer agent invented by RTP or an
affiliate after the date of the RTP License which is patented in the United
States or the subject of a pending United States patent application. RTP has
not informed the Company that any such inventions have been made to date. If
the Company does not develop or sublicense an agent, or is not engaged in
developing or sublicensing activities of an agent, in a chemotherapeutic
category, prior to July 1997, then RTP will be entitled to exclusive rights to
make, have made, use and sell and to sublicense the right to make, have made,
use and sell one or possibly more products in that chemotherapeutic category if
subsequent to July 1997 RTP develops or licenses the rights to such products
prior to the Company's developing or sublicensing a product within that
category.
The RTP License requires the Company, subject to extensions and qualifications
in certain circumstances, to fund, prepare and file NDAs for a fixed number of
products by specified dates, the earliest of which is January 1997. The Company
is obligated to pay royalties, including minimum amounts, on product sales until
the expiration of the underlying patents, to pay an annual fee to maintain
exclusivity, and must pay all or a portion of patent prosecution, maintenance
and defense costs. The Company is required under certain circumstances to
provide information regarding its preclinical and clinical research, regulatory
filings and proceedings, manufacturing processes and related information to RTP,
and under certain circumstances RTP may disclose this information to other
licensees, but during its term the RTP License limits the use of such
information by RTP or its licensees to uses outside the field of use licensed to
the Company. Unless sooner terminated, the RTP License continues, with respect
to an issued patent, until the patent expires or has been found invalid. With
respect to pending patent applications, the obligation to pay royalties ceases
upon abandonment of the application or after the application has been pending
for five years, whichever occurs first. Should the patent application
subsequently issue as a patent, the royalty obligation resumes.
LICENSE OF L.A.D.D. TECHNOLOGY TO THE COMPANY. Yale University ("Yale") granted
the Company in October 1991 an exclusive worldwide license to make, have made,
use and sell products under certain patent rights covering a defined invention
("Yale License"). These patent rights relate to the L.A.D.D Technology.
Exclusivity under the Yale License is subject to rights required to be granted
to the United States Government (related to government sponsorship of any
research) and Yale's right to make, use and practice the invention for
noncommercial purposes. The Company's obligations to Yale Include (i) payments
upon the achievement of certain milestones, (ii) royalty payments, including
minimum amounts, on product sales, and (iii) payment of the costs of preparing,
prosecuting and maintaining patent applications and patents. For products
covered by pending patent applications, royalties cease five years after the
filing date if no patent has issued. Royalties for products covered by issued
patents are payable until the patents expire or are found invalid or
unenforceable. The Company also issued shares of its Common Stock to Yale,
granted Yale certain stock registration rights, and provided for the Company to
have a right of first refusal to repurchase such shares if Yale desires to sell
and/or transfer the shares.
LICENSE OF RETINOID TO THE COMPANY. The Company obtained an exclusive worldwide
(except for China) patent and know-how license from BIMM in October 1991 to
specified classes of retinoids, including RII retinamide. The Company is
obligated to use its reasonable best efforts to prepare, prosecute and maintain
patent applications and patents for such compounds outside China at its expense,
and has provided and may continue to provide support to BIMM for research
projects. The Company issued to BIMM shares of Common Stock and is obligated to
issue additional shares as a result of the FDA's clearance of the RII retinamide
IND. The Company is obligated to pay royalties on product sales for different
periods, depending on whether the product is covered by a patent, is covered by
a patent application, or embodies know-how.
In September 1994, the Company obtained a non-exclusive license from BASF
Aktiengesellschaft ("BASF") under BASF's patents concerning RII retinamide in
Europe and Canada. The Company made a payment consisting of cash and Common
Stock to obtain the license, a portion of which is creditable against royalties
due on sales of RII retinamide, and is obligated to pay royalties on such sales
for the life of the patents covered by the license.
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LICENSES RELATING TO THE TECHNOLOGY PURCHASED FROM LEXIN. The technology and
compounds acquired in the Lexin Purchase were licensed to Lexin exclusively from
The University of Pennsylvania ("Penn") and Wichita State University
("Wichita"). Pursuant to the terms of the Lexin Purchase, rights and
obligations under Lexin's license agreements with Penn and Wichita were assigned
to the Company. The Penn license agreement grants the Company an exclusive
worldwide license to make, have made, use and sell products under certain patent
rights owned by Penn. Exclusivity under the Penn license is subject to potential
rights required to be granted to the United States Government (related to
government sponsorship of any research) and Penn's right to use and to permit
the use of the licensed products by non-profit organizations. The Company's
obligations to Penn include (i) royalty payments, including minimum amounts, on
product sales, and (ii) payment of the costs of preparing, prosecuting and
maintaining patent applications and patents. The Wichita license agreement
grants the Company an exclusive worldwide license (except for agricultural uses
and applications) to make, have made, use, sell and have sold products under
certain patent rights owned by Wichita. Exclusivity under the Wichita license
is subject to rights required to be granted to the United States Government
(related to government sponsorship of any research). The Company's obligations
under the Wichita license include (i) royalty payments on product sales, and
(ii) payment of the costs of preparing, prosecuting and maintaining patent
applications and patents.
OTHER LICENSES AND OPTIONs. In addition to the licenses and sublicense
described above, The Research Foundation of the State University of New York
("SUNY") granted the Company an exclusive worldwide patent and know-how license
to make, have made, use and sell IPDR and certain other nucleoside analogues, in
exchange for certain royalty and other payments by the Company. The Company has
a collaboration and option agreement with CRC and Cancer Research Campaign
Technology ("CRCT") for an exclusive worldwide patent and know-how license to
manufacture, use and sell asulacrine. CRC is obligated to use reasonable efforts
to carry out a research program aimed at conducting Phase II clinical trials of
asulacrine in the United Kingdom, provided CRC, CRCT and the Company agree on
protocols for further studies. Under the agreement, the Company would be
obligated to pay up to $225,000 of such costs, of which approximately $72,000
had been paid as of August 31, 1996. If the Company elects to exercise the
option, the parties have agreed to enter into good faith negotiations of a
license agreement based on certain provisions stipulated in the option
agreement. However, there can be no assurance that a license agreement on
acceptable terms to the Company will be entered into. Dana-Farber has granted
the Company a substantially exclusive worldwide patent and know-how license for
PT-523 for all uses except the topical treatment of conditions other than
cancer, subject to (i) a non-exclusive license previously granted by Dana Farber
to the United States Government (related to government sponsorship of any
research) and (ii) Dana Farber's right to make and use PT-523 for its own
noncommercial basic research purposes and to convey PT-523 to other
organizations for use in noncommercial basic research. The Company issued
Common Stock to Dana-Farber, and agreed to issue additional Common Stock upon an
IND filing and to pay royalties and make certain other payments. The Company
also has a right of first refusal to license other inventions from the
laboratory of Dr. Andre Rosowsky.
PATENTS, REGULATORY EXCLUSIVITY AND TRADE SECRETS
The Company considers the protection of its property, whether owned or licensed,
to the exclusion of its use by others, vital to its business. While it intends
to focus primarily on patented or patentable technology, it may also rely on
trade secrets, unpatented proprietary know-how, regulatory exclusivity, patent
extensions and continuing technological innovation to develop its competitive
position. In the United States and certain foreign countries, the exclusivity
period provided by patents covering pharmaceutical products may be extended by a
portion of the time required to obtain regulatory approval for a product.
PATENTS. Patent applications in the United States are maintained in secrecy
until patents issue. Publication of discoveries in the scientific or patent
literature, if made, tends to lag actual discoveries by several months.
Consequently, the Company cannot be certain that its licensor or sublicensor was
the first to invent certain technology or compounds covered by pending patent
applications or issued patents or that it was the first to file patent
applications for such inventions. In addition, the patent positions of
pharmaceutical firms, including the Company, are generally uncertain, partly
because they involve complex legal and factual questions.
There can be no assurance that any patents will issue from the patent
applications licensed to the Company or acquired in the Lexin Purchase.
Further, even if patents issue, there can be no assurance that they or patents
which have issued will not be challenged, invalidated or infringed upon or
designed around by others or that the practice of the claims
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contained in such patents will not infringe the patent claims of others or that
they will provide the Company with significant protection against competitive
products or otherwise be commercially valuable. There can be no assurance that
the Company will not need to acquire licenses under patents belonging to others
for technology potentially useful or necessary to the Company or, if any such
licenses are required, that they will be available on terms acceptable to the
Company, if at all. To the extent that the Company is unable to obtain patent
protection for its products or technology, the Company's business may be
adversely affected by competitors who develop substantially equivalent
technology.
WAXMAN-HATCH ACT AND ORPHAN DRUG ACT. Certain provisions of the Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Waxman-Hatch Act")
grant market exclusivity for a period of up to five years from the date of FDA
approval for certain new drugs and dosage forms. Separately, orphan drug status
under the Orphan Drug Act can confer market exclusivity in the United States for
seven years from the date of FDA approval of the drug. The Waxman-Hatch Act and
Orphan Drug Act protections run simultaneously, not consecutively.
Under the Waxman-Hatch Act, a product patent or use patent covering a drug may
be extended for up to five years under certain circumstances, but in no event
for an effective patent life of longer than fourteen years, to compensate the
patent holder for the time required for testing of the product and its FDA
regulatory review. The benefits of the Waxman-Hatch Act are available only to
the first approved use of the active ingredient in the drug product and may be
applied only to one patent per drug product.
The Waxman-Hatch Act also establishes a period of time from the date of FDA
approval of certain new drug applications during which the FDA may not accept or
approve short-form applications for generic versions of the drug from other
sponsors, although it may accept or approve long-form applications, that is,
another complete NDA for such drug. The applicable period is five years in the
case of drugs containing an active ingredient not previously approved, and three
years for new uses of previously approved ingredients.
Pursuant to the Orphan Drug Act, as currently in effect, the FDA may grant
orphan drug status to certain drugs intended to treat a "rare disease or
condition," defined as a disease or condition which affects fewer than 200,000
people in the United States, or which affects more than 200,000 people but for
which the cost of development and of making the drug available will not be
recovered from sales of the drug in the United States. Orphan drug status may
provide certain benefits, including exclusive marketing rights in the United
States for the drug for the designated and approved indication for seven years
following marketing approval.
An applicant may receive marketing exclusivity only if it is the sponsor of the
first NDA approved for the drug for an indication for which it has received
orphan drug status designation prior to the time of such NDA submission.
Therefore, unlike patent protection, orphan drug status does not prevent other
companies from attempting to develop the drug for the designated indication or
from obtaining NDA approval prior to approval of the Company's NDA. If another
sponsor's NDA for the same drug and the same indication is approved first, that
sponsor is entitled to exclusive marketing rights if that sponsor has received
orphan drug designation for the drug. In that case, the FDA will refrain for at
least seven years from approving the Company's application to market the
product.
Orphan drug status does not prevent the FDA from approving the same drug for a
different indication. Furthermore, doctors are not restricted by the FDA from
prescribing an approved drug for unapproved uses. Therefore, another company's
approval of a drug for different uses could adversely affect the marketing
potential of a Company drug for which orphan drug status as to a different
indication has been obtained.
The Company believes that it will be advantageous to obtain orphan drug status
for eligible products. There can be no assurance, however, that such products
will receive such status. Furthermore, proposed amendments to the Orphan Drug
Act have been introduced into Congress from time to time, including proposals
which would reduce the period of exclusive marketing rights granted under the
Orphan Drug Act from its present level of seven years; provide for the loss of
exclusive marketing rights if the orphan drug treats a patient population
exceeding 200,000 people; and possibly grant such rights to two or more
companies if they develop a drug simultaneously. Accordingly, there can be no
assurance as to the availability of orphan drug status for the Company's
products, or as to the precise scope of protection that may be afforded by
orphan drug status in the future, or that the current level of exclusivity will
remain in effect.
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STATUS OF TECHNOLOGIES AND COMPOUNDS
SPARTAJECT TECHNOLOGY. A United States patent relating to the SPARTAJECT
Technology (the "Licensed Patent"), expiring in 2009, is licensed by the Company
from RTP. Corresponding patent applications relating to the SPARTAJECT
Technology have been filed in various foreign countries, including certain
European countries, Japan and Canada and have been licensed to the Company.
Patents relating to the SPARTAJECT Technology have issued in Taiwan and South
Africa, which expire in 2008 and 2011, respectively, and have been licensed to
the Company.
Patents (the "Third Party Patents") were issued in the United States in
September 1992 and March 1995 and are believed by the Company to be assigned to
Eastman Kodak Company, or a subsidiary thereof. The Third Party Patents include
numerous claims that, based on presently available information, may cover
certain embodiments of the SPARTAJECT Technology including formulations of
camptothecin, etoposide and certain taxanes. If the Third Party Patents are not
invalid insofar as their claims relate to those embodiments of the SPARTAJECT
Technology, then (i) the Company will require a license from the holder of the
Third Party Patents to commercialize those embodiments of the SPARTAJECT
Technology and sell or sublicense others to sell products utilizing those
embodiments of the SPARTAJECT Technology in the United States and (ii) the
extent to which the Company might require such a license will depend on the
final formulations of its and any sublicensee's products and whether they
utilize those embodiments of the SPARTAJECT Technology that are covered by the
Third Party Patents. There can be no assurance that a license will be
obtainable on acceptable terms, if at all, and any negotiations to obtain a
license may be protracted. If the Company is required to obtain a license under
the Third Party Patents to practice those embodiments of the SPARTAJECT
Technology and sell or sublicense others to sell products utilizing those
embodiments of the SPARTAJECT Technology in the United States and is unable to
do so on commercially reasonable terms, then the inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.
The application for the Licensed Patent was filed in the United States nearly
nine months prior to the application for the initial Third Party Patent and,
based on presently available information, the work relating to the inventions
claimed in the Licensed Patent, insofar as such claimed inventions cover those
embodiments of the SPARTAJECT Technology which also appear to be covered by the
initial Third Party Patent, was commenced more than two years prior to the
filing date of the application for the initial Third Party Patent. However,
there can be no assurance that the inventions claimed in the Licensed Patent
covering those embodiments of the SPARTAJECT Technology were made prior to the
inventions claimed in the Third Party Patents, which appear to cover those
embodiments of the SPARTAJECT Technology. If such inventions claimed in the
Licensed Patent did have such priority and such priority were established in a
United States court proceeding or otherwise with respect to each such claimed
invention in the Third Party Patents which appears to cover embodiments of the
SPARTAJECT Technology, then the Third Party Patents would be invalid to the
extent its claims extend to those embodiments of the SPARTAJECT Technology and
would not prevent the Company from practicing those embodiments of the
SPARTAJECT Technology in the United States.
Patent applications corresponding to the Third Party Patents have been filed in
various countries outside the United States, including certain European
countries through the European Patent Office ("EPO"), in Japan and in Canada,
also with pending claims that, based on presently available information, may
cover certain embodiments of the SPARTAJECT Technology. The applications filed
by the holder of the Licensed Patent in various foreign countries, including
certain European countries through the EPO, in Japan and in Canada, have earlier
effective filing dates than the application filed with the EPO, in Japan and in
Canada corresponding to the Third Party Patents. The Company believes that
generally, in most foreign countries, in the case of conflicting applications
claiming the same patentable invention, the application with the earlier
effective filing date (in this case the patent applications filed by the holder
of the Licensed Patent) is entitled to the issuance of the patent. Accordingly,
although there can be no assurance that foreign law will be applied in this
manner, the Company believes that a patent issued in such European countries,
Japan, or Canada corresponding to the Third Party Patents should be invalid (or
susceptible to cancellation) insofar as it pertained to the practice of the
SPARTAJECT Technology. Therefore, the Company believes it should not be
prevented ultimately from commercializing the SPARTAJECT Technology in such
European countries, Japan or Canada, respectively, solely by reason of the
issuance of such patent.
A patent was issued in the United States (the "Orphan Patent") and a patent
application which designated various countries outside the United States was
published under the Patent Cooperation Treaty (the "Orphan Application")
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which the Company understands have been licensed exclusively to Orphan Medical,
Inc. The Orphan Patent includes claims, and the Orphan Application is seeking
claims, covering methods of treating patients with malignant conditions using an
intravascularly administrable busulfan preparation and treating leukemia or
lymphoma patients undergoing a bone marrow transplant using an intravenously
administrable busulfan preparation that, based on presently available
information, may cover methods by which SPARTAJECT busulfan will be used. The
Company believes, based on advice of patent counsel, that such claims do not
cover the use of SPARTAJECT busulfan. However, there can be no assurances in
this regard and if such claims do cover the Company's intended use of SPARTAJECT
busulfan, and the Orphan Patent or any patents issuing on the Orphan Application
are not invalid, then the Company will require a license from the holder or
exclusive licensee of such patent or patents in order to develop or
commercialize SPARTAJECT busulfan in any country, including possibly the United
States, where such patent or patents are issued. There can be no assurance that
a license will be obtainable on acceptable terms, if at all, and any
negotiations to obtain a license may be protracted. If the Company is unable to
do so on commercially reasonable terms, then the inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.
A patent application filed by Sandoz Ltd. and Sandoz-Patent-GmbH (the "Sandoz
Application") was published under the Patent Cooperation Treaty ("PCT") in
October 1992 and designated various European countries for filing. The Sandoz
Application includes claims covering certain embodiments of the SPARTAJECT
Technology applicable to formulations containing certain electrostatic lipids.
Although the patents which have issued in the European Patent Office and the
United Kingdom pursuant to such application do not contain any such claims, if a
SPARTAJECT formulated product contained such lipids and patents containing such
claims issue on such application in any country and such claims are not invalid,
then the Company will require a license from the holder of such patents in order
to develop or commercialize such product in any such country. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is
unable to do so on commercially reasonable terms, then the inability to obtain
such a license could have a material adverse effect on the Company's business
and its future results of operations.
L.A.D.D. TECHNOLOGY AND IPDR. In June 1996 the PTO issued an office action on
the Company's application indicating that sixteen claims were allowed, which
claims are drawn to the administration of 5-FP and IPDR, and other compounds
with similar structures, for the treatment of liver associated diseases. Other
claims were finally rejected, including claims which relate to the application
of the L.A.D.D. Technology to the oral administration of 5-FP and other
compounds with similar structures. The Company believes that further
negotiation with the examiner or, if necessary, an appeal of the examiner's
position to the PTO Board of Patent Appeals and Interferences, will result in
the allowance of additional claims, including, at the least, a claim drawn to
the oral administration of 5-FP, although the Company cannot predict with
certainty whether or not a patent thereon will be granted.
The Company is aware that two international patent applications by The Wellcome
Foundation Limited ("Wellcome") were published under the PCT in 1992,
designating the United States, major European countries, Japan, Australia and
New Zealand, among other countries. As published, the applications have broad
claims that the Company believes may cover certain of the prodrugs which may be
used by the Company in practicing the L.A.D.D. Technology licensed by the
Company, or methods of formulating or using such prodrugs, or may cover the
active compound to which the prodrugs are intended to be converted IN VIVO. A
patent in Australia based on one of such applications was issued on March
7,1995, and expires in 2011. Two patent applications in New Zealand, based on
one of such PCT applications, were allowed and published for opposition in
November 1995 and , unless successfully opposed, will be granted and will expire
in 2011 (such Australian patent and potential New Zealand patents being called
collectively the "ANZ Patents"). The claims of the ANZ Patents do not appear to
cover the application of the L.A.D.D. Technology to 5-FP but may cover its
application to IPDR as a radiosensitizer prodrug. The Company believes that to
the extent that it is possible to interpret such claims as covering such
applications to IPDR, they are invalid and that the issuance of the ANZ Patents
to such extent were in error. The Company had filed timely oppositions to the
issuance of the New Zealand applications based on prior art of which the Company
is presently aware. Both opposition proceedings are currently for post-grant
reexamination with respect to the Australian patent at an appropriate time. The
Company is also maintaining a watch with respect to the publication or allowance
of corresponding applications in other jurisdictions. There can be no
assurance, however, that such issuance in Australia and allowances in New
Zealand were in error, or that another patent or patents based on such published
applications will not issue in the United States or other jurisdictions or that
the ANZ Patents and any other such issued patent or patents would not contain
claims which could
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affect the practice of the L.A.D.D. Technology. The Company believes that if
the ANZ Patents are valid as issued or any such other patent or patents issue in
any jurisdiction, it may be required to seek a license under such claims in
order to develop, market and sell certain of the applications of its L.A.D.D.
Technology in such jurisdictions. THERE can be no assurance that such licensed
will be obtainable on reasonable terms to the Company, if at all. If any such
license were required to practice the L.A.D.D. Technology, the inability to
obtain such license could have a material adverse effect on the Company's
business.
A patent licensed to the Company and expiring in 2007 has issued in the United
States on IPdR. A patent licensed to the Company on certain other nucleoside
analogues expires in 2005.
RII RETINAMIDE. RII retinamide is not patented in the United States, and the
Company believes it is no longer patentable in the United States. An EPO patent
on RII retinamide licensed to the company expires in 1998 and pursuant thereto
patent rights have been perfected in various European countries. A patent in
Canada also licensed to the Company expires in 1999.
In June 1995, the Company, on behalf of BIMM, arranged for the filing of several
patent applications with the United States Patent Office for novel retinoid
compounds which may be potentially non-teratogenic. The filings were based on
research at BIMM sponsored by the Company which focused on synthesizing and
characterizing new retinoid compounds devoid of teratogenic potential.
The Company has been granted orphan drug status for RII retinamide for the
treatment of MDS.
PATENT RIGHTS ACQUIRED FROM LEXIN. The Company has obtained, through the
assignment to the Company of the Penn license agreement, exclusive rights to
four issued United States patents expiring in 2009, 2011 (two), and 2013. An
additional five United States patent applications and three corresponding PCT
applications designating various countries outside the United States are pending
(all of which are covered by the Penn license agreement).
The Company has obtained, through the assignment to the Company of the Wichita
license agreement, exclusive rights to four pending United States patent
applications and corresponding foreign applications, covering a novel family of
serine protease inhibitors. One of the United States applications has been
officially allowed by the PTO, and the patent is expected to issue in 1996.
Two patents (the "Antichymotrypsin Patents"), were assigned to Sonoran Desert
Chemicals LLC in 1990 and 1991, respectively, relating to certain uses of
antichymotrpsin. The Antichymotrypsin Patents include claims covering
methods for treating pulmonary and/or bowel inflammations in a mammal using
alpha-1-antichymotrypsin, derivatives and salts thereof, methods for treating
inflammation using alpha-1-antichymotrypsin topically and pharmaceutical
compositions of alpha-1-antichymotrypsin, its salts or derivatives. To the
Company's knowledge, products embodying the Antichymotrypsin Patents have not
yet been developed. Claims of the Antichymotrypsin Patents may cover the
intended use of LEX032, the lead compound which the Company acquired in the
Lexin Purchase. The Company believes, however, based on the advice of patent
counsel, that such claims would not cover the Company's intended use of
LEX032. Nevertheless, there can be no assurance in this regard, and if such
claims are found to cover the Company's intended use of LEX032, and the
Antichymotrypsin Patents are not invalid, then the Company will require a
license from the holders of the patents in order to develop or commercialize
LEX032 in the United States or any other country where the Antichymotrypsin
Patents may have issued. There can be no assurance that a license will be
obtainable on acceptable terms, if at all, and any negotiations to obtain a
license may be protracted. If the Company is unable to obtain such a license
on commercially reasonable terms, such inability to obtain such a license
could have a material adverse effect on the Company's business and its future
results of operations.
ASULACRINE. An issued United States patent on asulacrine under a license option
to the Company expires in 1999. Patents on asulacrine have also issued in
several European countries and Japan, which patents expire in 2001.
PT-523. A United States patent licensed by the Company and expiring in 2005 has
been issued on the PT-523 compound, its pharmaceutical composition and its use
as a methotrexate resistant cell inhibitor. Corresponding Japanese and Canadian
patents and patents in several European countries have issued, expiring in 2007,
2010 and 2008,
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respectively.
OTHER COMPOUNDS. The following compounds which the Company may develop are
believed to be in the public domain or not presently subject to patent
protection as compounds in the United States: busulfan, 5-FP, RII retinamide,
paclitaxel, etoposide, camptothecin and aphidicolin. Any patent coverage for
any formulations of these compounds with the SPARTAJECT Technology will be
primarily dependent upon the patent coverage for the SPARTAJECT Technology, to
the extent available. The Company has been granted orphan drug status by the
FDA for its intended uses of busulfan and RII retinamide described. Any patent
protection for 5-FP will be dependent upon the issuance of patents covering the
L.A.D.D. Technology and the scope of the coverage provided by such patents.
TRADE SECRETS
The Company also relies on trade secrets and proprietary know-how to protect
certain of its technologies and potential products. To protect them, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements which prohibit disclosure to any third party or
use of such secrets and know-how for commercial purposes. Company employees
also agree to disclose and assign to the Company all methods, improvements,
modifications, developments, discoveries and inventions conceived during their
employment that relate to the Company's business. There can be no assurance,
however, that these agreements will be observed and prevent disclosure or
provide adequate protection for the Company's confidential information and
inventions.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's potential products and its
research and development activities are and will continue to be subject to
regulation by federal, state and local governmental authorities in the United
States and other countries. In the United States, pharmaceuticals are subject
to rigorous regulation by the FDA's Center for Drug Evaluation and Research,
which reviews and approves marketing of drugs. The Federal Food, Drug and
Cosmetic Act, as amended, the regulations promulgated thereunder, and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, labeling, storage, record keeping, advertising and
promotion of the Company's potential products. The process of obtaining FDA
approval for a new drug takes several years and involves the expenditure of
substantial resources. The steps required before such a product can be produced
and marketed for human use include preclinical studies, the making of an IND
filing, human clinical trials and the approval of a NDA. No assurance can be
given that the Company will be able to satisfy the requirements of the FDA with
respect to any of its proposed products.
"Preclinical" or "pre-Phase I" activities include studies and other tests
conducted in the laboratory and in animals, such as animal pharmacology, drug
kinetics/metabolism, initial toxicology, small scale chemical synthesis, assay
development and validation and initial drug formulation to obtain preliminary
information on a drug's efficacy and safety. The results of these studies and
tests are submitted to the FDA as part of the IND filing before approval can be
obtained for the commencement of testing in humans.
The human clinical testing program usually involves three phases which are
generally conducted sequentially, but which may overlap or be combined.
Particularly in the case of anticancer and other life saving drugs, these phases
are often combined. Clinical trials are conducted in accordance with protocols
that detail the objectives of the study, the parameters to be used to monitor
safety and the efficacy criteria to be evaluated. Each protocol is submitted to
the FDA as part of the IND filing. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ("IRB") for each
institution at which the study will be conducted. The IRB will consider, among
other things, all existing pharmacology and toxicology information on the
product, ethical factors, the risk to human subjects, and the potential benefits
of therapy relative to risk.
In "Phase I Clinical Trials", studies are usually conducted on healthy
volunteers but, in the case of anticancer agents, are conducted on patients with
disease which usually has failed to respond to other treatment to determine the
maximum tolerated dose, side effects of a product and pharmacokinetics. Phase
II studies are conducted on a small number of patients having a specific disease
to determine initial efficacy (activity) in humans for that specific disease,
the most effective doses and schedules of administration and possible adverse
effects and safety risks. "Phase II/III" differs from
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Phase II in that the trials involved may include more patients and, at the sole
discretion of the FDA, be considered the pivotal trial or trials for NDA
approval. Phase III normally involves the pivotal trials of a drug, consisting
of widescale studies on patients with the same disease in order to evaluate the
overall benefits and risks of the drug for the treated disease compared with
other available therapies. At least two such studies demonstrating safety and
efficacy are normally required for FDA approval. The FDA continually reviews
the clinical trial plans and results and may suggest study design changes or may
require termination of the trials at any time if significant safety or other
issues arise.
While certain of the compounds which the Company intends to develop are
currently marketed or have been the subject of clinical trials by other
companies or institutes, the Company will have to submit an IND filing and
obtain FDA approval in order to commence clinical trials in the United States,
and additional preclinical studies may be required before such trials can
commence. Where the drug formulation in which the compound to be studied is
different from that which was used in other studies, the Company either will
have to establish that it is biologically equivalent to the formulation
previously used or will have to conduct its own preclinical program before
approval of an IND filing can be obtained.
Data from preclinical studies and tests and the clinical trial phases and of
validated manufacturing and quality control procedures are submitted to the FDA
with the NDA for marketing approval. The NDA involves considerable data
collection, verification and analysis, as well as the preparation of summaries
of the manufacturing and testing processes, preclinical studies and clinical
trials. The FDA must approve the NDA before the drug may be marketed in the
United States. In selected cases, which the FDA has stated will apply where
life threatening diseases are involved, and particularly where no alternate
treatments are available, the various phases and the numbers of patients
required for them may be condensed, and the FDA review period accelerated.
There can be no assurance that the review period of the Company's NDAs will be
accelerated.
The testing and approval process is likely to require substantial time and
effort, and there can be no assurance that any FDA approval will be granted on a
timely basis, if at all. The approval process is affected by a number of
factors, primarily the side effects of the drug (safety) and its therapeutic
benefits (efficacy). Additional preclinical or clinical trials may be requested
during the FDA review period and may delay marketing approval. A task force
established by the FDA has recently proposed significant changes in the design,
analysis and reporting of clinical studies conducted under an IND. The task
force recommended increased requirements for reporting adverse effects and new,
more stringent rules that would require clinical trial investigators to assume
that toxicities reported by patients are drug-related. If these recommendations
are implemented, the length of time and costs associated with obtaining market
approval by the FDA are likely to be significantly increased.
The FDA may also require post marketing testing to support the conclusion of
efficacy and safety of the product, which can involve significant expense.
After FDA approval is obtained for initial indications, further clinical trials
may be necessary to gain approval for the use of the product for additional
indications.
The Company intends to enter into joint development or licensing arrangements
with pharmaceutical companies in which it will seek to have such companies
assume many of the costs of clinical testing and comparable foreign regulatory
approval for the products licensed. To the extent that the Company is unable to
enter into such arrangements, it may not have the resources to complete the
regulatory approval process with respect to the products it intends to develop.
The manufacture of the Company's products, whether done by outside contractors
or the Company, will be subject to rigorous regulation, including the need to
comply with the FDA's cGMP standards. As part of obtaining the FDA approval for
each product, each of the Company's own or contract manufacturing facilities
must be inspected, approved by and registered with the FDA. In addition to
obtaining NDA approval of the prospective manufacturer's quality control and
manufacturing procedures, domestic and foreign manufacturing facilities are
subject to periodic FDA inspections and/or inspections by foreign regulatory
authorities.
For marketing outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for its products. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursements vary widely from country to
country.
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The Company's business is also subject to regulation relating to safety, health
and environmental matters and other factors at both the state and federal level,
and internationally.
COMPETITION
More than 300 companies are reported to have approximately 1,250 cancer drugs
under development worldwide, of which a substantial number are under development
in the United States. Many of such drugs or other substances under development
may compete directly with the treatments which the Company is developing or may
develop in the future, and such drugs may perform more effectively or safely
than the Company's product candidates. Many of the companies engaged in
anticancer research and development and in acquiring rights to the products of
such research and development, including biotechnology companies, have
substantially greater financial, technical, scientific, manufacturing, marketing
and other resources than the Company and have more experience in developing,
marketing and manufacturing therapeutics, including performing the preclinical
testing and clinical trials that are required for obtaining FDA and other
regulatory approvals. Included among the Company's competitors are: (i) large
established pharmaceutical companies with commitments to oncology or antiviral
research, development and marketing; (ii) smaller biotechnology companies with
similar strategies; and (iii) many development stage companies licensing and/or
developing oncology therapeutics.
A number of companies are developing a variety of delivery systems in the form
of microspheres, microcapsules, nanoparticles and liposomes, some of which
technologies may have characteristics that are similar or superior to the
Company's SPARTAJECT Technology. Orphan Medical, Inc., a United States company
which is not affiliated with the Company's licensees of SPARTAJECT busulfan in
Europe and Sweden, Orphan Europe and Swedish Orphan, has disclosed that it is in
Phase I clinical trials with an intravenous form of busulfan for use in bone
marrow transplants using a formulation with solvents licensed from a university.
The development of technologies in which toxic agents are selectively carried to
a tumor site by mechanical, other chemical or biological means is a recognized
strategy for oncological research, and such technologies may have
characteristics similar or superior to the Company's L.A.D.D. Technology. The
concept of targeted therapeutics in cancer is not a new one, and includes such
approaches as the injection of toxic agents into the tumor, the use of prodrugs
activated by other means in the body, monoclonal antibodies and gene therapy.
The Company is aware of at least three other approaches to the delivery of an
oral 5-FU, which may compete with the Company's L.A.D.D. delivered 5-FP, one
possibly being developed by Hoffmann-La Roche Inc., one by GW and the other by
the Japanese company, Taiho Pharmaceutical Co., Ltd.
Several pharmaceutical companies (including a number of the world's largest
pharmaceutical companies) are developing protease inhibitors with potential
application in pulmonary inflammation, pancreatitis, coagulative disorders and
reperfusion injury. It is widely acknowledged that proteases are a critical
component in the inflammatory cascade and their inhibition has been pursued by
companies engaged in the development of both traditional pharmaceuticals and
biotech compounds.
Significant numbers of antiviral drugs are also under development by other
companies. Generally, the companies engaged in antiviral research and
development have substantially greater resources and experience than the
Company.
EMPLOYEES
As of September 16, 1996, the Company had nine full-time employees and one
part-time employee. Four employees are officers, three are administrative and
three are involved in the coordination of scientific endeavors. The Company
believes that its relationship with its employees is satisfactory.
PROPERTIES
The Company currently operates from 12,800 square feet of leased laboratory and
office space in Horsham, Pennsylvania which was acquired as part of the Lexin
Purchase. The remaining initial lease term expires in July 1999. The Company
has the option to extend the lease for an additional five years or to terminate
the lease in July 1997. The Company has also retained an office in Durham,
North Carolina which it subleases on a month to month basis. The
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Company believes that its facilities are adequate to meet the Company's needs
for at least the next three years.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS:
Certain of the statements set forth under the captions "Risk Factors", "Use of
Proceeds" and "Business" and set forth elsewhere in this Registration Statement
(including in the Exhibits hereto) constitute "Forward Looking Statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. All such forward
looking statements involve risks and uncertainties, including those statements
regarding the Company's research and development programs; the intention to
contract with other organizations for development and registration, if
applicable, of its product candidates, as well as seeking joint development or
licensing arrangements with pharmaceutical companies; the research and
development of particular compounds and technologies for particular indications;
and the period of time for which available funds will enable the Company to
sustain its operations and to continue to satisfy certain requirements for the
quotation of its securities on the Nasdaq SmallCap Market. Many important
factors affect the Company's ability to achieve the stated outcomes and to
successfully develop and commercialize its product candidates, including, among
other things, the ability to obtain substantial additional funds, obtain and
maintain all necessary patents or licenses, to demonstrate the safety and
efficacy of product candidates at each stage of development, to meet applicable
regulatory standards and receive required regulatory approvals, to meet
obligations and required milestones under its license agreements, to be capable
of producing drug candidates in commercial quantities at reasonable costs, to
compete successfully against other products and to market products in a
profitable manner. As a result, there also can be no assurance that the forward
looking statements included in this Registration Statement will prove to be
accurate. In light of the significant uncertainties inherent in the forward
looking statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 42,000,000 Common Stock,
par value $.001 per share ("Common Stock"), and 11,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). At September 19, 1996,
the Shares of Common Stock were held of record by 171 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. Subject to preferences that
may be applicable to any then outstanding Preferred Stock, the holders of Common
Stock, are entitled to receive ratably such dividends as are declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock have the right to a ratable portion of assets
remaining after payment of liabilities and the liquidation preferences of any
then outstanding shares of Preferred Stock. Holders of Common Stock have
neither preemptive rights nor rights to convert their Common Stock into any
other securities and are not subject to future calls or assessments by the
Company, although certain holders of Common Stock have rights of first refusal
with respect to certain future issuances of shares of capital stock by the
Company. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares
offered hereby upon issuance and sale will be, fully paid and non-assessable.
CLASS C WARRANTS
The following statements are subject to the detailed provisions of the warrant
agreement ("Warrant Agreement") among the Company and F.C.T.C. Transfer
Services, Inc. (as successor to Midlantic National Bank), as warrant agent (the
"Warrant Agent"), a copy of which is filed as an exhibit hereto.. The Class C
Warrants are evidenced by Class C Warrant certificates issued in registered
form.
Each Class C Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of $1.50, subject to adjustment (the "Exercise
Price"), at any time from issuance until August 23, 2001 (the "Expiration
Date"). The Class C Warrants are subject to redemption by the Company
commencing August 23, 1997 at a redemption price of $0.10 per Class C Warrant
upon 60 days' prior written notice, provided that the average closing bid price
(or last sales price) of the Common Stock as reported on the National
Association of Securities Dealers Automated Quotation System (or on such
exchange on which the Common Stock is than traded), equals or exceeds $3.00 per
share (being 200% of the exercise price per share), subject to adjustment, for
any 20 trading days within a period of 30 consecutive trading days ending on the
3rd trading day prior to the date of notice of redemption.
The Class C Warrants may be exercised upon surrender of the certificate therefor
on or prior to their expiration or redemption date at the offices of the Warrant
Agent with the form of "Election to Purchase" on the reverse side of the
certificate filled out and executed as indicated, accompanied by payment (in the
form of a certified or cashier's check payable to the order of the Company).
The Company, in its discretion, has the right to reduce the Exercise Price of
the Class C Warrants.
The Class C Warrants contain provisions that provide the holders thereof certain
protections by adjustment of the Exercise Price and shares issuable upon
exercise in certain events, such as certain stock dividends, stock splits,
mergers, sales of all or substantially all of the Company's assets, sales of
stock at below market price and other unusual events. The Exercise Price may be
reduced and the Expiration Date may be extended upon notice to the holders of
the Class C Warrants.
The Company is not required to issue fractional warrants upon adjustment or
fractional shares of Common Stock upon exercise of the Class C Warrants. In
lieu thereof, an amount of cash equal to the same fraction of the then current
market value of a share of Common Stock or a Class C Warrant, as the case may
be, will be paid. No adjustment as to dividends will be made upon any exercise
of Class C Warrants. The holder of a Class C Warrant will not have any rights
as a holder of Common Stock unless and until the Class C Warrant is exercised.
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SERIES B' CONVERTIBLE PREFERRED STOCK
The following is a brief summary of certain provisions of the Series B'
Preferred Stock, but this summary does not purport to be complete and is
qualified in all respects by reference to the actual text of the Certificate of
Designations relating to the Series B' Preferred Stock, the form of which is
filed as an exhibit hereto. The Board of Directors has authorized the issuance
of up to 3,000,000 shares of preferred stock to be designated as Series B'
Convertible Preferred Stock. All shares of Common Stock to which this
Prospectus relates (other than those issuable upon exercise of the Class C
Warrants and the Placement Warrants) are issuable upon Conversion of shares of
Series B' Preferred Stock. As of September 19, 1996, there were 1,736,472
shares of Series B' Preferred Stock outstanding.
The holders of Series B' Preferred Stock will be entitled to receive dividends
as, when and if declared by the Board of Directors out of funds legally
available therefor. No dividend or distribution, as the case may be, will be
declared or paid on any junior stock unless the dividend also is paid to holders
of the Series B' Preferred Stock.
Each share of Series B' Preferred Stock may be converted at the option of the
holder at any time after the initial issuance date into 6.666667 shares of
Common Stock at an initial conversion price (the "Conversion Price") equal to
$1.50. The Conversion Price is subject to adjustment upon the occurrence of a
merger, reorganization, consolidation, reclassification, stock dividend or stock
split which will result in an increase or decrease in the number of shares of
Common Stock outstanding. In addition, the Conversion Price is subject to
adjustment on August 23, 1997 (the "Reset Date") if the average closing bid
price of the Common Stock for the thirty consecutive trading days immediately
preceding the Reset Date (the "Reset Trading Price") is less than 130% of the
then applicable Conversion Price (a "Reset Event"). Upon a Reset Event, the
then applicable Conversion Price will be reduced to equal the greater of (i)
the Reset Trading Price divided by 1.3 and (ii) 50% of the then applicable
Conversion Price.
The Company has the right at any time after the Reset Date to cause the Series
B Preferred Stock to be converted in whole or in part, on a PRO RATA basis,
into shares of Common Stock if the closing price of the Common Stock exceeds
200% of the then applicable Conversion Price for at least 20 trading days in any
30 consecutive trading day period.
Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary or (ii) a sale or other disposition of all or
substantially all of the assets of the Company (the "Liquidation Event"), or
(iii) any consolidation, merger, combination, reorganization or other
transaction in which the Corporation is not the surviving entity or the shares
of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property, after payment or provision for payment of the debts
and other liabilities of the Company, the holders of the Series B' Preferred
Stock then outstanding will first be entitled to receive, pro rata (on the basis
of the number of shares of the preferred stock then outstanding), and in
preference to the holders of the Common Stock and any other series of preferred
stock, an amount per share equal to $13.00 plus accrued but unpaid dividends, if
any.
The holders of the Series B' Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Series B' Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as a
majority of the shares of Series B' Preferred Stock remain outstanding, the
holders of 66.67% of the Series B' Preferred Stock then outstanding are entitled
to approve (i) the issuance of any securities of the Company senior to or on
parity with the Series B' Preferred Stock, (ii) any alteration or change in the
rights or preferences or privileges of the Series B' Preferred Stock and (iii)
the declaration or payment of any dividend on any junior stock or the repurchase
of any securities of the Company. Except as provided above or as required by
applicable law, the holders of the Series B' Preferred Stock will be entitled to
vote together with the holders of the Common Stock and not as a separate class.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Upon the consummation of the offering made hereby the Company will be subject to
the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
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corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is, or the transaction in which the person became an interested
stockholder was, approved in a prescribed manner or certain other exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporations's voting stock.
The Company's Restated By-Laws provide for a Board of Directors classified into
three classes, with the directors elected in each class at the annual
stockholders meeting, respectively. Commencing at the 1995 annual stockholders'
meeting, Directors will be elected for three year terms. See "Management -
Election and Compensation of Directors." The Board of Directors is authorized
to create new directorships and to fill such positions so created and is
permitted to specify the class to which such new position is assigned, and the
person filling such position would serve the term applicable to that class. The
Board of Directors (or its remaining members, even though less than a quorum) is
also empowered to fill vacancies on the Board of Directors occurring for any
reasons for the remainder of the term of the class of Directors in which the
vacancy occurred. Directors may be only removed for cause. These provisions
are likely to increase the time required for stockholders to change the
composition of the Board of Directors. For example, in general, at least two
annual meeting will be necessary for stockholders to effect a change in a
majority of the members of the Board of Directors.
The Company's Restated By-Laws, provide that, for nominations to the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholders must first have timely notice thereof
in writing to the Secretary of the Company. To be timely, a stockholder's
notice generally must be delivered not less than sixty days prior to the special
meeting and ten days following the day on which the public announcement of the
meeting is first made by the Company. Only such business shall be conducted at
a special meeting of stockholders as is brought before the meeting pursuant to
the Company's notice of meeting. The notice by a stockholder must contain,
among other things, certain information about the stockholder delivering the
notice and, as applicable, background information about the nominee or a
description of the proposed business to be brought before the meeting.
The Company's Restated Certificate of Incorporation also requires that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by a consent in writing. A special meeting may be called only by a
majority of the whole Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President of the Company or the Secretary upon written
request of holders of at least fifteen percent of the outstanding capital stock
entitled to vote.
The Delaware General Corporation Law provides generally that the affirmative
vote of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The Company's Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 70% of the outstanding voting stock
of the Company to amend or repeal any of the provisions discussed in this
section entitled "Delaware Law and Certain Charter and By-Law Provisions" or to
reduce the number of authorized shares of Common Stock and Preferred Stock.
Such 70% vote is also required for any amendment to or repeal of the Company's
Restated By-Laws by the stockholders. The Restated By-Laws may also be amended
or repealed by a majority vote of the Board of Directors. Such 70% stockholder
vote would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any Preferred Stock that might then be
outstanding.
The provisions of the Company's Restated Certificate of Incorporation and
Restated By-Laws discussed above could make more difficult or discourage a proxy
contest or other change in the management of the Company or the acquisition or
attempted acquisition of control by a holder of a substantial block of the
Company's stock. It is possible that such provisions could make it more
difficult to accomplish, or could deter, transactions which stockholders may
otherwise consider to be in their best interests.
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As permitted by the Delaware General Corporation Law, the Company's Restated
Certificate of Incorporation provides that Directors of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duties as Directors, except for liability (i) for any
breach of their duty of loyalty to the Company and its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions, as provided in Section 175 of the Delaware
General Corporation Law or (iv) for any transaction from which the Director
derives an improper personal benefit.
The Company's Restated Certificate of Incorporation and Restated By-Laws provide
that the Company shall indemnify its Directors, officers and SAB members to the
fullest extent permitted by Delaware law (except, in some circumstances, with
respect to suits initiated by the Director, officer or SAB member) and advance
expenses to such Directors, officers and SAB members to defend any action for
which rights of indemnification are provided. In addition, the Company's
Restated Certificate of Incorporation and Restated By-Laws also permit the
Company to grant such rights to its employees and agents. The Company's
Restated By-Laws also provide that it may enter into indemnification agreements
with its Directors and officers and purchase insurance on behalf of any person
whom it is required or permitted to indemnify. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as Directors, officers, SAB members and employees.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The Company's transfer agent, registrar and warrant agent is F.C.T.C. Transfer
Services, Inc.
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SHARES ELIGIBLE FOR FUTURE SALE
As of September 19, 1996, the Company had 8,192,219 shares of Common Stock
outstanding. Of these shares, 4,170,749 shares are freely tradable without
restriction or future registration under the Securities Act.
SALES OF RESTRICTED SHARES
The remaining 4,021,470 shares (which include the two million shares of Common
Stock issued to the Trust in connection with the Lexin Purchase) are deemed
"Restricted Shares"under Rule 144 promulgated under the Securities Act ("Rule
144") in that they were originally issued and sold by the Company in private
transactions in reliance upon exemptions from the Securities Act. Of the
Restricted Shares, 1,132,465 shares are eligible for sale in the public market
upon the date of this Prospectus pursuant to Rule 144 or Rule 701 under the
Securities Act ("Rule 701").
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated with those of others), including an affiliate, whose
Restricted Shares have been fully paid and held for at least two years from the
later date such Restricted Shares were acquired from the Company and (if
applicable) the date they were acquired from an affiliate, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the number of the then outstanding shares of Common Stock
(81,922 shares based on the number of shares outstanding at September 19, 1996)
or an average weekly trading volume in the public market during the four
calendar weeks preceding such sale or the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales under Rule 144 are
also subject to certain requirements as to the manner and notice of sale and the
availability of public information concerning the Company. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the three months preceding a sale, and whose Restricted Shares have been
fully paid and held for at least three years, would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above.
Any employee, officer or Director of or consultant to the Company who purchased
his or her shares pursuant to a written compensatory plan or contract is
entitled, absent contractual restrictions on transfer, to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell their Rule 701
shares without having to comply with the Public information, holding period,
volume limitation or notice provisions of Rule 144 and which permits affiliates
to sell their rule 701 shares without having to comply with Rule 144's holding
period restrictions, in each case commencing 90 days after February 14, 1994.
The Company has granted registration rights to certain of its stockholders. See
"--Registration Rights."
LOCK-UP AGREEMENTS
The Selling Securityholders appearing with an asterisk before their name in the
list under the caption "Selling Securityholders" have agreed pursuant to certain
agreements not to offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, 25% of the shares
of Common Stock issuable upon the conversion of their shares of Series B'
Preferred Stock and the exercise of their Class C Warrants without the prior
written consent of Paramount Capital, Inc. Such restrictions apply through
November 29, 1996.
With respect to the shares of Common Stock issued (and issuable) to Lexin (or
certain of its specified designees), Lexin has agreed (and any of its specified
designees are required to agree) pursuant to certain agreements, not to offer,
pledge, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock held by it (or
them) and issued in connection with the Lexin Purchase, without the prior
written consent of the Company until April 16, 1997. Further resale
restrictions apply for a period of nine months after any registration of the
such shares of Common Stock pursuant to certain demand registration rights
granted to Lexin and certain of its specified designees. See "--Registration
Rights." Such resale restrictions apply to (i) 75% of such shares until three
months after such registration, (ii) 50% of such shares until six months after
such registration and (iii) 25% of such shares until nine months after such
registration.
38
<PAGE>
REGISTRATION RIGHTS
In connection with the Lexin Purchase, Lexin and certain of its specified
designees have been granted certain demand registration rights in respect of the
two million shares of Common Stock issued to the Lexin's designee. Such rights
require the Company, subject to certain exceptions, to cause a registration
statement on Form S-3, if available, registering such shares for resale to be
filed with the SEC no later than ninety days prior to the expiration of the
lock-up period applicable to such shares. In connection with the such rights,
the Company has undertaken to use its reasonable efforts to cause any such
registration statement to be declared effective. See "--Lock-Up Agreements" and
"Certain Transactions."
39
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth (i) the name of each Selling Securityholder,
(ii) the number of shares of Common Stock owned, whether outstanding or
issuable, by such holder before the Offering (not including fractional shares
for which due Company will pay cash), (iii) the percentage of Common Stock owned
by each Selling Securityholder, (iv) the number of shares of Common Stock which
may be offered by each Selling Securityholder and (v) the number of Class C
Warrants that may be offered by each Selling Securityholder. The number of
shares of Common Stock set forth below under the caption "Number of Shares of
Common Stock which may be Offered" represents the aggregate number of shares of
(a) Common Stock owned by each Selling Stockholder, (b) Common Stock issuable
upon conversion of the Series B' Preferred Stock owned by each Selling
Securityholder, (c) Common Stock issuable upon exercise of the Class C Warrants
and (d) Common Stock issuable upon exercise of the UPO's. With respect to
Selling Securityholders identified with a double asterisk the number of shares
of Common Stock set forth below under the caption "Number of Shares of Common
Stock which may be Offered" represents the aggregate number of shares of (a)
Common Stock issuable upon the conversion of the Series B' Preferred Stock
issuable upon the exercise of the Preferred Stock Warrants and (b) Common Stock
issuable upon the exercise of the Common Stock Warrants.
The following table sets forth the beneficial ownership of securities of
the Company by the Selling Securityholders as of the date of this Prospectus.
Number
of
Number of Class C
shares of Number of Warrants
Common Shares of Owned
Stock owned Common Stock Prior
Name of Selling prior to the % of Common which may be to the
Securityholder offering(1) Stock Owned offered(2) Offering
- -------------- ------------ ----------- ------------ --------
*Ross David Ain 17,772 .070% 13,329 8,886
*Vito R. Capotorto 44,440 .176% 33,330 22,220
*Stephen & Linda Ciaccio
JTWROS 44,440 .176% 33,330 22,220
*Robert J. Conrads 88,880 .351% 66,660 44,440
*Robert B. Daly & Marietta
Daly JTWROS 44,440 .176% 33,330 22,220
*Delaware Charter Guarantee & 44,440 .176% 33,330 22,220
Trust Co.
C/F Anthony G. Polak IRA
*Domaco Venture Capital Fund 44,440 .176% 33,330 22,220
*Isaac R. Dweck 133,320 .527% 99,990 66,660
*Richard Elkin 44,440 .176% 33,330 22,220
*Fahnestock & Co., Inc. 44,440 .176% 33,330 22,220
C/F Ronald M. Lazar IRA
*S. Edmond Farber 44,440 .176% 33,330 22,220
40
<PAGE>
*Clara Glory & George Glory
JTWROS 44,440 .176% 33,330 22,220
*Robert P. Gordon 71,106 .281% 53,330 35,553
*Stanley Gottlieb & Elaine
Gottlieb JTWROS 44,440 .176% 33,330 22,220
*Fred Kassner 88,880 .351% 66,660 44,440
*Edward Justin Kelly 44,440 .176% 33,330 22,220
*Donald R. Kendall, Jr. & Diane
S. Kendall
JTWROS 26,652 .105% 19,989 13,326
*Susan Tauber Lemor 88,880 .351% 66,660 44,440
*Phil Lifschitz 88,880 .351% 66,660 44,440
*The Lincoln Fund Tax
Advantaged, L.P. 88,880 .351% 66,660 44,440
*Harris R. L. Lydon 44,440 .176% 33,330 22,220
*Paulette Tauber Mintz 88,880 .351% 66,660 44,440
*Nikki Establishment for Fashion
& Marketing Research 177,772 .702% 133,329 88,886
*Palmetto Partners, Ltd. 151,106 .597% 113,329 75,553
*Richard H. Pollak 44,440 .176% 33,330 22,220
*RHL Associates, L.P. 88,880 .351% 66,660 44,440
*J.F. Shea Co., Inc., as Nominee
1996-5 177,772 .702% 133,329 88,886
*Andrew W. Schonzeit 44,440 .176% 33,330 22,220
*Steven A. Sherman 26,652 .105% 19,989 13,326
*Michael Siciliano 44,440 .176% 33,330 22,220
*Martin Sirotkin 88,880 .351% 66,660 44,440
*Alan & Esti Stahler JTWROS 142,212 .562% 106,659 71,106
*Gary J. Strauss 44,440 .176% 33,330 22,220
*Hindy H. Taub 44,440 .176% 33,330 22,220
*Irwin Tauber 88,880 .351% 66,660 44,440
*Venturetek, L.P. 266,652 1.053% 199,989 133,326
*Aaron Wolfson 177,772 .702% 133,329 88,886
41
<PAGE>
*Abraham Wolfson 177,772 .702% 133,329 88,886
*Morris Wolfson Family Limited
Partnership 133,320 .527% 99,990 66,660
*Wolfson Equities 533,320 2.107% 399,990 266,660
*Kenton E. Wood 44,440 .176% 33,330 22,220
*Jonathan M. Young & Lyudmila
Young JTWROS 44,440 .176% 33,330 22,220
*The Hope Investment Co., Inc. 177,772 .702% 133,329 88,886
*Keys Foundation 177,772 .702% 133,329 88,886
*Tis Prager 88,880 .351% 66,660 44,440
*The Bridge Fund N.V. 133,320 .527% 99,990 66,660
*David C. Hale 88,880 .351% 66,660 44,440
*Kalman Renov and Ruki D.
Renov JTWROS 142,212 .562% 106,659 71,106
*Swan Alley (Nominees) Limited 88,880 .351% 66,660 44,440
*Windsor Produce Inc. 44,440 .176% 33,330 22,220
*Jonathan Rothschild 44,440 .176% 33,330 22,220
*GHA Management Corporation 88,880 .351% 66,660 44,440
*RL Capital Partners 44,440 .176% 33,330 22,220
*Marion Talansky 177,772 .702% 133,329 88,886
*Lillian Tauber 88,880 .351% 66,660 44,440
*Martin Tauber 88,880 .351% 66,660 44,440
Ronald S. Baruch 53,332 .211% 53,332 26,666
David J. Bershad 133,332 .527% 133,332 66,666
Atrix Ventana Investment and
Company, Limited Partnership 487,640 1.926% 487,640 243,820
Seymour Buehler 33,332 .132% 33,332 16,666
Richard B. Chanin 33,332 .132% 33,332 16,666
Chesed Congregations of
America 266,666 1.053% 266,666 133,333
Morris J. Kramer, Trustee, U/A
Donald G. Drapkin, Dtd. 11/20/87
F/B/O Matthew Adam Drapkin 55,554 .219% 55,554 27,777
42
<PAGE>
Morris J. Kramer, Trustee, U/A
Donald G. Drapkin, Dtd. 11/20/87
F/B/O Dana Gabrielle Drapkin 55,554 .219% 55,555 27,777
Morris J. Kramer, Trustee, U/A
Donald G. Drapkin, Dtd. 11/20/87
F/B/O Nicole Michele Drapkin 55,554 .219% 55,555 27,777
Morris J. Kramer, Trustee, U/A
Donald G. Drapkin, Dtd. 11/20/87
F/B/O Dustin Joseph Drapkin 55,554 .219% 55,555 27,777
Morris J. Kramer, Trustee U/A
Donald G. Drapkin, Dtd. 10/25/88
F/B/O David Guy Drapkin 55,554 .219% 55,555 27,777
Morris J. Kramer, Trustee U/A
Donald G. Drapkin, Dtd. 7/10/92
F/B/O Amanda Paige Drapkin. 55,562 .222% 55,562 27,781
Nathan Eisen & Rose Eisen 66,666 .263% 66,666 33,333
Colony Partners 133,332 .527% 133,332 66,666
Jerome Fisch 33,332 .132% 33,332 16,666
Morris Friedman 33,332 .132% 33,332 16,666
Gilbert Goldstein, Paul Shapiro
Trust 333,332 1.317% 333,332 166,666
Jackson Hole Acquisitions
Investmetn L.P. 133,332 .527% 133,332 66,666
Robert Klein, M.D. & Myriam
Gluck, M.D. 133,332 .527% 133,332 66,666
Benjamin Lehrer 33,332 .132% 33,332 16,666
Frank J. Lincoln, Jr. 66,666 .263% 66,666 33,333
Gene T. Mancinelli 133,332 .527% 133,332 66,666
Marathon Agents Profit Sharing 33,332 .132% 33,332 16,666
Michael Marcus 266,666 1.053% 266,666 133,333
John P. McNiff 133,332 .527% 133,332 66,666
Josef Mermelstein 66,666 .263% 66,666 33,333
Richard Molinsky 33,332 .132% 33,332 16,666
MSI Investments Ltd. 66,666 .263% 66,666 33,333
Ruth Peyser 33,332 .132% 33,332 16,666
43
<PAGE>
Bruce Pomper IRA 400,000 1.580% 400,000 200,000
David W. Ruttenberg 33,332 .132% 33,332 16,666
Robin Schlaff 33,332 .132% 33,332 16,666
Andrew W. Schonzeit 66,666 .263% 66,666 33,333
E. Donald Shapiro 33,332 .132% 33,332 16,666
Aaron Speisman 33,332 .132% 33,332 16,666
Herbert Stein and Elaine Stein
JTWROS 33,332 .132% 33,332 16,666
Hindy H. Taub 66,666 .263% 66,666 33,333
Ventana Growth Capital Fund
V.L.P. 112,360 .444% 112,360 56,180
Vivaldi Ltd. 333,332 1.317% 333,332 166,666
Melvyn I. Weiss 133,332 .527% 133,332 66,666
Alan Wise & Teri Wise JTWROS 33,332 .132% 33,332 16,666
Richard B. Stone 133,332 .527% 133,332 66,666
Heracles Fund 133,332 .527% 133,332 66,666
Bruce Slovin 133,332 .527% 133,332 66,666
Larich Associates 100,000 .395% 100,000 50,000
Patrick M. Kane 66,666 .263% 66,666 33,333
Benjamin Bollag 133,332 .527% 133,332 66,666
Brynde Berkowitz 66,666 .263% 66,666 33,333
Thomas L. Cassidy IRA 66,666 .263% 66,666 33,333
Raul Obregon & Cecilia
Obregon, JTWROS 66,666 .263% 66,666 33,333
Roberto Gonzalez 66,666 .263% 66,666 33,333
Old Oly, J.V. 66,666 .263% 66,666 33,333
Myron M. Teitelbaum, M.D. 66,666 .263% 66,666 33,333
Wayne Suker 66,666 .263% 66,666 33,333
Jay Kestenbaum 66,666 .263% 66,666 33,333
The 1992 Houston
Partnership, L.P. 66,666 .263% 66,666 33,333
J. Philip Rosen 66,666 .263% 66,666 33,333
44
<PAGE>
Michael Cantor 66,666 .263% 66,666 33,333
Roy Schaeffer & Marlena
Schaeffer 66,666 .263% 66,666 33,333
Arnold R. Meyer, Trustee of
Arnold r. Meyer Estate Trust 66,666 .263% 66,666 33,333
Amnon & Caren Barness, JT.
Wros 66,666 .263% 66,666 33,333
MDBC Capital Corp. 66,666 .263% 66,666 33,333
Joel Wolff 66,666 .263% 66,666 33,333
Steven Ostrovsky 66,666 .263% 66,666 33,333
Dr. Martin Goldman 66,666 .263% 66,666 33,333
Albert Milstein 66,666 .263% 66,666 33,333
Roslyn Bloom 33,332 .132% 33,332 16,666
Dr. Edward L. Steinberg 33,332 .132% 33,332 16,666
J.R.K. Financial Corp. 33,332 .132% 33,332 16,666
Bernard Cohen 33,332 .132% 33,332 16,666
Jonathan E. Rothschild 33,332 .132% 33,332 16,666
Roberto Segovia 33,332 .132% 33,332 16,666
Chiam Kohanchi 33,332 .132% 33,332 16,666
Michael & Nicole Kubin 33,332 .132% 33,332 16,666
Alexander & Sharon Roitstein 33,332 .132% 33,332 16,666
Peter S. Folino 33,332 .132% 33,332 16,666
Herbert Hoffner 33,332 .132% 33,332 16,666
Sandra Maria Sanchez
Guadarrama 33,332 .132% 33,332 16,666
Laura C. Gold 33,332 .132% 33,332 16,666
Burton P. Hoffner 33,332 .132% 33,332 16,666
Jim Spencer 16,666 .066% 16,666 8,333
Elke R. DeRamirez 13,332 .053% 13,332 6,666
Armen Partners, L.P. 333,332 1.317% 333,332 166,666
Bruce Pomper 266,666 1.053% 266,666 133,333
Alexander Pomper 266,666 1.053% 266,666 133,333
45
<PAGE>
Sidney Todres 133,332 .527% 133,332 66,666
Mova Investments Limited 133,332 .527% 133,332 66,666
Ted Koutsoubos 133,332 .527% 133,332 66,666
F&T Planning Centers, Inc. 66,666 .263% 66,666 33,333
Frank Alliots 33,332 .132% 33,332 16,666
Geun-Eun Kim 33,332 .132% 33,332 16,666
Joseph A. Umbach 66,666 .263% 66,666 33,333
Cinco de Mayo, Ltd. 66,666 .263% 66,666 33,333
Adams, Leonard J. 66,666 .263% 66,666 33,333
Albanese, Sal and Lorraine 46,666 0.184% 46,666 23,333
Ashline Ltd. 666,666 2.633% 666,666 333,333
Belldegrun, Arie Dr. 133,332 .527% 133,332 66,666
Batkin, Alan R. 66,666 .263% 66,666 33,333
Bollag, Michael 133,332 0.527% 133,332 66,666
The Gifford fund 333,332 1.317% 333,332 166,666
G.P.S. Fund Limited 66,666 0.263% 66,666 33,333
Carlos Plancarte G.N., Leonor
P. de Marvan, JTWROS 33,332 0.132% 33,332 16,666
Chopp, Martin 100,000 0.395% 100,000 50,000
Concordia Partners L.P. 333,332 1.317% 333,332 166,666
Coney Financial Services 133,332 0.527% 133,332 66,666
Demeulemeester Weitnauer 66,666 .263% 66,666 33,333
Diversified Fund, Ltd. 266,666 1.053% 266,666 133,333
Scoggin Capital Mgnt L.P. 200,000 0.790% 200,000 100,000
Wang, Emily 33,332 0.132% 33,332 16,666
The Holding Company 66,666 0.263% 66,666 33,333
Leland Corporation 33,332 0.132% 33,332 16,666
Grossman, Peter 33,332 0.132% 33,332 16,666
Gruber, Stuart 66,666 0.263% 66,666 33,333
Halevah, Elyse & Erez 33,332 0.132% 33,332 16,666
46
<PAGE>
Hecht, Thomas O. 33,332 0.132% 33,332 16,666
Hirschfield, Jack 16,666 0.066% 16,666 8,333
Jamison, John R. 20,000 0.079% 20,000 10,000
Kash, Peter and Donna, JTWROS 66,666 0.263% 66,666 33,333
AMRAM KASS
P.C. Defined Benefit Pension
Plan 100,000 0.395% 100,000 50,000
Special Equity 133,332 .527% 133,332 66,666
Koffman, Steven 33,332 0.132% 33,332 16,666
Kracoff, David and Reva 33,332 0.132% 33,332 16,666
Needham Capital Group, PLC 33,332 0.132% 33,332 16,666
Lash, Nathaniel & Millicent C.
Lash Rev. Trust 33,332 0.132% 33,332 16,666
Lash, Roger S. 33,332 0.132% 33,332 16,666
Lemer, Albert 33,332 0.132% 33,332 16,666
Loeb, John L., Jr. 33,332 0.132% 33,332 16,666
Markman, Melvin 66,666 0.263% 66,666 33,333
McNiff, John P. 66,666 0.263% 66,666 33,333
Nebenzahl, Mechie 26,666 .105% 26,666 13,333
Neis, Robert 33,332 0.132% 33,332 16,666
Newman, Kevin P. 33,332 0.132% 33,332 16,666
Oberrotman, Alain 33,332 0.132% 33,332 16,666
Oliveira, Steven M. and
Bernadette JTWROS 133,332 0.527% 133,332 66,666
Ostrovsky, Paul D. and Rebecca L. 33,332 0.132% 33,332 16,666
Pignatiello, Connie C. 13,332 0.053% 13,332 6,666
Plymouth Partners, L.P. 333,332 1.317% 333,332 166,666
The Zabludowicz Trust 133,332 0.527% 133,332 66,666
EDJ Limited 133,332 0.527% 133,332 66,666
Porter Partners, L.P. 266,666 1.053% 266,666 133,333
Propp & Company Inc. 33,332 0.132% 33,332 16,666
Kenton E. Wood 33,332 0.132% 33,332 16,666
47
<PAGE>
Rick Steiner Productions, Inc. 33,332 0.132% 33,332 16,666
Robert E. Spivak Retirement
Plan 33,332 0.132% 33,332 16,666
Robinson, Linda Gosden 66,666 0.263% 66,666 33,333
M.D. Sabbah 400,000 1.580% 400,000 200,000
Schwendiman Global Sector
Fund L.P. 100,000 0.395% 100,000 50,000
Silverman, Eugene 16,666 0.066% 16,666 8,333
Spindel, Neil and Laurie 66,666 0.263% 66,666 33,333
Stuart, Bruce 133,332 0.527% 133,332 66,666
The A.M. Group, L.L.C. 66,666 0.263% 66,666 33,333
Ventana Growth Capital Fund
V, LP 18,732 0.074% 18,732 9,366
Venture Enterprises, Inc. 33,332 0.132% 33,332 16,666
Whetten, Robert J. 133,332 0.527% 133,332 66,666
Williams, Esther 133,332 0.527% 133,332 66,666
Winans, Tim 33,332 0.132% 33,332 16,666
Zapco Holdings, Inc. Deferred
Compensation Plan Trust 133,332 0.527% 133,332 66,666
Zeff, Kal 266,666 1.053% 266,666 133,333
Hooker, Kingsley 30,000 0.119% 30,000 15,000
My Seven Children, Inc. 33,332 0.132% 33,332 16,666
Atrix-Ventana Investment
& Co., LP 47,946 0.189% 47,946 23,973
126736 Canada, Inc. 1,400,000 5.530% 1,400,000 700,000
Berg, Mark 166,666 .658% 166,666 83,333
Churchpark Finance, Ltd. 133,332 0.527% 133,332 66,666
Cerrone, Gabriel M. 33,332 0.132% 33,332 16,666
Hanover Associates, LLC 100,000 .395% 100,000 50,000
Michael Garnick 133,332 0.527% 133,332 66,666
Jerry B. Hook, Ph.D. 133,332 0.527% 133,332 66,666
Dr. William McCulloch 66,666 0.263% 66,666 33,333
48
<PAGE>
Ronald H. Spair 66,666 0.263% 66,666 33,333
Annie Thomas (3) 18,745 .074% 18,745 0
Christopher Plunkett (3) 6,458 .026% 6,458 0
Thomas J. Yessman (3) 40,557 .160% 40,557 0
Kimberly Braswell (3) 7,753 .031% 7,753 0
Richard Feldman (3) 12,935 .051% 12,935 0
Brian Hagerman (3) 25,851 .102% 25,851 0
John Matthews (3) 25,851 .102% 25,851 0
Quentin Moses (3) 25,851 .102% 25,851 0
Michael Mindlin (3) 48,482 .191% 48,482 0
Americorp Financial
Services, Inc. (3) 123,616 .488% 123,616 0
Americorp Securities, Inc. (3) 25,851 .102% 25,851 0
L.T. Lawrence (3) 57,150 0.226% 57,150 0
Yale University (4) 23,209 0.092% 23,209 0
**Lindsay A. Rosenwald 1,070,236 4.226% 1,070,236 0
**Michael S. Weiss 152,604 .602% 152,604 0
**Wayne L. Rubin 147,604 .583% 147,604 0
**Joseph Edelman 28,274 .112% 28,274 0
**David Walner 15,818 .062% 15,818 0
**Lauren Youner 3,334 .013% 3,334 0
Joseph Merback 18,000 .071% 18,000 0
**Blair Foster & Co. 4,500 .018% 4,500 0
**D.H. Blair & Co. 77,500 .306% 77,500 0
**Joseph Fabiani 1,000 .004% 1,000 0
**Propp & Company 666 .003% 666 0
**Deborah Soloman 6,666 .026% 6,666 0
**A. Joseph Rudick, Jr. 5,834 .023% 5,834 0
**Mark Abeshouse 32,166 .127% 32,166 0
**Bernard Gross 64,528 .255% 64,528 0
49
<PAGE>
**Jeffrey Levine 35,000 .138% 35,000 0
**Stephen McDermott 44,000 .174% 44,000 0
**Tim McInerney 136,626 .540% 136,626 0
**Karl Ruggeberg 25,866 .102% 25,866 0
**Scott Katzmann 78,766 .311% 78,766 0
**Peter M. Kash 244,346 .964% 244,346 0
**Martin Kratchman 67,000 .265% 67,000 0
**Dian Griesel 1,666 .006% 1,666 0
Total 25,323,853 23,990,523 11,309,722
(1) Represents the shares of Common Stock (i) issuable upon the conversion of
the Class B Preferred Stock and (ii) issuable upon the exercise of the
Class C Warrants.
(2) With respect to each Selling Securityholder identified with an asterisk in
the table, the number of shares listed excludes shares of Common Stock
which are subject to a lock-up agreement until November 29, 1996. After
such date, all remaining shares are eligible for immediate resale.
(3) Represents shares of Common Stock issuable upon the exercise of the UPO's.
(4) Represents shares of Common Stock held by Yale University.
* The number of shares of Common Stock does not include fractional shares for
which the Company will issue cash upon the conversion of the Series B'
Preferred Stock.
Each Selling Securityholder will be entitled to receive all of the proceeds from
the future sale of his, her or its respective shares of Common Stock. Except
for the costs of including such shares of Common Stock within the registration
statement of which this Prospectus forms a part, which costs are borne by the
Company, the Selling Securityholders will bear all expenses of any offering by
them of their Underlying Common, including the costs of their counsel and any
sales commissions incurred.
Except as noted below, none of the Selling Securityholders named in the
preceding table have had any position, office or other material relationship
with the Company or any of its predecessors or affiliates. Paramount Capital,
Inc. was the placement agent for the Series A Convertible Preferred Stock and
the Series B' Convertible Preferred Stock offerings. The following Selling
Securityholders are registered representatives and/or employees of Paramount
Capital, Inc.: Lindsay A. Rosenwald (sole shareholder of Paramount Capital,
Inc.), Michael S. Weiss, Wayne L. Rubin, Joseph Edelman, David Walner, Lauren
Youner, Joseph Fabiani, Deborah Soloman, A. Joseph Rudick, Jr.,Bernard Gross,
Jeffrey Levine, Stephen McDermott, Tim McInerney, Karl Ruggeberg, Scott
Katzmann, Peter M. Kash, Martin Kratchman, Dian Griesel and Mark Abeshouse.
Jerry B. Hook, Ph.D. is the President and Chief Executive Officer of the
Company. Dr. William McCulloch is Senior Vice President, Research and
Development of the Company. Ronald H. Spair is Vice President, Chief Financial
Officer and Secretary of the Company. Americorp Securities, Inc. and L.T.
Lawrence were the underwriters of the Company's initial public offering. The
following persons are employed by Americorp Securities, Inc.: Angnie Thomas,
Christopher Plunkett, Thomas J. Yessman, Kimberly Braswell, Richard Feldman,
Brian Hagerman, John Matthews, Quentin Moses and Michael Mindlin. Yale is the
licensor of certain of the Company's technology.
The Selling Securityholders may sell the shares of Common Stock at any time on
or after the date hereof, subject to certain lock-up provisions applicable to
the Selling Securityholders identified with an asterisk. See "Shares Eligible
for Future Sale--Lock-up Agreements."
50
<PAGE>
CERTAIN TRANSACTIONS
On August 23, 1996, the Company completed a private placement of 129.65 Units
(each, a "Unit"), each consisting of (a) 10,000 shares of Series B' Preferred
Stock and (b) Class C Warrants to purchase 66,667 shares of common Stock. The
Company paid commissions of $1,166,850 and non-accountable expense allowances of
$518,600 to Paramount Capital, Inc. (the Placement Agent") in connection with
such private placement. In addition, the Company will (i) pay the Placement
Agent a commission of 6% upon the exercise of any Class C Warrant and (ii)
reimburse the Placement Agent for out-of-pocket costs, not to exceed $5,000
incurred in the connection with the solicitation of Class C Warrant exercise or
the redemption of Class C Warrants. See "Use of Proceeds." Lindsay A.
Rosenwald, M.D., a principal stockholder and director of the Company, is the
sole stockholder, Chairman of the Board of Directors and Chief Executive Officer
of the Placement Agent. In addition, the Company issued to the Placement Agent
the Placement Warrants.
On August 23, 1996, the Company made a $100,000 loan to Jerry B. Hook, Ph.D.,
the Company's President and Chief Executive Officer. Proceeds of such loan were
used by Dr. Hook to purchase a Unit. Such loan is evidenced by a promissory
note (copies of such promissory note are herewith attached as Exhibit 10.79).
The maturity date of the loan is July 30, 1999. The loan bears interest at the
rate of 8% per annum. Principal of the loan is payable as follows: thirty-three
thousand three hundred and thirty-three dollars ($33,333.00) of principal on
July 30, 1997, thirty-three thousand three hundred and thirty-three dollars
($33,333.00) of principal on July 30, 1998 and thirty-three thousand three
hundred and thirty-four dollars ($33,334.00) of principal on July 30, 1999. On
each scheduled repayment date, the amount then due (including accrued interest)
will be forgiven by the Company provided that on such date Dr. Hook continues to
be employed by the Company. The outstanding balance of the loan (plus all
accrued interest) will be forgiven in full in the event that one of the
following occurs: (i) the death or disability of Dr. Hook (within the meaning of
Dr. Hook's employment agreement with the Company), (ii) the operations of the
Company are terminated, (iii) the Company is liquidated or (iv) the Company
undergoes a change of control.
On August 23, 1996, the Company made a $50,000 loan to Dr. William McCulloch,
Senior Vice President, Research and Development of the Company. Proceeds of the
loan were used by Dr. McCulloch to purchase one half of one Unit. Such loan is
evidenced by a promissory note (copies of the promissory note are herewith
attached as Exhibit 10.80). The maturity date of the loan is July 30, 1999.
The loan bears interest at the rate of 8% per annum. Principal of the loan
shall be payable as follows: sixteen thousand six hundred and sixty-six dollars
($16,666.00) of principal on July 30, 1997, sixteen thousand six hundred and
sixty-six dollars ($16,666.00) of principal on July 30, 1998 and sixteen
thousand six hundred and sixty-eight dollars ($16,668.00) of principal on July
30, 1999. On each scheduled repayment date, the amount then due (including
accrued interest) will be forgiven by the Company provided that on such date Dr.
McCulloch continues to be employed by the Company. The outstanding balance of
the loan (plus all accrued interest) will be forgiven in full in the event that
one of the following occurs: (i) the death or disability of Dr. McCulloch
(within the meaning of Dr. McCulloch's employment agreement with the Company),
(ii) the operations of the Company are terminated, (iii) the Company is
liquidated or (iv) the Company undergoes a change of control.
On August 23, 1996, the Company made a $50,000 loan to Ronald H. Spair, Vice
President and Chief Financial Officer Company. Proceeds of the loan were used
by Mr. Spair to purchase one half of one Unit. Such loan is evidenced by a
promissory note (copies of the promissory note are herewith attached as Exhibit
10.81). The maturity date of the loan is July 30, 1999. The loan bears
interest at the rate of 8% per annum. Principal of the loan shall be payable as
follows: sixteen thousand six hundred and sixty-six dollars ($16,666.00) of
principal on July 30, 1997, sixteen thousand six hundred and sixty-six dollars
($16,666.00) of principal on July 30, 1998 and sixteen thousand six hundred and
sixty-eight dollars ($16,668.00) of principal on July 30, 1999. On each
scheduled repayment date, the amount then due (including accrued interest) will
be forgiven by the Company provided that on such date Mr. Spair continues to be
employed by the Company. The outstanding balance of the loan (plus all accrued
interest) will be forgiven in full in the event that one of the following
occurs: (i) the death or disability of Mr. Spair (ii) the operations of the
Company are terminated, (iii) the Company is liquidated or (iv) the Company
undergoes a change of control.
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On March 15, 1996, the Company acquired the assets and business of Lexin for up
to 2,600,000 shares of the Common Stock. The acquisition was subject to
certain post-closing conditions which have been satisfied. The Company issued
2,000,000 shares of the Company's Common Stock on the date of acquisition to
Lexin stockholders. The payment of up to an additional 600,000 shares of the
Company's Common Stock was contingent upon the attainment of certain
post-closing milestones which were not met. Therefore, the total number of
shares of the Company's Common Stock issues in connection with the acquisition
of the assets and business of Lexin was 2,000,000
On February 29, 1996, the Company completed a private placement of $3,000,000 of
Series A Convertible Preferred Stock. The Company paid commissions of $300,000
and non-accountable expense allowances of $90,000 to the Placement Agent
(Lindsay A. Rosenwald, M.D., a principal stockholder and director of the
Company, is the sole stockholder, Chairman of the Board of Directors and Chief
Executive Officer of the Placement Agent). In addition, the Company issued to
the Placement Agent a warrant to purchase 30,000 shares of Series A Preferred
Stock, $.001 par value per share, for an aggregate purchase price of $375,000.
See "Principal Stockholders" and "Shares Eligible for Future Sale."
In February, 1996, the Company engaged Paramount Capital, Inc. ("Paramount") as
a non-exclusive financial advisor to the Company. The initial term of the
agreement (the "Agreement") is for twenty-four months (the "Term"), renewable
for consecutive six months periods upon the execution of a written Agreement by
both parties. The Company may terminate the Agreement in the event that
Paramount breaches its confidentiality obligations under the Agreement. In its
role as financial advisor, Paramount will maintain its familiarity with the
business, operations, properties, financial conditions, prospects and management
of the Company and assist the Company in: (a) identifying prospective strategic
partners, acquirors and/or investors; (b) evaluating offers received from
prospective partners, acquirors and/or investors; and (c) conducting
discussions and negotiations leading toward the consummation of a strategic
partnership, merger or an investment. Pursuant to the Agreement, Company will
pay Paramount a non refundable retainer fee of $3,000 per month for twenty-four
months. During the term of the Agreement, or during the twelve-month period
following the expiration or earlier termination of the Agreement, upon the
closing of each Investment (as defined below), the Company shall pay to
Paramount a fee in an amount equal to 9% of the aggregate value of such
Investment and shall issue to Paramount warrants to purchase an amount of
securities equal to 10% of the securities sold as part of such Investment at an
exercise price of 110% of the price of such securities, exercisable until five
years from the date of issuance of such warrants. For the purpose of this
Agreement, an Investment shall be any purchase of securities of the Company from
the Company (other than "firm commitment" or "best efforts" underwriting,
contemplated by the Letter of Intent dated January 10, 1996 between the Company
and Paramount) which is made during the Term or during the twelve-month period
following the expiration of the Term by an investor first introduced to the
Company by or through Paramount during or prior to the Term.
On June 30, 1995, the Company and an underwriter for the Company's initial
public offering entered into a financial advisory agreement with a one-year
term. Under the terms of the agreement, the Company recognized a financial
advisory fee expense of $150,000 in 1995 and $150,000 over the first six months
of 1996.
PLAN OF DISTRIBUTION
Sales of shares of Common Stock by Selling Securityholders may be effected from
time to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the shares of Common
Stock directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the shares of Common Stock for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in connection with
the sale of the shares of Common Stock as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
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commission received by them and any profit on the resale of such securities as
principals might be deemed to be underwriting discounts and commissions under
the Act. The Selling Securityholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of such
securities certain liabilities, including liabilities arising under the
Securities Act. The Company will not receive any proceeds from the sales of the
shares of Common Stock by the Selling Securityholders. The Company will pay
the Placement Agent a commission of 6% upon the exercise of any Class C Warrant.
In addition, any out-of-pocket costs, not to exceed $5,000 incurred by the
Placement Agent in the connection with the solicitation of Class C Warrant
exercise or the redemption of Class C Warrants, shall be borne by the Company.
See "Use of Proceeds." Sales of shares of Common Stock by the Selling
Securityholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the Class C Warrants and Common Stock.
At the time a particular offer of shares of Common Stock is made, except as
herein contemplated, by or on behalf of the Selling Securityholder, to the
extent required, a Prospectus will be distributed which will set forth the
number of shares of Common Stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, if any, the
purchase price paid by any underwriter for shares purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
Under the Exchange Act, and the regulations thereunder, any person engaged in a
distribution of the securities of the Company offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling-off" period (two or
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitations, Rules 10b-6 and 10b-7, in connection
with transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Selling Securityholders.
With respect to the Selling Securityholders who are original holders of the
Class C Warrants, the issuance of shares of Common Stock to such holders upon
the exercise of their Class C Warrants shall be pursuant to an available
exemption from the registration requirements of the Act. Accordingly, until the
effectiveness of the registration statement of which this Prospectus forms a
part, any shares of Commons Stock issued to such original holders of Class C
Warrants upon the exercise of such Class C Warrants shall bear a restrictive
legend with regard to limitations on transferability pursuant to the Securities
Act. From and after the effectiveness of the registration statement of which
this Prospectus forms a part, any shares of Common Stock issued to such original
holders of Class C Warrants upon the exercise of such Class C Warrants shall
continue to be issued pursuant to an available exemption from the registration
requirements of the Securities Act, but shall be eligible for resale by such
holders pursuant to an effective registration statements and, as a result, will
not be required to bear such a restrictive legend.
LEGAL MATTERS
The validity of the Common Stock and the Class C warrants offered hereby will be
passed upon for the Company by Roberts, Sheridan & Kotel, a Professional
Corporation, New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1995, and 1994, and for
each of the three years in the period ended December 31, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern mentioned in Note 1 to the Financial Statement appearing elsewhere
herein), and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Lexin as of June 30, 1994 and 1995, for the years
ended June 30, 1993, 1994 and 1995, and for the period from inception February
23, 1989 to June 30, 1995, included in this Prospectus and Registration
Statement
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have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said report which includes an explanatory paragraph
regarding the uncertainty of Lexin's ability to continue as a going concern.
CHANGE IN PUBLIC ACCOUNTANTS
The Board of Directors of the Company retained Arthur Andersen LLP as its
independent public accountants and discontinued Ernst & Young LLP. Ernst &
Young LLP was retained by the Company since its inception. Ernst & Young LLP
reports did not contain adverse opinions or disclaimer opinions and were not
qualified as to audit scope, or accounting principles. Ernst & Young LLP's
report for the year ended December 31, 1995 was qualified regarding the
uncertainty of the Company's ability to continue as a going concern. There
were no disagreements with Ernst & Young LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures at the time of the change which if not resolved to Ernst & Young
LLP's satisfaction, would have caused them to make reference to subject matter
of the disagreement in connection with their report. Prior to retaining Arthur
Andersen LLP the Company did not consult with Arthur Andersen LLP regarding
accounting principles.
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