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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2000
REGISTRATION NO. 333-32256
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO THE
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GERON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 75-2287752
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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230 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 473-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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THOMAS B. OKARMA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GERON CORPORATION
230 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 473-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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GREGORY C. SMITH GERALD S. TANENBAUM
CELESTE E. GREENE CAHILL GORDON & REINDEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 80 PINE STREET
525 UNIVERSITY AVENUE, SUITE 220 NEW YORK, NEW YORK 10005
PALO ALTO, CALIFORNIA 94301 (212) 701-3000
(650) 470-4500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION
DATED APRIL 7, 2000
3,000,000 Shares
LOGO
GERON CORPORATION
Common Stock
Geron Corporation is offering all of the shares of common stock in this
offering.
Our common stock is listed on the Nasdaq National Market under the symbol
"GERN". On March 16, 2000, the last reported sale price of our common stock was
$44.13 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT GERON
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Per Share $ $ $
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Total $ $ $
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We have granted the underwriters the right to purchase up to an additional
450,000 shares of common stock to cover over-allotments.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
SALOMON SMITH BARNEY
, 2000
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You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
TABLE OF CONTENTS
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Prospectus Summary.......................... 1
Risk Factors................................ 4
Forward-Looking Statements.................. 16
Price Range of Common Stock................. 17
Dividend Policy............................. 17
Use of Proceeds............................. 17
Capitalization.............................. 18
Dilution.................................... 19
Selected Consolidated Financial Data........ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 21
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Business.................................... 26
Management.................................. 40
Description of Capital Stock................ 43
Underwriting................................ 46
Legal Matters............................... 47
Experts..................................... 47
Where You Can Find More Information......... 47
Incorporation by Reference.................. 48
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(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. It
is not complete, and does not contain all the information you should consider
before investing in our common stock. To fully understand this offering and its
consequences to you, you should read the entire prospectus carefully, including
the "Risk Factors" and "Forward-Looking Statements" sections, the financial data
and the documents that we incorporate by reference into this prospectus.
GERON CORPORATION
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in
oncology, drug discovery and regenerative medicine. Our product development
programs are based on three patented, independent and synergistic technologies:
telomerase, human pluripotent stem cells and nuclear transfer. Our three
patented technologies give us a competitive edge because each of these
technologies individually and in combination will be necessary to develop and
commercialize our therapeutic products.
Telomeres are structures at the ends of chromosomes that act as a molecular
clock of cellular aging--when telomeres reach a critical short length, the cell
stops dividing and becomes senescent, or old. Telomerase is an enzyme that
restores telomere length and rewinds the molecular clock, thereby extending a
cell's ability to multiply or replicate. By activating telomerase, we seek to
increase the lifespan of normal cells which have prematurely aged in the body to
treat certain chronic diseases. Conversely, by inhibiting telomerase using small
molecules, we hope to kill cancer cells in which telomerase is abnormally turned
on and to diagnose cancer by measuring telomerase activity. We have identified
classes of small molecule compounds that are effective telomerase inhibitors
which are being evaluated by us and our collaborators, Pharmacia & Upjohn and
Kyowa Hakko. As a result of our recent confirmation of telomerase inhibition by
these small molecules in cell culture, both of our collaborators have extended
their funded research collaborations with us.
Human pluripotent stem cells, also known as hPSCs, can develop or differentiate
into all cells and tissues in the body. As such, they are a potential source for
the manufacture of replacement cells and tissues for applications in
regenerative medicine such as chronic liver, heart and nervous system diseases.
Nuclear transfer is a method for generating human cells or whole animals from
genetic material derived solely from the nucleus of a single cell obtained from
a single individual. In early 1997, scientists at the Roslin Institute in
Scotland demonstrated with the birth of Dolly, the sheep, that the nucleus of an
adult cell can be used to create cloned offspring. In this process, the nucleus
containing all of the chromosomal DNA is removed, or enucleated, from the egg
cell and replaced with the nucleus containing all of the chromosomal DNA from a
donor adult somatic or non-reproductive cell. We intend to develop this
technology to produce genetically-matched cells for use in repairing organs
damaged by chronic degenerative disease that would not be rejected by the
patient's immune system.
By integrating our three technology platforms: extension of the replicative
capacity of cells with telomerase, production of unlimited numbers of functional
cells and tissues from hPSCs and development of genetically-matched cells using
nuclear transfer, it may be possible to generate transplantable cells or tissues
that would form a durable transplant, potentially lasting the lifetime of the
patient, without the need for immunosuppressive drugs. The implication of such
an achievement would be to make regenerative medicine a reality by providing
organ regeneration therapies to every patient with any chronic degenerative
disease that is treatable with cell or tissue transplantation.
We are developing telomerase inhibitors, cancer killing viruses and telomerase
vaccines as anti-cancer therapies. We are developing telomerase-based assays for
applications in cancer diagnostics. We are also creating immortalized liver
cells as a consistent source of normal human liver tissue for use in predicting
the impact of a new drug on human livers in the body. We are developing
gene-based and cell-based therapies for the treatment of chronic degenerative
diseases.
We have established collaborations and alliances with pharmaceutical companies,
other biotechnology companies and leading academic institutions to enhance our
research, development and commercialization capabilities. Our collaborating
commercial licensees include:
- - Kyowa Hakko, with whom we are developing inhibitors of telomerase for cancer
therapy;
- - Pharmacia & Upjohn, with whom we are developing inhibitors of telomerase for
cancer therapy;
- - Roche Diagnostics, with whom we are developing assays to measure telomerase
for research and clinical diagnostics; and
- - Clontech Laboratories, a Becton Dickinson company, with whom we are marketing
telomerase-immortalized cells for research.
To date, we own or have licensed over 58 issued or allowed United States patents
and more than 17 granted foreign patents. We also own or have licensed over 265
patent applications that are pending worldwide. We hold rights to over 30 issued
United States patents relating to telomerase. We have licensed several United
States and foreign national patent applications
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relating to embryonic stem cells and germ cells and methods for obtaining and
maintaining them. These licenses include an issued United States patent covering
primate embryonic stem cells and allowed United States patent applications
covering human embryonic germ cells. In connection with our acquisition of
Roslin Bio-Med, we acquired a license for a number of United States and foreign
national patent applications directed at nuclear transfer, including two issued
patents in the United Kingdom and one allowed patent in the United States.
We were incorporated in 1990 under the laws of Delaware. Our principal executive
offices are located at 230 Constitution Drive, Menlo Park, California 94025 and
our telephone number is (650) 473-7700. References in this prospectus to "we,"
"us," "our" and "Geron" refer to Geron Corporation and its subsidiaries.
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THE OFFERING
The following information is based on 21,172,220 shares of common stock
outstanding on March 9, 2000. This number excludes 3,014,030 shares of common
stock issuable upon the exercise of stock options outstanding on March 9, 2000,
615,135 shares of common stock issuable upon the conversion of our convertible
debentures outstanding on March 9, 2000 and 582,917 shares of common stock
issuable upon the exercise of our warrants to purchase common stock outstanding
on March 9, 2000. It also excludes an additional 1,285,173 shares of common
stock available for future issuance under our stock option and other employee
benefit plans and assumes no exercise of the underwriters' over-allotment
option.
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COMMON STOCK OFFERED.................................... 3,000,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING....... 24,172,220 shares
OVER-ALLOTMENT OPTION................................... 450,000 shares
USE OF PROCEEDS......................................... We intend to use the net proceeds of this offering for
general corporate purposes, including working capital to
fund anticipated operating losses, expenses and capital
expenditures.
DIVIDEND POLICY......................................... We have not paid cash dividends on our common stock and
have no intention to do so in the foreseeable future.
NASDAQ NATIONAL MARKET SYMBOL........................... "GERN"
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RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.
Any of these risks could materially adversely affect our business, operating
results and financial condition.
RISKS RELATED TO GERON
OUR BUSINESS IS AT AN EARLY STAGE OF DEVELOPMENT AND WE MAY NOT DEVELOP ANY
PRODUCTS THAT REACH CLINICAL TRIALS
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, the study of human pluripotent stem
cells, and the process of nuclear transfer are relatively new areas of research.
Our business is at an early stage of development. We have not yet produced any
products that have progressed to clinical trials and we may never do so. Our
ability to produce products that progress to clinical trials is subject to our
ability to, among other things:
- - continue to have success with our research and development efforts;
- - select therapeutic compounds for development;
- - obtain the required regulatory approvals; and
- - manufacture and market resulting products.
If and when potential lead drug compounds or product candidates are identified
through our research programs, they will require significant preclinical and
clinical testing prior to regulatory approval in the United States and
elsewhere. In addition, we will also need to determine whether any of these
potential products can be manufactured in commercial quantities at an acceptable
cost. Our efforts may not result in a product that can be marketed. Because of
the significant scientific, regulatory and commercial milestones that must be
reached for any of our research programs to be successful, any program may be
abandoned, even after significant resources have been expended.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE FUTURE LOSSES; CONTINUED
LOSSES COULD IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS
We have incurred net operating losses every year since our operations began in
1990. As of December 31, 1999, our accumulated deficit was approximately $104.0
million. Losses have resulted principally from costs incurred in connection with
our research and development activities and from general and administrative
costs associated with our operations. We expect to incur additional operating
losses over the next several years as our research and development efforts and
preclinical testing activities are expanded. Substantially all of our revenues
to date have been research support payments under the collaboration agreements
with Kyowa Hakko and Pharmacia & Upjohn. The agreements provide that through
2001, Kyowa Hakko and Pharmacia & Upjohn will provide additional funding. We may
be unsuccessful in entering into any new corporate collaboration that results in
revenues. Even if we are able to obtain new collaboration arrangements with
third parties the revenues generated from these arrangements will be
insufficient to continue or expand our research activities and otherwise sustain
our operations.
We are unable to estimate at this time the level of revenue to be received from
the sale of diagnostic products, and do not currently expect to receive
significant revenues from the sale of research-use-only kits. Our ability to
continue or expand our research activities and otherwise sustain our operations
is dependent on our ability, alone or with others to, among other things,
manufacture and market therapeutic products.
We may never receive material revenues from product sales or that such revenues,
if any, will be sufficient to continue or expand our research activities and
otherwise sustain our operations.
WE WILL NEED ADDITIONAL CAPITAL TO CONDUCT OUR OPERATIONS AND DEVELOP OUR
PRODUCTS, AND OUR ABILITY TO OBTAIN THE NECESSARY FUNDING IS UNCERTAIN
We will require substantial capital resources in order to conduct our operations
and develop our products. While we estimate that our existing capital resources,
payments under the Kyowa Hakko and Pharmacia & Upjohn collaborative agreements,
interest income and equipment financing will be sufficient to fund our current
level of operations through June 2002, we
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cannot guarantee that this will be the case. The timing and degree of any future
capital requirements will depend on many factors, including:
- - the accuracy of the assumptions underlying our estimates for our capital needs
in 2000 and beyond;
- - continued scientific progress in our research and development programs;
- - the magnitude and scope of our research and development programs;
- - our ability to maintain and establish strategic arrangements for research,
development, clinical testing, manufacturing and marketing;
- - our progress with preclinical and clinical trials;
- - the time and costs involved in obtaining regulatory approvals;
- - the costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims; and
- - the potential for new technologies and products.
We intend to acquire additional funding through strategic collaborations, public
or private equity financings and capital lease transactions. Additional
financing may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, these arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop or commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
research or development programs, each of which could have a material adverse
effect on our business.
OUR INABILITY TO IDENTIFY AN EFFECTIVE INHIBITOR FOR TELOMERASE MAY PREVENT US
FROM DEVELOPING A VIABLE CANCER TREATMENT PRODUCT, WHICH WOULD ADVERSELY IMPACT
OUR FUTURE BUSINESS PROSPECTS
As a result of our drug discovery efforts to date, we have identified compounds
in laboratory studies that demonstrate potential for inhibiting telomerase in
humans. However, additional development efforts will be required before we
select a lead compound for preclinical development and clinical trials as a
telomerase inhibitor for cancer. We will have to conduct additional research
before we can select a compound and we may never identify a compound that will
enable us to fully develop a commercially viable treatment for cancer.
If, and when selected, a lead compound may prove to have undesirable and
unintended side effects or other characteristics affecting its safety or
effectiveness that may prevent or limit its commercial use. In terms of safety,
our discoveries may result in cancer treatment solutions that cause unacceptable
side effects for the human body. Our discoveries may also not be as effective as
is necessary to market a commercially viable product for the treatment of
cancer. As a result, telomerase inhibition may need to be used in conjunction
with other cancer therapies. Accordingly, it may become extremely difficult for
us to proceed with preclinical and clinical development, to obtain regulatory
approval or to market a telomerase inhibitor for the treatment of cancer. If we
abandon our research for cancer treatment for any of these reasons or for other
reasons, our business prospects would be materially and adversely affected.
IF OUR ACCESS TO NECESSARY TISSUE SAMPLES, INFORMATION OR LICENSED TECHNOLOGIES
IS RESTRICTED, WE WILL NOT BE ABLE TO DEVELOP OUR BUSINESS
To continue the research and development of our therapeutic and diagnostic
products, we need access to normal and diseased human and other tissue samples,
other biological materials and related clinical and other information. We
compete with many other companies for these materials and information. We may
not be able to obtain or maintain access to these materials and information on
acceptable terms, if at all. In addition, government regulation in the United
States and foreign countries could result in restricted access to, or
prohibiting the use of, human and other tissue samples. If we lose access to
sufficient numbers or sources of tissue samples, or if tighter restrictions are
imposed on our use of the information generated from tissue samples, our
business will be materially harmed.
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SOME OF OUR COMPETITORS MAY DEVELOP TECHNOLOGIES THAT ARE SUPERIOR TO OR MORE
COST-EFFECTIVE THAN OURS, WHICH MAY IMPACT THE COMMERCIAL VIABILITY OF OUR
TECHNOLOGIES AND WHICH MAY SIGNIFICANTLY DAMAGE OUR ABILITY TO SUSTAIN
OPERATIONS
The pharmaceutical and biotechnology industries are intensely competitive. We
believe that other pharmaceutical and biotechnology companies and research
organizations currently engage in or have in the past engaged in efforts related
to the biological mechanisms of cell aging and cell immortality, including the
study of telomeres, telomerase, human pluripotent stem cells, and nuclear
transfer. In addition, other products and therapies that could compete directly
with the products that we are seeking to develop and market currently exist or
are being developed by pharmaceutical and biopharmaceutical companies and by
academic and other research organizations.
Many companies are also developing alternative therapies to treat cancer and, in
this regard, are competitors of ours. Many of the pharmaceutical companies
developing and marketing these competing products have significantly greater
financial resources and expertise than we do in:
- - research and development;
- - manufacturing;
- - preclinical and clinical testing;
- - obtaining regulatory approvals; and
- - marketing.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing of
products similar to ours. These companies and institutions compete with us in
recruiting and retaining qualified scientific and management personnel as well
as in acquiring technologies complementary to our programs. There is also
competition for access to libraries of compounds to use for screening. Should we
fail to secure and maintain access to sufficiently broad libraries of compounds
for screening potential targets, our business would be materially harmed.
In addition to the above factors, we expect to face competition in the following
areas:
- - product efficacy and safety;
- - the timing and scope of regulatory consents;
- - availability of resources;
- - reimbursement coverage;
- - price; and
- - patent position, including potentially dominant patent positions of others.
As a result of the foregoing, our competitors may develop more effective or more
affordable products, or achieve earlier patent protection or product
commercialization than us. Most significantly, competitive products may render
the products that we develop obsolete.
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THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF OUR RESEARCH USING PLURIPOTENT
STEM CELLS AND NUCLEAR TRANSFER COULD PREVENT US FROM DEVELOPING OR GAINING
ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA
Our programs in regenerative medicine may involve the use of human pluripotent
stem cells that would be derived from human embryonic or fetal tissue. The use
of human pluripotent stem cells gives rise to ethical, legal and social issues
regarding the appropriate use of these cells. In the event that our research
related to human pluripotent stem cells becomes the subject of adverse
commentary or publicity, the market price for our common stock could be
significantly harmed.
Some groups have voiced opposition to our technology and practices. The concepts
of cell regeneration, cell immortality, and genetic cloning have stimulated
significant ethnical debates in both the social and political arenas. We use
hPSCs derived through a process that uses either donated embryos that are no
longer necessary following a successful in vitro fertilization procedure or
donated fetal material as the starting material. Further, many research
institutions, including some of our scientific collaborators, have adopted
policies regarding the ethical use of human embryonic and fetal tissue. These
policies may have the effect of limiting the scope of research conducted using
hPSCs, resulting in reduced scientific progress. In addition, the United States
government and its agencies currently do not fund research which involves the
use of human embryonic tissue and may in the future regulate or otherwise
restrict or prohibit the public or private use of human embryonic or fetal
tissue. Our inability to conduct research using hPSCs due to such factors as
government regulation or otherwise could have a material adverse effect on us.
Finally we acquired Roslin Bio-Med to gain the rights to nuclear transfer
technology. The Roslin Institute produced Dolly the sheep in 1997 -- the first
mammal cloned from an adult cell in history. Geron acquired exclusive rights to
this technology for all areas except human cloning and certain other limited
applications. Although we will not be pursuing human reproductive cloning, all
of the techniques we continue to develop for use in agricultural cloning and our
nuclear transfer work for organ regeneration are directly applicable to human
cloning should some other group in the future decide to pursue this avenue.
Negative associations with any or all of these practices could:
- - harm our ability to establish critical partnerships and collaborations;
- - prompt government regulation of our technologies;
- - cause delays in our research and development; and
- - cause a decrease in the price of our stock.
Also, if regulatory bodies were to ban nuclear transfer processes, our research
using nuclear transfer technology could be cancelled and our business could be
significantly harmed.
PUBLIC ATTITUDES TOWARDS GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL
OR PUBLIC PERCEPTION OF OUR PRODUCTS
The commercial success of our product candidates will depend in part on public
acceptance of the use of gene therapies for the prevention or treatment of human
diseases. Public attitudes may be influenced by claims that gene therapy is
unsafe, and gene therapy may not gain the acceptance of the public or the
medical community. Adverse events in the field of gene therapy that have
occurred or may occur in the future also may result in greater governmental
regulation of our product candidates and potential regulatory delays relating to
the testing or approval of our product candidates.
Negative public reaction to gene therapy in the development of certain of our
therapies could result in greater government regulation, stricter clinical trial
oversight, commercial product labeling requirements of gene therapies and could
cause a decrease in the demand for any products that we may develop. The subject
of genetically modified organisms has received negative publicity in Europe,
which has aroused public debate. The adverse publicity in Europe could lead to
greater regulation and trade restrictions on imports of genetically altered
products. If similar adverse public reaction occurs in the United States,
genetic research and resultant products could be subject to greater domestic
regulation and could cause a decrease in the demand for our potential products.
EVEN IF WE REACH CLINICAL TRIALS WITH ONE OR MORE OF OUR PRODUCTS, THEY MAY NOT
RESULT IN ANY COMMERCIALLY VIABLE PRODUCTS
We do not expect to generate any significant revenues from product sales for a
period of several years. We may never generate revenues from product sales or
become profitable because of a variety of risks inherent in our business,
including risks that:
- - clinical trials may not demonstrate the safety and efficacy of our products;
- - completion of clinical trials may be delayed, or costs of clinical trials may
exceed anticipated amounts;
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- - we may not be able to obtain regulatory approval of our products, or may
experience delays in obtaining such approvals;
- - we may not be able to manufacture our drugs economically on a commercial
scale;
- - we and our licensees may not be able to successfully market our products;
- - physicians may not prescribe our products, or patients may not accept such
products;
- - others may have proprietary rights which prevent us from marketing our
products; and
- - competitors may sell similar, superior or lower-cost products.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS MAY LIMIT OUR ABILITY TO PURSUE
THE DEVELOPMENT OF OUR INTENDED TECHNOLOGIES AND PRODUCTS
Our success will depend on our ability to obtain and enforce patents for our
discoveries; however, legal principles in the United States and in other
countries for biotechnology patents are not firmly established and the extent to
which we will be able to obtain patent coverage is uncertain.
Protection of our proprietary compounds and technology is critically important
to our business. Our success will depend in part on our ability to obtain and
enforce our patents and maintain trade secrets, both in the United States and in
other countries. The patent positions of pharmaceutical and biopharmaceutical
companies, including ours, are highly uncertain and involve complex legal and
technical questions for which legal principles are not firmly established. We
may not continue to develop products or processes that are patentable, and it is
possible that patents will not issue from any of our pending applications,
including allowed patent applications. Further, our current patents, or patents
that issue on pending applications, may be challenged, invalidated or
circumvented, and our current or future patent rights may not provide
proprietary protection or competitive advantages to us. In the event that we are
unsuccessful in obtaining and enforcing patents, our business would be
negatively impacted.
Patent applications in the United States are maintained in secrecy until patents
issue. Publication of discoveries in the scientific or patent literature tends
to lag behind actual discoveries by at least several months and sometimes
several years. Therefore, the persons or entities that we or our licensors name
as inventors in our patents and patent applications may not have been the first
to invent the inventions disclosed in the patent applications or patents, or
file patent applications for these inventions. As a result, we may not be able
to obtain patents from discoveries that we otherwise would consider patentable
and that we consider to be extremely significant to our future success.
Patent prosecution or litigation may also be necessary to obtain patents,
enforce any patents issued or licensed to us or to determine the scope and
validity of our proprietary rights or the proprietary rights of another. We may
not be successful in any patent prosecution or litigation. Patent prosecution
and litigation in general can be extremely expensive and time consuming, even if
the outcome is favorable to us. An adverse outcome in a patent prosecution,
litigation or any other proceeding in a court or patent office could subject our
business to significant liabilities to other parties, require disputed rights to
be licensed from other parties or require us to cease using the disputed
technology.
We may be subject to infringement claims that are costly to defend, and which
may limit our ability to use disputed technologies and prevent us from pursuing
research and development or commercialization of potential products
Our commercial success depends significantly on our ability to operate without
infringing patents and proprietary rights of others. Our technologies may
infringe the patents or proprietary rights of others. In addition, we may become
aware of discoveries and technology controlled by third parties that are
advantageous to our research programs. In the event our technologies do infringe
on the rights of others or we require the use of discoveries and technology
controlled by third parties, we may be prevented from pursuing research,
development or commercialization of potential products or may be required to
obtain licenses to these patents or other proprietary rights or develop or
obtain alternative technologies. We may not be able to obtain alternative
technologies or any required license on commercially favorable terms, if at all.
If we do not obtain the necessary licenses or alternative technologies, we may
be delayed or prevented from pursuing the development of some potential
products. Our breach of an existing license or failure to obtain alternative
technologies or a license to any technology that we may require to develop or
commercialize our products will significantly and negatively affect our
business.
Patent law relating to the scope and enforceability of claims in the technology
fields in which we operate is still evolving, and the degree of future
protection for any of our proprietary rights is highly uncertain. In this
regard, patents may not issue from any of our patent applications. As a result,
our success may become dependent on our ability to obtain licenses for using the
patented discoveries of others. We are aware of patent applications and patents
that have been filed by others with respect to
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<PAGE> 13
our technologies and we may have to obtain licenses to use these technologies.
Moreover, other patent applications may be granted priority over patent
applications that we or any of our licensors have filed. Furthermore, others may
independently develop similar or alternative technologies, duplicate any of our
technologies or design around the patented technologies we have developed. In
the event that we are unable to acquire licenses to critical technologies that
we cannot patent ourselves, we may be required to expend significant time and
resources to develop similar technology, and we may not be successful in this
regard. If we cannot acquire or develop the necessary technology, we may be
prevented from pursuing some of our business objectives. Moreover, one of our
competitors could acquire or license the necessary technology. Any of these
events could materially harm our business.
We may be subject to claims or litigation as a result of entering into license
agreements with third parties or infringing on the patents of others. For
example, we signed a licensing and sponsored research agreement relating to our
research relating to pluripotent stem cells with The Johns Hopkins University
School of Medicine in August 1997. Prior to signing this agreement, we had been
informed by a third party that we and Johns Hopkins University would violate the
rights of that third party and another academic institution in doing so. After a
review of the correspondence with the third party and Johns Hopkins University,
as well as related documents, including an issued United States patent, we
believe that both we and Johns Hopkins University have substantial defenses to
any claims that might be asserted by the third party. We have agreed to provide
indemnification to Johns Hopkins University relating to potential claims.
However, any litigation resulting from this matter may divert significant
resources, both financial and otherwise, from our research programs. We may be
unsuccessful if the matter is litigated. If the outcome of litigation is
unfavorable to us, our business could be materially and adversely affected.
Much of the information and know-how that is critical to our business is not
patentable and we may not be able to prevent others from obtaining this
information and establishing competitive enterprises
We rely extensively on trade secrets to protect our proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. We attempt to protect our proprietary technology in
part by confidentiality agreements with our employees, consultants and
contractors. We cannot assure you that these agreements will not be breached,
that we would have adequate remedies for any breach, or that our trade secrets
will not otherwise become known or be independently discovered by competitors,
any of which would harm our business significantly.
SOME OF OUR PATENTS AND PATENT APPLICATIONS RELATING TO TELOMERASE MAY BE
SUBJECT TO CHALLENGE OR BE SUSPENDED BY THE UNITED STATES PATENT AND TRADEMARK
OFFICE, WHICH COULD JEOPARDIZE OUR ABILITY TO COMMERCIALIZE TELOMERASE PRODUCTS
Our patents and patent applications relating to telomerase are critically
important to our development and commercialization of therapeutic and diagnostic
products for applications in oncology and regenerative medicine. We have a
number of patent applications pending relating to the cloned telomerase protein
and its uses. Patent applications respecting the human telomerase protein and
related gene applications are pending in several countries and patent
prosecution is ongoing. Although we have been granted patents in the United
Kingdom and Switzerland, we have received rejections in certain other countries
and we may be unable to overcome those rejections or any others that we may
encounter.
The United States Patent and Trademark Office has advised us that the claims of
two of our United States patent applications relating to cloned human telomerase
are allowable, but that further prosecution of these applications has been
suspended pending a determination of whether the initiation of an interference
proceeding is appropriate to ascertain who made the claimed inventions first. We
believe this event indicates, among other things, that the Patent and Trademark
Office has established that at least one other entity has filed a United States
patent application also claiming cloned human telomerase protein or its uses. As
a result, one or more interferences could be declared, in which case the United
States Patent and Trademark Office would undertake a multi-year process to
decide who made the underlying invention or inventions first. If an interference
is declared one result is that another entity could be awarded the patents.
We have prepared for an interference proceeding and, based on the information
presently available to us, we believe that we cloned human telomerase protein
prior to any other entity. However, we do not yet have access to other entities'
invention records or their patent application files, which are maintained in
secrecy by the United States Patent and Trademark Office. We, therefore, do not
have access to all pertinent information for this analysis. Moreover, as
interferences are typically complex, highly contested legal proceedings subject
to appeal, accurately predicting an outcome is not possible, particularly at
this stage. An interference would divert significant resources, both financial
and otherwise, from our research programs.
If interferences or other challenges to our patents are not resolved promptly in
our favor, our existing business relationships could be jeopardized and we could
be delayed or prevented from entering into new collaborations or from
commercializing telomerase products, which could materially harm our business.
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<PAGE> 14
WE DEPEND ON OUR COLLABORATORS TO HELP US COMPLETE THE PROCESS OF DEVELOPING AND
TESTING OUR PRODUCTS AND OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS MAY
BE IMPAIRED OR DELAYED IF OUR COLLABORATIVE PARTNERSHIPS ARE UNSUCCESSFUL
Our strategy for the development, clinical testing and commercialization of our
products requires entering into collaborations with corporate partners,
licensors, licensees and others. We are dependent upon the subsequent success of
these other parties in performing their respective responsibilities and the
continued cooperation of our partners. Our collaborators may not cooperate with
us or perform their obligations under our agreements with them. We cannot
control the amount and timing of our collaborators' resources that will be
devoted to our research activities related to our collaborative agreements with
them. Our collaborators may choose to pursue existing or alternative
technologies in preference to those being developed in collaboration with us.
Our ability to successfully develop and commercialize telomerase inhibition
products depends on our corporate alliances with Kyowa Hakko and Pharmacia &
Upjohn, and our ability to successfully develop and commercialize telomerase
diagnostic products depends on our corporate alliance with Roche Diagnostics.
Under our collaborative agreements with these collaborators, we rely
significantly on them, among other activities, to:
- - design and conduct advanced clinical trials in the event that we reach
clinical trials;
- - fund research and development activities with us;
- - pay us fees upon the achievement of milestones; and
- - co-promote with us any commercial products that result from our
collaborations.
The development and commercialization of products from these collaborations will
be delayed if Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics fail to
conduct these collaborative activities in a timely manner or at all. In
addition, Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics could terminate
these agreements and we may not receive any development or milestone payments.
If we do not receive research funds or achieve milestones set forth in the
agreements, or if Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics or any of
our future collaborators breach or terminate collaborative agreements with us,
our business may be materially harmed.
OUR RELIANCE ON THE RESEARCH ACTIVITIES OF OUR NON-EMPLOYEE SCIENTIFIC ADVISORS
AND OTHER RESEARCH INSTITUTIONS, WHOSE ACTIVITIES ARE NOT WHOLLY WITHIN OUR
CONTROL, MAY LEAD TO DELAYS IN TECHNOLOGICAL DEVELOPMENTS
We rely extensively and have relationships with scientific advisors at academic
and other institutions, some of whom conduct research at our request. These
scientific advisors are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. We have limited control over the activities of these
advisors and, except as otherwise required by our collaboration and consulting
agreements, can expect only limited amounts of their time to be dedicated to our
activities. If our scientific advisors are unable or refuse to contribute to the
development of any of our potential discoveries, our ability to generate
significant advances in our technologies will be significantly harmed.
In addition, we have formed research collaborations with many academic and other
research institutions throughout the world, including the Roslin Institute.
These research facilities may have commitments to other commercial and
non-commercial entities. We have limited control over the operations of these
laboratories and can expect only limited amounts of time to be dedicated to our
research goals.
UNEXPECTED COSTS AND OTHER DIFFICULTIES ARISING FROM OUR ACQUISITION OF ROSLIN
BIO-MED LTD. AND SIMULTANEOUS RESEARCH COLLABORATION WITH THE ROSLIN INSTITUTE
MAY DRAIN HUMAN AND FINANCIAL RESOURCES, OR OTHERWISE NEGATIVELY AFFECT OUR
OPERATIONS
In May 1999, we acquired Roslin Bio-Med, a private company located in Scotland
which was established by the Roslin Institute to develop nuclear transfer
technology. Our acquisition of Roslin Bio-Med and formation of a research
collaboration with the Roslin Institute have expanded the scope of our business
and operations. As a result, we may be presented with operational issues that we
have not previously faced as a company, but which generally accompany
acquisitions and research collaborations of this nature, including:
- - the potential disruption of ongoing business and distraction of management;
- - unanticipated expenses related to technology and research integration; and
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<PAGE> 15
- - the difficulty of implementing and maintaining uniform standards, controls,
procedures and policies.
We may not be able to overcome any of these obstacles, and our failure to do so
could prevent us from achieving the perceived benefits of the acquisition and
collaboration and negatively impact our research activities and results of
operations.
In addition, our agreement with the Roslin Institute obligated us to provide
approximately $20 million in development funding. If we are unable to fulfill
this significant obligation, the Roslin Institute could terminate the agreement
and we would lose our rights to the technology.
THE ACQUISITION OF ROSLIN BIO-MED HAS SUBJECTED US TO THE UNCERTAINTY INHERENT
IN INTERNATIONAL OPERATIONS, AND WE HAVE LIMITED EXPERIENCE WITH INTERNATIONAL
OPERATIONS
To date, we have only limited experience in managing operations internationally.
Our acquisition of Roslin Bio-Med represents our first experience in managing
international operations. As a result of our international expansion, we are now
subject to the uncertainties inherent in international operations, including:
- - unexpected changes in regulatory requirements;
- - compliance with international laws;
- - difficulties in staffing and managing international operations including those
that arise as a result of distance, language and cultural differences;
- - currency exchange rate fluctuations;
- - political instability;
- - export restrictions; and
- - potentially adverse tax consequences.
One or more of these factors could materially harm our future international
operations, the success of our acquisition of Roslin Bio-Med and, consequently,
our business, operating results, and financial condition. Similarly, our
collaborations with international partners such as the Roslin Institute,
Pharmacia & Upjohn, Kyowa Hakko and Roche Diagnostics could also subject us to
the above described international uncertainties.
THE LOSS OF KEY PERSONNEL COULD SLOW OUR ABILITY TO CONDUCT RESEARCH AND DEVELOP
PRODUCTS
Our future success depends to a significant extent on the skills, experience and
efforts of our executive officers and key members of our scientific staff.
Competition for personnel is intense and we may be unable to retain our current
personnel or attract or assimilate other highly qualified management and
scientific personnel in the future. The loss of any or all of these individuals
could harm our business and might significantly delay or prevent the achievement
of research, development or business objectives.
We also rely on consultants and advisors, including the members of our
Scientific Advisory Board, who assist us in formulating our research and
development strategy. We face intense competition for qualified individuals from
numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well
as academic and other research institutions. We may not be able to attract and
retain these individuals on acceptable terms. Failure to do so would materially
harm our business.
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN SUFFICIENT INSURANCE ON COMMERCIALLY
REASONABLE TERMS OR WITH ADEQUATE COVERAGE AGAINST POTENTIAL LIABILITIES IN
ORDER TO PROTECT OURSELVES AGAINST PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability risks that are inherent
in the testing, manufacturing and marketing of human therapeutic and diagnostic
products. We may become subject to product liability claims if the use of our
products is alleged to have injured subjects or patients. This risk exists for
products tested in human clinical trials as well as products that are sold
commercially We currently have no clinical trial liability insurance and we may
not be able to obtain and maintain this type of insurance for any of our
clinical trials. In addition, product liability insurance is becoming
increasingly expensive. As a result, we may not be able to obtain or maintain
product liability insurance in the future on acceptable terms or with adequate
coverage against potential liabilities which could have a material adverse
effect on us.
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WE MAY BE REQUIRED TO COMPLY WITH THE REGISTRATION REQUIREMENTS OF THE
INVESTMENT COMPANY ACT OF 1940, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
We believe that we are primarily engaged in a business other than investing,
reinvesting, owing or trading in securities. We invest our cash in cash
equivalents and short-term investments of high quality, following the investment
guidelines approved by our Board of Directors. Nevertheless, we may be required
to comply with the registration requirements of the Investment Company Act of
1940. These registration requirements could have a material adverse effect on
our business.
INDUSTRY RISKS
BECAUSE WE OR OUR COLLABORATORS MUST OBTAIN REGULATORY APPROVAL TO MARKET OUR
PRODUCTS IN THE UNITED STATES AND FOREIGN JURISDICTIONS, WE CANNOT PREDICT
WHETHER OR WHEN WE WILL BE PERMITTED TO COMMERCIALIZE OUR PRODUCTS
Federal, state and local governments in the United States and governments in
other countries have significant regulations in place that govern many of our
activities. The preclinical testing and clinical trials of the products that we
develop ourselves or that our collaborators develop are subject to intense
government regulation and may prevent us from creating commercially viable
products from our discoveries. In addition, the sale by us or our collaborators
of any commercially viable product will be subject to government regulation from
several standpoints, including the processes of:
- - manufacturing;
- - advertising and promoting;
- - selling and marketing;
- - labeling; and
- - distributing.
We may not obtain regulatory approval for the products we develop or that our
collaborators will obtain regulatory approval for the products they develop.
Regulatory approval may also entail limitations on the indicated uses of a
proposed product. Because certain of our product candidates involve the
application of new technologies and may be based upon a new therapeutic
approach, such products may be subject to substantial additional review by
various government regulatory authorities, and, as a result, we may obtain
regulatory approvals for such products more slowly than for products based upon
more conventional technologies. If, and to the extent that, we are unable to
comply with these regulations, our ability to earn revenues will be materially
and negatively impacted.
The regulatory process, particularly for biopharmaceutical products like ours,
is uncertain, can take many years and requires the expenditure of substantial
resources. Any product that we or our collaborative partners develop must
receive all relevant regulatory agency approvals or clearances, if any, before
it may be marketed in the United States or other countries. Generally,
biological drugs and non-biological drugs are regulated more rigorously than
medical devices. In particular, human pharmaceutical therapeutic products,
including a telomerase inhibitor, are subject to rigorous preclinical and
clinical testing and other requirements by the Food and Drug Administration in
the United States and similar health authorities in foreign countries. The
regulatory process, which includes extensive preclinical testing and clinical
trials of each product in order to establish its safety and efficacy, is
uncertain, can take many years and requires the expenditure of substantial
resources.
Data obtained from preclinical and clinical activities is susceptible to varying
interpretations that could delay, limit or prevent regulatory agency approvals
or clearances. In addition, delays or rejections may be encountered based upon
changes in regulatory agency policy during the period of product development
and/or the period of review of any application for regulatory agency approval or
clearance for a product. Delays in obtaining regulatory agency approvals or
clearances could:
- - significantly harm the marketing of any products that we or our collaborators
develop;
- - impose costly procedures upon our activities or the activities of our
collaborators;
- - diminish any competitive advantages that we or our collaborative partners may
attain; or
- - adversely affect our ability to receive royalties and generate revenues and
profits.
Even if we commit the time and resources, both economic and otherwise, that are
necessary, the required regulatory agency approvals or clearances may not be
obtained for any products developed by or in collaboration with us. If
regulatory agency approval or clearance for a new product is obtained, this
approval or clearance may entail limitations on the indicated uses for which it
may be marketed that could limit the potential commercial use of the product.
Furthermore, approved products and
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their manufacturers are subject to continual review, and discovery of previously
unknown problems with a product or its manufacturer may result in restrictions
on the product or manufacturer, including withdrawal of the product from the
market. Failure to comply with regulatory requirements can result in severe
civil and criminal penalties, including but not limited to:
- - recall or seizure of products;
- - injunction against manufacture, distribution, sales and marketing; and
- - criminal prosecution.
The imposition of any of these penalties could significantly impair our
business, financial condition and results of operations.
TO BE SUCCESSFUL, OUR PRODUCTS MUST BE ACCEPTED BY THE HEALTH CARE COMMUNITY
THAT CAN BE VERY SLOW TO ADOPT OR UNRECEPTIVE TO NEW TECHNOLOGIES AND PRODUCTS
Our products and those developed by our collaborative partners, if approved for
marketing, may not achieve market acceptance since physicians, patients or the
medical community in general may decide not to accept and utilize these
products. The products that we are attempting to develop may represent
substantial departures from established treatment methods and will compete with
a number of traditional drugs and therapies manufactured and marketed by major
pharmaceutical companies. The degree of market acceptance of any of our
developed products will depend on a number of factors, including:
- - our establishment and demonstration to the medical community of the clinical
efficacy and safety of our product candidates;
- - our ability to create products that are superior to alternatives currently on
the market;
- - our ability to establish in the medical community the potential advantage of
our treatments over alternative treatment methods; and
- - reimbursement policies of government and third-party payors.
If the health care community does not accept our products for any of the
foregoing reasons, or for any other reason, our business would be materially
harmed.
THE REIMBURSEMENT STATUS OF NEWLY-APPROVED HEALTH CARE PRODUCTS IS UNCERTAIN AND
FAILURE TO OBTAIN REIMBURSEMENT APPROVAL COULD SEVERELY LIMIT THE USE OF OUR
PRODUCTS
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, including pharmaceuticals. If we fail to generate adequate
third party reimbursement for the users of our potential products and
treatments, then we may be unable to maintain price levels sufficient to realize
an appropriate return on our investment in product development.
In both domestic and foreign markets, sales of our products, if any, will depend
in part on the availability of reimbursement from third-party payors, examples
of which include:
- - government health administration authorities;
- - private health insurers;
- - health maintenance organizations; and
- - pharmacy benefit management companies.
Both federal and state governments in the United States and foreign governments
continue to propose and pass legislation designed to contain or reduce the cost
of health care through various means. Legislation and regulations affecting the
pricing of pharmaceuticals and other medical products may change or be adopted
before any of our potential products are approved for marketing. Cost control
initiatives could decrease the price that we receive for any product we may
develop in the future. In addition, third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services
and any of our potential products and treatments may ultimately not be
considered cost effective by these third parties. Any of these initiatives or
developments could materially harm our business.
OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE
MATERIALS BY OUR EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT LEGAL AND
FINANCIAL PENALTIES
Our research and development activities involve the controlled use of hazardous
materials, chemicals and various radioactive compounds. As a consequence, we are
subject to numerous environmental and safety laws and regulations, including
those
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governing laboratory procedures, exposure to blood-borne pathogens and the
handling of biohazardous materials. We may be required to incur significant
costs to comply with current or future environmental laws and regulations and
may be adversely affected by the cost of compliance with these laws and
regulations.
Although we believe that our safety procedures for using, handling, storing and
disposing of hazardous materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, our use
of these materials could be curtailed by state or federal authorities and we
could be liable for any civil damages that result, the cost of which could be
substantial. Further, any failure by us to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or assist in the cleanup
of, hazardous chemicals or hazardous, infectious or toxic substances could
subject us to significant liabilities, including joint and several liability
under certain statutes, and any liability could exceed our resources and could
have a material adverse effect on our business, financial condition and results
of operations. Additionally, an accident could damage our research and
manufacturing facilities and operations.
Additional federal, state and local laws and regulations affecting us may be
adopted in the future. We may incur substantial costs to comply with and
substantial fines or penalties if we violate any of these laws or regulations.
OFFERING RISKS
OUR STOCK PRICE HAS HISTORICALLY BEEN VERY VOLATILE, WHICH MAY MAKE IT MORE
DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE
Stock prices and trading volumes for many biopharmaceutical companies fluctuate
widely for a number of reasons, including some reasons which may be unrelated to
their businesses or results of operations such as media coverage, legislation
and regulatory measures and the activities of various protest groups or
organizations. This market volatility, as well as general domestic or
international economic, market and political conditions, could materially and
adversely affect the market price of our common stock and your return on your
investment.
Historically, our stock price has been extremely volatile. Between January 1998
and March 9, 2000, our stock has traded as high as $75.88 per share and as low
as $3.50 per share. The significant market price fluctuations of our common
stock are due to a variety of factors, including:
- - depth of the market for the common stock;
- - the experimental nature of our prospective products;
- - fluctuations in our operating results;
- - market conditions relating to the biopharmaceutical and pharmaceutical
industries;
- - any announcements of technological innovations, new commercial products or
clinical progress or lack thereof by us, our collaborative partners or our
competitors; or
- - announcements concerning regulatory developments, developments with respect to
proprietary rights and our collaborations.
In addition, the stock market is subject to other factors outside our control
that can cause extreme price and volume fluctuations. Securities class action
litigation has often been brought against companies, including many
biotechnology companies, which then experience volatility in the market price of
their securities. Litigation brought against us could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES, INCLUDING SHARES THAT WILL BECOME
ELIGIBLE FOR SALE IN THE NEAR FUTURE, MAY ADVERSELY AFFECT THE MARKET PRICE FOR
OUR COMMON STOCK
Sales of substantial number of shares of our common stock in the public market
could significantly and negatively affect the market price for our common stock.
As of March 9, 2000, we had approximately 21,172,220 shares of common stock
outstanding. Of these shares, approximately 8,017,367 shares were issued
(including shares issuable upon conversion or exercise of convertible notes or
warrants) since December 1998 pursuant to private placements. Of these shares,
approximately 7,336,512 shares have been registered pursuant to shelf
registration statements and therefore may be resold (if not sold prior to the
date hereof) in the public market and approximately 680,855 of the remaining
shares may be resold pursuant to Rule 144 into the public markets as early as
March 9, 2002 upon the expiration of a lockup agreement with us. In addition, we
and our executive officers and directors have agreed, with limited exceptions,
not to offer or sell common stock for 90 days from the
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date of this prospectus without the prior written consent of J.P. Morgan
Securities Inc. J.P. Morgan Securities Inc. may release any of the securities
subject to these lockups at any time without prior notice.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS
MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND THE VOTING RIGHTS
OF THE HOLDERS OF COMMON STOCK
Our certificate of incorporation provides our board of directors with the
authority to issue up to 3,000,000 shares of undesignated preferred stock and to
determine the rights, preferences, privileges and restrictions of these shares
without further vote or action by the stockholders. As of the date of this
prospectus, the Board of Directors still has authority to designate and issue up
to 3,000,000 shares of preferred stock. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
shares of preferred stock may delay or prevent a change in control transaction
without further action by our stockholders. As a result, the market price of our
common stock may be adversely affected. The issuance of preferred stock may also
result in the loss of voting control by others.
PROVISIONS IN OUR CHARTER AND BYLAWS, AND PROVISIONS OF DELAWARE LAW, MAY
INHIBIT POTENTIAL ACQUISITION BIDS FOR US, WHICH MAY PREVENT HOLDERS OF OUR
COMMON STOCK FROM BENEFITTING FROM WHAT THEY BELIEVE MAY BE THE POSITIVE ASPECTS
OF ACQUISITIONS AND TAKEOVERS
In addition to the undesignated preferred stock, provisions of our charter
documents and bylaws may make it substantially more difficult for a third party
to acquire control of us and may prevent changes in our management, including
provisions that:
- - prevent stockholders from taking actions by written consent;
- - divide the board of directors into separate classes with terms of office that
are structured to prevent all of the directors from being elected in any one
year; and
- - set forth procedures for nominating directors and submitting proposals for
consideration at stockholders' meetings.
Provisions of Delaware law may also inhibit potential acquisition bids for us or
prevent us from engaging in business combinations.
Either collectively or individually, these provisions may prevent holders of our
common stock from benefitting from what they may believe are the positive
aspects of acquisitions and takeovers, including the potential realization of a
higher rate of return on their investment from these types of transactions.
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FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements give our current expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. Such statements may include
words such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe" and other words or terms of similar meaning in connection with any
discussion of future operating or financial performance. In particular, these
forward-looking statements include statements relating to:
- - risks relating to our technologies and product development programs;
- - future performance by us and our collaborators under our agreements and the
potential revenue realized by us under these agreements;
- - uncertainties related to our patents and proprietary rights;
- - government regulation and uncertainties of obtaining regulatory approval on a
timely basis or at all; and
- - our need for additional capital and uncertainty of additional funding.
Any or all of our forward-looking statements in this prospectus may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this prospectus will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially.
We will not update these forward looking statements, whether as a result of new
information, future events or otherwise. You should, however, review additional
disclosures we make in our Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and Annual Reports on Form 10-K filed with the Securities and Exchange
Commission.
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PRICE RANGE OF COMMON STOCK
Our common stock trades on the Nasdaq National Market under the symbol "GERN."
The following table sets forth for the quarters indicated the high and low
intra-day sales prices per share of our common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
----------------
HIGH LOW
------ ------
<S> <C> <C>
Year ended December 31, 1998
First quarter............................................. $17.13 $ 8.00
Second quarter............................................ $12.50 $ 8.44
Third quarter............................................. $10.75 $ 3.50
Fourth quarter............................................ $24.50 $ 4.63
Year ended December 31, 1999
First quarter............................................. $13.75 $ 9.50
Second quarter............................................ $14.06 $ 9.25
Third quarter............................................. $12.69 $10.06
Fourth quarter............................................ $20.00 $ 9.25
Year ended December 31, 2000
First Quarter (through March 16, 2000).................... $75.88 $12.50
</TABLE>
On March 16, 2000, the last reported sale price per share of our common stock on
the Nasdaq National Market was $44.13. As of that date there were approximately
773 stockholders of record. We are engaged in a highly dynamic industry, which
often results in significant volatility of our common stock price.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock and do not anticipate
paying cash dividends in the foreseeable future. We intend to retain our capital
resources for reinvestment in our business. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon our financial condition, results of operations, capital
requirements and other such factors as the Board of Directors deems relevant.
USE OF PROCEEDS
We estimate that we will receive net cash proceeds from this offering of
approximately $123.5 million after deducting underwriting discounts and
commissions and estimated offering expenses, based on an assumed public offering
price of $44.13 per share, the last reported sale price of our common stock on
the Nasdaq National Market on March 16, 2000. If the underwriters exercise their
over-allotment option in full, we estimate that we will receive net cash
proceeds from this offering of approximately $142.1 million.
We intend to use the net proceeds of this offering for general corporate
purposes, including working capital to fund anticipated operating losses,
expenses and capital expenditures. As of the date of this prospectus, we cannot
specify with certainty the particular uses for the net proceeds to be received
upon consummation of this offering. Accordingly, our management will have broad
discretion in the application of net proceeds. Pending such uses, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment grade securities.
17
<PAGE> 22
CAPITALIZATION
The following table summarizes, as of December 31, 1999, unaudited information
about our cash, cash equivalents and investments and capitalization:
- on an actual basis; and
- pro forma as adjusted to give effect to
-- the conversion of $3,000,000 of our series B convertible debentures
into 300,000 shares of our common stock and the conversion of
$6,282,000 of our series C convertible debentures, including accrued
interest, into 612,830 shares of our common stock;
-- the issuance of 2,197,149 shares of our common stock pursuant to the
exercise of warrants for total proceeds of $26.4 million;
-- the sale of 380,855 shares of common stock subsequent to December 31,
1999 in a private placement; and
-- our receipt of estimated net proceeds from the sale of 3,000,000 shares
of our common stock in this offering at the public offering price of
$44.13 per share after deducting underwriting discounts and estimated
offering expenses payable by us.
This table should be read in conjunction with our Consolidated Financial
Statements and the related Notes thereto incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
In thousands, except share data
Cash, cash equivalents and investments...................... $ 42,923 $ 201,763
========= =========
Noncurrent portion of long-term debt........................ $ 29,527 $ 20,481
========= =========
Stockholders' equity:
Common stock, $0.001 par value; 35,000,000 shares
authorized; 17,381,095 shares issued and outstanding
actual; 23,896,929 shares issued and outstanding as
adjusted 17 24
Additional paid-in capital................................ 131,183 299,372
Notes receivable from stockholders........................ (70) (70)
Deferred compensation..................................... (853) (853)
Accumulated deficit....................................... (103,969) (103,969)
Accumulated other comprehensive loss...................... (82) (82)
--------- ---------
Total stockholders' equity........................ 26,226 194,422
--------- ---------
Total capitalization......................... $ 55,753 $ 214,903
========= =========
</TABLE>
The above table excludes, as of March 9, 2000, 3,014,030 shares of our common
stock reserved for issuance upon exercise of outstanding stock options, 615,135
shares of our common stock issuable upon the conversion of our series C
convertible debentures that remain outstanding as of March 9, 2000, 582,917
shares of our common stock issuable upon exercise of our warrants that remain
outstanding as of March 9, 2000 and 1,285,173 shares of our common stock
available for future issuance under our stock option and other employee benefits
plans.
18
<PAGE> 23
DILUTION
If you invest in our common stock, your interest will be diluted in an amount
equal to the difference between:
- - the public offering price per share of our common stock, and
- - the pro forma net tangible book value per share of our common stock after this
offering.
The pro forma net tangible book value per share of our common stock equals:
- - the actual net tangible book value, which is tangible assets less total
liabilities, at December 31, 1999, adjusted to reflect:
-- the total proceeds of $26.4 million from the exercise of warrants for
2,197,149 shares of our common stock;
-- the conversion of $3 million of our series B convertible debentures into
300,000 shares of our common stock and the conversion of $6.3 million of
our series C convertible debentures, including accrued interest, into
612,830 shares of our common stock; and
-- proceeds from the sale of 380,855 shares of common stock subsequent to
December 31, 1999 in a private placement.
- - divided by the number of outstanding shares of our common stock as of December
31, 1999, and adjusted to include shares issued upon:
-- the conversion of $3 million of our series B convertible debentures into
300,000 shares of our common stock and the conversion of $6.3 million of
our series C convertible debentures, including accrued interest, into
612,830 shares of our common stock in March 2000;
-- the issuance of 2,197,149 shares of our common stock pursuant to the
exercise of warrants; and
-- the sale of 380,855 shares of common stock subsequent to December 31, 1999
in a private placement.
Our pro forma net tangible book value as of December 31, 1999 was approximately
$55.4 million or $2.65 per share of common stock. The pro forma as adjusted net
tangible book value per share takes into account the estimated net proceeds from
this offering. Based upon an offering price of $44.13 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma as adjusted net tangible book value as of
December 31, 1999 would have been approximately $178.8 million, or $7.48 per
share. This represents an immediate increase in the pro forma net tangible book
value of $4.83 per share to existing stockholders and an immediate dilution of
$36.65 per share to investors purchasing common stock in this offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $ 44.13
Pro forma net tangible book value per share as of
December 31, 1999..................................... $2.65
Increase per share attributable to new investors....... $4.83
-----
Pro forma adjusted net tangible book value per share after
offering......................................................... $ 7.48
=======
Dilution per share to new investors................................ $ 36.65
=======
</TABLE>
The above table excludes, as of March 9, 2000, 3,014,030 shares of our common
stock reserved for issuance upon exercise of outstanding stock options, 615,135
shares of our common stock issuable upon the conversion of our series C
convertible debentures that remain outstanding as of March 9, 2000, 582,917
shares of our common stock issuable upon exercise of our warrants that remain
outstanding as of March 9, 2000 and 1,285,173 shares of our common stock
available for future issuance under our stock option and other employee benefits
plans.
19
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial and operating data set forth below should be read in
conjunction with the consolidated financial statements, the notes thereto and
the other information contained or incorporated by reference in this prospectus.
The selected consolidated balance sheet data as of December 31, 1999 and 1998,
and the selected consolidated statement of operations data for the years ended
December 31, 1999, 1998 and 1997 have been derived from our audited consolidated
financial statements incorporated by reference in this prospectus. The selected
consolidated balance sheet data as of December 31, 1997, 1996 and 1995 and the
selected consolidated statement of operations data for the year ended December
31, 1996 and 1995 have been derived from our audited consolidated financial
statements that have not been incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
In thousands, except share and per
share data
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues from collaborative
agreements........................... $ 5,244 $ 6,706 $ 7,175 $ 5,235 $ 5,490
License fees and royalties............. 168 91 78 58 --
----------- ----------- ----------- ---------- --------
Total revenues 5,412...... 6,797 7,253 5,293 5,490
Operating expenses:
Research and development............. 20,571 15,619 15,139 14,260 11,321
Acquired research technology......... 23,403 -- -- -- --
General and administrative........... 5,574 3,769 3,120 3,161 2,888
----------- ----------- ----------- ---------- --------
Total operating expenses..... 49,548 19,388 18,259 17,421 14,209
----------- ----------- ----------- ---------- --------
Loss from operations................... (44,136) (12,591) (11,006) (12,128) (8,719)
Interest and other income.............. 3,263 2,666 1,757 1,826 919
Interest and other expense............. (5,503) (907) (392) (385) (399)
----------- ----------- ----------- ---------- --------
Net loss............................... $ (46,376) $ (10,832) $ (9,641) $ (10,687) $ (8,199)
Accretion of redemption value of
redeemable convertible preferred
stock................................ (73) (578) -- -- --
----------- ----------- ----------- ---------- --------
Net loss applicable to common
stockholders......................... $ (46,449) $ (11,410) $ (9,641) $ (10,687) $ (8,199)
=========== =========== =========== ========== ========
Basic and diluted net loss per share... $ (3.00) $ (1.00) $ (0.91) $ (2.23) $ (9.77)
=========== =========== =========== ========== ========
Shares used in computing basic and
diluted net loss per share........... 15,489,035 11,439,084 10,551,054 4,789,388 839,490
=========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
In thousands
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.......................... $ 39,287 $ 24,469 $ 21,597 $ 24,269 $ 15,553
Working capital........................ 32,481 22,261 19,739 21,468 12,115
Total assets........................... 63,701 44,456 26,056 28,788 19,749
Noncurrent liabilities................. 29,527 8,101 1,250 1,644 1,654
Redeemable convertible preferred
stock................................ -- 3,610 -- -- --
Accumulated deficit.................... (103,969) (57,520) (46,110) (36,469) (25,782)
Total stockholders' equity............. 26,226 29,191 21,066 23,591 14,308
</TABLE>
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operation should be read in conjunction with the "Selected Consolidated
Financial Data" and our financial statements and related notes thereto
incorporated by reference in this prospectus. This Management's Discussion and
Analysis of Financial Condition and Results of Operations and other parts of
this prospectus contain forward-looking statements which involve risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors"
and "Forward-Looking Statements."
OVERVIEW
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in
oncology, drug discovery and regenerative medicine. Our product development
programs are based upon three patented, independent and synergistic
technologies: telomerase, human pluripotent stem cells and nuclear transfer.
Since inception, substantially all of our revenues have been generated from
license and research agreements with collaborators. In addition, we receive
license payments and royalties from license and marketing agreement with various
diagnostic and research tool collaborators. We recognize revenue from the
license and research agreements with collaborators as the related research and
development costs are incurred under the collaborative agreements.
In March 2000, we sold a total of 380,855 shares of our common stock and 300,000
warrants to purchase our common stock to a single investor for $9 million. We
structured the sale of securities in two parts. We priced the first $6.4 million
of common stock at $50.32 per share, and 200,000 warrants are exercisable at
$67.09 per share. We priced the remaining $2.6 million of common stock at $10.25
per share, and the remaining 100,000 warrants are exercisable at $12.50 per
share. The common stock and the stock underlying the warrants are not registered
for resale and are subject to a two-year prohibition on sale by agreement. As of
March 9, 2000, all of the warrants were outstanding. The majority of funds are
to be used for development of our skin programs.
In January 2000, we extended our three-way license and research collaboration
agreement with Kyowa Hakko and Pharmacia & Upjohn. The agreement extends the
research and compound selection periods by one additional year to March 2002 and
provides for additional research funding over the next two years.
In May 1999, we completed the acquisition of Roslin Bio-Med Ltd., a privately
held company formed by the Roslin Institute in Midlothian, Scotland. As part of
the acquisition, we formed a research collaboration with the Roslin Institute
which obligated us to provide approximately $20.0 million in research funding
over the next six years which has a net present value of $17.2 million. In
exchange for all of the outstanding shares of Roslin Bio-Med, we issued
1,891,371 shares of our common stock with a fair value of $22.2 million. In
addition, in exchange for the outstanding fully vested stock options in Roslin
Bio-Med, we issued fully vested options to purchase 208,629 shares our common
stock with a fair value of $2.2 million. The total purchase price of $44.4
million also included acquisition costs of $2.9 million. Under the terms of the
agreement, Roslin Bio-Med became our wholly owned United Kingdom subsidiary and
is known as Geron Bio-Med.
We accounted for the transaction using the purchase method. We allocated the
purchase price between the acquired basic research in the form of a license in
the nuclear transfer technology, the research agreement with the Roslin
Institute and the net tangible assets of Roslin Bio-Med. We expensed the value
of the nuclear transfer technology of $23.4 million as acquired research expense
and capitalized the value of the research agreement of $17.2 million as an
intangible asset and are amortizing this asset over the next six years.
On September 30, 1999, we sold $12.5 million series C convertible two-percent
coupon debentures and warrants to purchase 1,100,000 shares of common stock to
an institutional investor. The debentures are convertible at any time by the
holder at a fixed conversion price of $10.25 per share. The debentures convert
at our option when our common stock has traded at a specified premium to the
fixed conversion price for ten consecutive trading days. In March 2000,
approximately $6.3 million of the series C convertible debentures were converted
into 615,069 shares of common stock and 1,100,000 shares of our common stock
were issued upon exercise of such warrants at a weighted average exercise price
of $12.52 per share.
Our results of operations have fluctuated from period to period and may continue
to fluctuate in the future based upon the timing and composition of funding
under our various collaborative agreements, as well as the progress of our
research and development efforts and variations in the level of expenses related
to developmental efforts during any given period. Results of operations for any
period may be unrelated to results of operations for any other period. In
addition, historical results should
21
<PAGE> 26
not be viewed as indicative of future operating results. We are subject to risks
common to companies in our industry and at our stage of development, including
risks inherent in our research and development efforts, reliance upon our
collaborative partners, enforcement of our patent and proprietary rights, need
for future capital, potential competition and uncertainty of regulatory
approvals or clearances. In order for a product to be commercialized based on
our research, we and our collaborators must conduct preclinical tests and
clinical trials, demonstrate the efficacy and safety of our product candidates,
obtain regulatory approvals or clearances and enter into manufacturing,
distribution and marketing arrangements, as well as obtain market acceptance. We
do not expect to receive revenues or royalties based on therapeutic products for
a period of years, if at all.
RESULTS OF OPERATIONS
Revenues. We recognized revenues from collaborative agreements of $5.2 million
in fiscal 1999 compared to $6.7 million in fiscal 1998 and $7.2 million in
fiscal 1997. Revenues in 1999 and 1998 represented research support payments
from our collaborative agreements with Kyowa Hakko and Pharmacia & Upjohn.
Declining revenues in 1999 and 1998 were a result of reduced research funding
from Kyowa Hakko as contractually agreed in 1998. Revenues in 1997 also included
a one-time payment by Boehringer Mannheim for reimbursement of past research
efforts. We recognize revenue under collaboration agreements as we incur the
related research and development costs. We received annual funding payments of
$1.0 million and $4.0 million under the Kyowa Hakko agreement in 1998 and 1997,
respectively. We did not receive any funding payments from Kyowa Hakko in 1999.
We received funding payments totaling $5.0 million each in fiscal 1999 and 1998
under the Pharmacia & Upjohn agreement. We expect revenues from collaborative
agreements to increase in 2000 as compared to 1999 as a result of the renewed
research commitments from Kyowa Hakko and Pharmacia & Upjohn. As a result of the
extensions, these agreements provide for additional funding from Kyowa Hakko and
Pharmacia & Upjohn over the next two years.
We receive license payments and royalties from license and marketing agreements
with various diagnostic and research tool collaborators. We received a license
fee payment of $75,000 in 1999 under our product marketing agreement with
Clontech. We did not receive any license fee payments in 1998 or 1997. In fiscal
1999, we received $85,000 in royalties on the sale of diagnostic kits to the
research-use-only market from Intergen, Kyowa Medex, Roche Diagnostics and
PharMingen compared to $91,000 received in fiscal 1998. In 1999, we also
recognized $9,000 in shared profits from sales of cell-based research products
from Clontech. Sales of these cell-based research products began in September
1999.
Research and Development Expenses. Research and development expenses were $20.6
million, $15.6 million and $15.1 million for the years ended December 31, 1999,
1998 and 1997. The increase in 1999 from 1998 was primarily the result of the
amortization of the research funding obligation to the Roslin Institute of $1.9
million, increased license fees for research technology of $1.0 million and
increased personnel related costs of $800,000. The increase in 1998 from 1997
was primarily a result of increased personnel costs of $500,000 for additional
scientific staff. We expect research and development expenses to increase
significantly in the future as a result of the continued development of our
therapeutic and diagnostic programs.
Acquired Research Expenses. Acquired research expenses were the result of the
acquisition of Roslin Bio-Med in May 1999. We used the purchase method of
accounting. We allocated the purchase price between the acquired basic research
in the form of a license to the nuclear transfer technology, the research
agreement with the Roslin Institute and the net tangible assets of Roslin
Bio-Med. We expensed the value of the nuclear transfer technology of $23.4
million as acquired research expense and capitalized the value of the research
agreement of $17.2 million as an intangible asset. The total purchase price of
$44.4 million also included acquisition costs of $2.9 million.
The license to the nuclear transfer technology was the only significant asset of
Roslin Bio-Med. We intend to enhance the research and development of the nuclear
transfer technology by combining it with our other technology platforms. Before
we can enter into clinical trials for a potential commercial application, we
must expand the research and development of the combined technology platforms.
Future products, if any, may take several years to develop and commercialize and
will require substantial additional funds. We may never be able to create a
commercial product from the nuclear transfer technology. Although we have the
right to sublicense the nuclear transfer technology, we expect any future
collaborations or sublicenses to fund future research and development and not
recover the cost of the basic nuclear transfer technology that we acquired. We
are using this technology for one research project. We have concluded that this
technology has no alternative future use, and accordingly, have expensed the
value of the acquired research technology at the time of the acquisition.
General and Administrative Expenses. General and administrative expenses were
$5.6 million, $3.8 million and $3.1 million for the years ended December 31,
1999, 1998 and 1997, respectively. The increase in 1999 from 1998 was primarily
the result of increased business consulting expenses of $600,000, increased
personnel related costs of $600,000, increased
22
<PAGE> 27
facilities maintenance costs of $300,000 and increased legal and accounting
expenses of $300,000. The increase in 1998 from 1997 was primarily a result of
increased personnel costs of approximately $420,000 for additional
administrative personnel and bonus accruals. In addition, expenses in 1998 also
reflected increases in public and investor relations expense; legal, accounting
and consulting fees; supplies and expensed office equipment and other taxes and
filing fees.
Interest and Other Income. Interest income was $2.3 million, $1.9 million and
$1.4 million for the years ended December 31, 1999, 1998 and 1997, respectively.
The increase in 1999 and 1998 was due to higher average cash and investment
balances as a result of the sale of debt and equity securities in 1999. Interest
earned in the future will depend on any future funding cycles and prevailing
interest rates. We also received $1.0 million, $734,000 and $369,000 in research
payments under government grants for the years ended December 31, 1999, 1998 and
1997, respectively. We expect income from government grants to decrease in the
future.
Interest and Other Expense. Interest and other expense was $5.5 million,
$907,000 and $392,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase in interest and other expense in 1999 over 1998 was
primarily the result of the various convertible debenture financings during
1999. In connection with the issuance of $7.5 million of series B convertible
debentures in June 1999, we recorded approximately $563,000 in interest expense
for the difference between the fair value of our common stock on the date of
signing and the conversion price of the debentures.
When we issued the series C convertible debentures, we did not have sufficient
authorized common shares to permit the series C convertible debenture holder to
fully convert the series C convertible debentures and exercise the warrants. If
we did not obtain stockholder approval to increase our authorized common shares
to allow for the full conversion of the series C convertible debentures and
exercise of series C warrants prior to March 31, 2000, we would have been in
default under the debenture and would have been obligated to redeem the
debentures at the request of the series C convertible debenture holder at the
greater of 115% of the principal amount of the debentures or an amount equal to
the fair value of our common stock the debentures would have been converted into
plus expenses. In December 1999, we obtained the necessary stockholder approval
to issue additional shares of common stock in order for the holder of the series
C convertible debentures to convert their shares into our common stock and
exercise their warrants. Prior to obtaining stockholder approval to increase the
number of authorized common shares, we recognized $625,000 of interest expense
related to the potential penalty on redemption up through the date our
stockholders authorized the additional shares to be issued.
On the date of issuance of the series C convertible debentures, we recorded
approximately $305,000 in interest expense for the difference between the fair
value of our common stock on September 30, 1999 and the conversion price of the
debentures. We determined the value of the warrants to be $2,732,000. In
accordance with Emerging Issue Task Force Issue No. 98-5, which was effective
for transactions with a commitment date after May 20, 1999, we recorded this
value as an increase to additional paid-in-capital with a related charge to
interest expense. We recorded this amount at the time when our stockholders
approved the increase to the number of our authorized common shares to an amount
sufficient to allow for the full conversion of the series C convertible
debentures and exercise of the series C warrants.
Interest and other expense in 1999 also included approximately $312,000 of
imputed interest for the accretion of our research funding obligation to the
Roslin Institute.
In December 1998, we recorded approximately $562,000 in interest expense in
connection with the sale of series A convertible debentures, for the difference
between the fair market value of our common stock on the date of issuance and
the conversion price of the series A convertible debentures. We recorded the
series A convertible debentures at a discount and were amortizing the debentures
to the redemption amount prior to the conversion of the debentures into common
stock.
Net Loss. Net losses were $46.4 million, $10.8 million and $9.6 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increase in net
loss for 1999 was primarily the result of the charge for acquired research
technology in connection with the acquisition of Roslin Bio-Med and the
amortization of the research funding obligation to the Roslin Institute. The
increase in net loss for 1998 was primarily the result of increased operating
expenses during the year and lower research support payments from Kyowa Hakko.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through public and
private debt and equity financings. We have received additional funding from
collaborative agreements, government grants, interest income and equipment
financing. As of March 9, 2000 we have raised approximately $103.3 million in
net proceeds from public and private offerings since July 1996, including our
initial public offering in July 1996.
23
<PAGE> 28
Cash, cash equivalents and investments at December 31, 1999 were $42.9 million
compared to $40.4 million at December 31, 1998 and $21.6 million at December 31,
1997. We have an investment policy to invest these funds in liquid, investment
grade securities, such as interest-bearing money market funds, corporate notes,
commercial paper and municipal securities. The increase in cash, cash
equivalents and investments in 1999 was primarily the result of the sale of
convertible debentures in June 1999 and September 1999. The increase in cash,
cash equivalents and investments in 1998 was the result of sale of our
convertible preferred stock in March 1998 and our sale of convertible debentures
in December 1998.
Net cash used in operations was $13.6 million in 1999 and $7.8 million in 1998.
Cash used in operations in 1999 was primarily the result of the net loss for the
year of $46.4 million offset partially by non-cash charges including purchased
research technology expense of $23.4 million. We expect that our net cash used
in operations will increase in 2000 as a result of increased research and
development expenditures.
Through December 31, 1999, we have invested approximately $9.9 million in
property and equipment, of which approximately $7.5 million was financed through
equipment financing. Minimum annual payments due under the equipment financing
facility are expected to total $1.2 million, $876,000, $752,000 and $159,000 in
2000, 2001, 2002 and 2003, respectively. As of December 31, 1999, we had
approximately $1.2 million available for borrowing from our equipment financing
facility. The drawdown period under the equipment financing facility expires on
July 31, 2000. We intend to renew the commitment for a new equipment financing
facility in 2000 to further fund equipment purchases. If we are unable to renew
the commitment, then we will need to spend our own resources for equipment
purchases.
We have agreed to fund scientific research at academic and research
institutions. Under these research arrangements, we are obligated to make
minimum annual payments of approximately $2.8 million and $2.4 million in 2000
and 2001, respectively. We also formed a research collaboration agreement with
the Roslin Institute, which obligated us to provide approximately $20.0 million
in research funding over the next six years of which $2.3 million was paid in
1999. We intend to continue to maintain and develop relationships with academic
and research institutions.
In 1998 and 1997, Pharmacia & Upjohn made equity investments in our common stock
totaling $10.0 million at a premium. In 2000, Pharmacia & Upjohn and Kyowa Hakko
both extended their research funding commitment for an additional year. We
expect to receive additional funding from Pharmacia & Upjohn in each of the next
two years to fund our future development efforts. We also expect to receive
additional funding from Kyowa Hakko over the next two years. We will seek
further funding through other strategic collaborations, public or private equity
financing, or other financing sources.
In March 1998, we completed a private placement with two institutional investors
for the sale of 15,000 shares of series A preferred stock with a stated value of
$1,000 per share resulting in proceeds of $15.0 million. In November 1998,
11,548 shares of series A convertible preferred stock converted into 2,173,446
shares of our common stock and in April 1999, we redeemed the remaining 3,452
shares of series A preferred stock for $3.7 million. The total redemption value
included the 6% premium on the outstanding book value of the series A preferred
stock. As of December 31, 1999, no shares of series A preferred stock remained
outstanding.
In December 1998, we sold $15.0 million in convertible zero coupon debentures
and warrants to purchase 1,250,000 shares our common stock to investment funds
managed by three institutional investors. We received one-half of the proceeds
upon signing the agreement which resulted in the issuance of $7.5 million series
A convertible debentures and warrants to purchase 625,000 shares of our common
stock. During 1999, all of the series A convertible debentures converted into
750,000 shares of our common stock at $10.00 per share.
In June 1999, we sold $7.5 million of our series B convertible debentures and
warrants to purchase an additional 625,000 shares of our common stock. The
series B debentures are convertible at any time by the holders at a fixed
conversion price of $10.00 per share. The series B warrants are exercisable at
$12.00 per share by the holders of series B convertible debentures. As of March
9, 2000, all of the series B convertible debentures have converted into common
stock.
In September 1999, we sold $12.5 million in series C convertible two-percent
coupon debentures and warrants to purchase 1,100,000 shares of our common stock
to an institutional investor. The debentures are convertible at any time by the
holder at a fixed conversion price of $10.25 per share. We can convert the
debentures when the our common stock has traded at a certain premium to the
fixed conversion price for ten consecutive trading days. The warrants to
purchase 1,000,000 shares of our common stock are exercisable at $12.50 per
share and the warrants to purchase 100,000 shares of our common stock are
exercisable at $12.75 per share. We determined the value of the warrants to be
approximately $2.7 million and recorded this amount as interest expense.
As of March 9, 2000, approximately $6.2 million of the series C convertible
debentures remained outstanding. As of March 9, 2000, institutional investors
have exercised series A warrants to purchase 625,000 shares of our common stock,
series B
24
<PAGE> 29
warrants to purchase 375,000 shares of our common stock and series C warrants to
purchase 1,100,000 shares of our common stock. We received total proceeds of
approximately $25.8 million from the exercise of these warrants.
In March 2000, we sold a total of 380,855 shares of our common stock and 300,000
warrants to purchase our common stock to a single investor for $9 million. We
structured the sale of securities in two parts. We priced the first $6.4 million
of common stock at $50.32 per share, and 200,000 warrants are exercisable at
$67.09 per share. We priced the remaining $2.6 million of common stock at $10.25
per share, and the remaining 100,000 warrants are exercisable at $12.50 per
share. The common stock and the stock underlying the warrants are not registered
for resale and are subject to a two-year prohibition on sale by agreement. As of
March 9, 2000, all of the warrants were outstanding. The majority of funds are
to be used for development of our skin programs.
We estimate that our existing capital resources, payments expected to be made
under the Kyowa Hakko and Pharmacia & Upjohn collaborative agreements, interest
income and equipment financing will be sufficient to fund our current level of
operations through June 2002. Changes in our research and development plans or
other changes affecting our operating expenses may not result in the expenditure
of available resources before such time, and in any event, we will need to raise
substantial additional capital to fund our operations in the future. We intend
to seek additional funding through strategic collaborations, public or private
equity financings, capital lease transactions or other financing sources that
may be available.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
All of our computer hardware and software has been upgraded for Year 2000
compliance. All of our key vendors have provided assurance that they are Year
2000 compliant. While there were no Year 2000 related problems at the
transaction in the Year 2000, we are maintaining our contingency plans in the
event any problems arise in the future.
The statement contained in the foregoing Year 2000 readiness disclosures is
subject to protection under Year 2000 Information and Readiness Disclosure Act.
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BUSINESS
OVERVIEW
We are a biopharmaceutical company focused on discovering, developing and
commercializing therapeutic and diagnostic products for applications in
oncology, drug discovery and regenerative medicine. Our product development
programs are based on three patented, independent and synergistic technologies:
telomerase, human pluripotent stem cells and nuclear transfer. Our three
patented technologies give us a competitive edge because each of these
technologies individually and in combination will be necessary to develop and
commercialize our therapeutic products.
Telomeres are structures at the ends of chromosomes that act as a molecular
clock of cellular aging--when telomeres reach a critical short length, the cell
stops dividing and becomes senescent, or old. Telomerase is an enzyme that
restores telomere length and rewinds the molecular clock, thereby extending a
cell's ability to multiply or replicate. By activating telomerase, we seek to
increase the lifespan of normal cells which have prematurely aged in the body to
treat certain chronic degenerative diseases. Conversely, by inhibiting
telomerase using small molecules, we hope to kill cancer cells where telomerase
is abnormally turned on and to diagnose cancer by measuring telomerase activity.
We have identified classes of small molecule compounds that are effective
telomerase inhibitors which are being evaluated by us and our collaborators,
Pharmacia & Upjohn and Kyowa Hakko. As a result of our recent confirmation of
telomerase inhibition by these small molecules in cell culture, both of our
collaborators have extended their funded research collaborations with us.
Human pluripotent stem cells, also known as hPSCs, can develop or differentiate
into all cells and tissues in the body. As such, they are a potential source for
the manufacture of replacement cells and tissues for applications in
regenerative medicine such as chronic liver, heart and nervous system diseases.
Nuclear transfer is a method for generating human cells or whole animals from
genetic material derived solely from the nucleus of a single cell obtained from
a single individual. In early 1997, scientists at the Roslin Institute in
Scotland demonstrated with the birth of Dolly, the sheep, that the nucleus of an
adult cell can be used to create cloned offspring. In this process, the nucleus
containing all of the chromosomal DNA is removed, or enucleated, from the egg
cell and replaced with the nucleus containing all of the chromosomal DNA from a
donor adult somatic or non-reproductive cell. We intend to develop this
technology to produce genetically-matched cells for use in repairing organs
damaged by chronic degenerative disease that would not be rejected by the
patient's immune system.
By integrating our three technology platforms: extension of the replicative
capacity of cells with telomerase, production of unlimited numbers of functional
cells and tissues from hPSCs, and development of genetically-matched cells using
nuclear transfer, it may be possible to generate transplantable cells or tissues
that would form a durable transplant, potentially lasting the lifetime of the
patient without the need for immunosuppressive drugs. The implication of such an
achievement would be to make regenerative medicine a reality by providing organ
regeneration therapies to every patient with any chronic degenerative disease
that is treatable with cell or tissue transplantation.
We are developing telomerase inhibitors, cancer killing viruses and telomerase
vaccines as anti-cancer therapies. We are developing telomerase-based assays for
applications in cancer diagnostics. We are also creating immortalized liver
cells as a consistent source of normal human liver tissue for use in predicting
the impact of a new drug on human livers in the body. We are developing
gene-based and cell-based therapies for the treatment of chronic degenerative
diseases.
We have established collaborations and alliances with pharmaceutical companies,
other biotechnology companies and leading academic institutions to enhance our
research, development and commercialization capabilities. Our collaborating
commercial licensees include:
- - Kyowa Hakko, with whom we are developing inhibitors of telomerase for cancer
therapy;
- - Pharmacia & Upjohn, with whom we are developing inhibitors of telomerase for
cancer therapy;
- - Roche Diagnostics, with whom we are developing assays to measure telomerase
for research and clinical diagnostics; and
- - Clontech, with whom we are marketing telomerase-immortalized cells for
research.
To date, we own or have licensed over 58 issued or allowed United States patents
and more than 17 granted foreign patents. We also own or have licensed over 265
patent applications that are pending worldwide. We hold rights to over 30 issued
United States patents relating to telomerase. We have licensed several United
States and foreign national patent applications relating to embryonic stem cells
and germ cells and methods for obtaining and maintaining them. These licenses
include an issued United States patent covering primate embryonic stem cells and
allowed United States patent applications covering human embryonic germ cells.
In connection with our acquisition of Roslin Bio-Med, we acquired a license for
a number of
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United States and foreign national patent applications directed at nuclear
transfer, including two issued patents in the United Kingdom and one allowed
patent in the United States.
We were incorporated in 1990 under the laws of Delaware.
STRATEGY
Our objective is to continue to enhance our position as a leading
biopharmaceutical company in the discovery and development of therapeutic and
diagnostic products based upon our understanding of telomere and telomerase
biology, human pluripotent stem cells and nuclear transfer technologies. The
integration of these three technology platforms provides us with a competitive
advantage over others by providing us with the necessary technology tools to
achieve our commercial strategies. The key elements of our strategy to achieve
this objective are described below.
Discover and Develop Novel Therapies and Diagnostics for Cancers as well as Cell
and Gene Therapies for Chronic Degenerative Diseases. We focus our discovery
research on the fundamental mechanisms of cellular aging, cellular immortality,
embryonic stem cell maintenance and differentiation, and nuclear transfer. Our
intent is to develop products based on our understanding of telomere length
regulation by telomerase, the genetic control of embryonic stem cell
differentiation and the molecular biology of nuclear reprogramming by egg cells.
We are developing telomerase inhibitors, oncolytic or cancer killing viruses and
telomerase vaccines as anti-cancer therapies. The integration of our three
scientific platforms: telomerase-immortalized cells, hPSCs and nuclear transfer
technologies allow the development of cell-based therapies that would have broad
application for the treatment of chronic degenerative diseases which are
occurring with increasing frequency in our aging population. We are developing
two basic approaches to restore organ function lost to chronic diseases:
gene-based therapies and cell-based therapies.
Continue to Enhance Our Proprietary Leadership Position. We intend to maintain
our scientific leadership and accelerate our product development programs by
continuing to attract and retain leaders in the fields of cellular aging and
cellular immortality, pluripotent stem cells and nuclear transfer either as
employees or exclusive collaborators. Further, we are aggressively pursuing a
broad and extensive international and domestic patent portfolio to protect our
proprietary technology. To date, we own or have licensed over 58 issued or
allowed United States patents and 17 granted foreign patents. We also own or
have licensed over 265 patent applications that are pending worldwide.
Form Collaborations While Retaining our Ability to Develop and Commercialize
Products. We have established and intend to continue to establish
collaborations and alliances with pharmaceutical companies, other biotechnology
companies and leading academic institutions to enhance our research, development
and commercialization capabilities. We have entered into a three-company
strategic alliance with Kyowa Hakko, a leading oncology company in Japan, and
Pharmacia & Upjohn, a global leader in oncology, for the development and
marketing of a telomerase inhibitor to treat cancer. We have also established a
clinical development alliance with Roche Diagnostics, the global leader in
diagnostics, to develop telomerase-based products for use in cancer diagnosis
and treatment planning. We intend continue to form collaborations while
retaining significant rights to develop and market or co-promote products
representing key therapeutic and diagnostic applications of discoveries
resulting from our research programs.
Commercialize High Value Products based on our Integrated Technology
Platforms. We focus our expertise in telomerase, hPSCs and nuclear transfer
toward those product development programs which offer the shortest development
path and the highest probability of success in oncology and regenerative
medicine. For example, we are developing anti-cancer therapies to inhibit
telomerase activity in cancer cells, telomerase-immortalized liver cells that
could serve as a consistent source of normal human liver tissue, and gene-based
therapies for the treatment of chronic degenerative diseases.
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LOGO
[DESCRIPTION OF GRAPHIC
The graphic, entitled "Product Opportunities," presents three large circles that
overlap. Each circle partially overlaps the other two with a portion in the
middle of the graphic where all three circles overlap. The three circles come
together to form an inverted triangle with a circle forming each corner of the
triangle.
The upper left circle has the word "Telomerase" centered inside the circle. The
upper right circle has the term "hPSCs" centered inside the circle. The single
lower circle has the words "Nuclear Transfer" centered inside the circle.
To the left of the circle labeled "Telomerase" is the phrase, "Chronic
Degenerative Diseases" with two subphrases set off with bullets entitled
"Chronic Liver Disease" and "Impaired Wound Healing" below. A line points from
these phrases to the circle labeled Telomerase.
To the lower left of the circle labeled "Telomerase" is the phrase, "Cancer
Diagnostics Cancer Therapeutics" with three subphrases set off with bullets
entitled "Inhibitors", "Oncolytic Virus" and "Vaccine" below. A line points from
these phrases to the circle labeled Telomerase.
To the lower left of the circle labeled "Nuclear Transfer" is the word,
"Agriculture" with two subphrases set off with bullets entitled "Improved
Quality Traits" and "Disease Resistance" below. A line points from these phrases
to the circle labeled Nuclear Transfer.
To the upper right of the circle labeled "hPSCs" is the phrase, "Drug Discovery
Technology" with five subphrases set off with bullets entitled "Gene Function",
"New Targets", "Database Drug Screens", "Toxicity/Metabolism" and "Disease
Modeling" below. Lines point from these phrases to the circles labeled
Telomerase and hPSCs.
To the lower right of the circle labeled "hPSCs" is the phrase, "Regenerative
Medicine" with four subphrases set off with bullets entitled "Chronic Liver
Disease", "Heart Disease", "Neurological Diseases", and "Diabetes" below. Lines
point from these phrases to the circles labeled Telomerase, hPSCs and Nuclear
Transfer.
To the lower right of the circle labeled "Nuclear Transfer" is the word,
"Xenotransportation" with three subphrases set off with bullets entitled
"Heart", "Kidney" and "Pancreas" below. A line points from these phrases to the
circle labeled Nuclear Transfer.]
OUR TECHNOLOGY
Telomeres and Telomerase: Their Role in Cellular Aging and Cancer
Cells are the building blocks for all tissues in the human body, and cell
division plays a critical role in the normal growth, maintenance and repair of
human tissue. However, in the human body, cell division is a limited process.
Depending on the tissue type, cells generally divide only 60 to 100 times during
the course of their normal lifespan.
We and our collaborators, have shown that telomeres, located at the ends of
chromosomes, are key genetic elements involved in regulation of the cellular
aging process. Our work has shown that each time a normal cell divides,
telomeres shorten. Once telomeres reach a certain short length, cell division
halts and the cell enters a state known as senescence or aging. Our
collaborators have used mouse models to show that this type of cellular aging
can cause numerous age-related degenerative changes in mammals. We believe that
this cellular aging process, which occurs in numerous tissues throughout the
human body, causes or contributes to chronic degenerative diseases and
conditions including chronic liver disease, AIDS, macular degeneration or a
chronic disease of the eyes often leading to vision loss, atherosclerosis or
narrowing of arteries which reduces blood flow to internal organs, and impaired
wound healing.
We and our collaborators have demonstrated that telomeres serve as a molecular
"clock" for cellular aging and that the enzyme telomerase, when introduced into
normal cells, is capable of restoring telomere length or resetting the "clock,"
thereby increasing the lifespan of cells without altering their normal function
or causing them to become cancerous. Human telomerase, a complex enzyme, is
composed of a ribonucleic acid component, also known as RNA or hTR, and a
protein component, also called hTERT. In 1994, we cloned the gene for hTR and in
1997, in collaboration with Dr. Thomas Cech at the University of Colorado,
Boulder, we cloned the hTERT gene.
Our work and that of others has shown that telomerase is not present in most
normal cells and tissues, but that during tumor progression, telomerase is
abnormally reactivated in all major cancer types. We have shown that unlike the
mutations which cause cancer, the presence of telomerase only enables cancer
cells to maintain telomere length, providing them with indefinite replicative
capacity. Inhibiting telomerase activity should result in telomere shortening
and therefore the aging and eventual death of the cancer cell.
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Human Pluripotent Stem Cells: A Potential Source for the Manufacturing of
Replacement Cells and Tissues
Stem cells generally are self-renewing primitive cells that can develop into
functional, differentiated cells. Human pluripotent stem cells are unique
because they can develop into all cells and tissues in the body. There are two
types of human pluripotent stem cells, also called hPSCs: human embryonic stem
cells, also known as hES cells, which are derived by our collaborators from
donated in vitro fertilized blastocysts or very early-stage embryos; and human
embryonic germ cells also known as hEG cells, which are derived from donated
fetal material.
In addition to their pluripotent characteristics, hES cells express telomerase
and can therefore multiply or replicate indefinitely. The ability of hES cells
to divide indefinitely in the undifferentiated state without losing pluripotency
is a unique characteristic that distinguishes them from all other stem cells
discovered to date in humans. Other stem cells such as blood or gut stem cells
express telomerase at very low levels or only periodically; they therefore age,
limiting their use in research or therapeutic applications. Human embryonic stem
cells also maintain a structurally normal set of chromosomes even after
prolonged growth in culture. They do not, for example, have any abnormal
additions, deletions or rearrangements in their chromosomal structure as is
characteristic of cell lines derived from tumors or immortalized by viruses.
Although not as well characterized as hES cells, we believe that hEG cells will
share most of the characteristics of hES cells.
We intend to use hPSC technology to
- - enable development of transplantation therapies by providing standard starting
material for the manufacture of cells and tissues,
- - facilitate pharmaceutical research and development practices by providing
cells for screening, and assigning function to newly discovered genes, and
- - accelerate research in human developmental biology by identifying the genes
that control human development.
Nuclear Transfer: A Potential Mechanism for Generating Genetically Matched Cells
and Tissues
Nuclear transfer is a method for generating human cells and whole animals whose
genetic material is derived solely from the nucleus of a single cell obtained
from a single individual. In this process, the nucleus containing all of the
chromosomal DNA is removed, or enucleated, from the egg cell and replaced with
the nucleus containing all of the chromosomal DNA from a donor somatic or
non-reproductive cell. Fusion between the resulting egg cell and the donor
somatic nucleus results in a new cell which gains a complete set of chromosomes
derived entirely from the donor nucleus. After a brief culture period, the
resulting embryo is implanted into the uterus of a female animal, where it can
develop and produce the live birth of a cloned offspring. The offspring is a
genetic clone of the animal from which the donor nucleus was obtained.
In early 1997, Dr. Ian Wilmut and his colleagues at the Roslin Institute
demonstrated with the birth of Dolly, the sheep, that the nucleus of an adult
cell can be transferred to an enucleated egg to create cloned offspring. The
birth of Dolly was significant because it demonstrated the ability of egg cell
cytoplasm, also known as the portion of the cell outside of the nucleus, to
reprogram an adult nucleus. Reprogramming enables the adult differentiated cell
nucleus to express all the genes required for full embryonic development of the
adult animal. Since Dolly was cloned, the technique has been used to clone mice,
goats and cattle from donor cells obtained from adult mice, goats and cattle,
respectively.
In 1999, we acquired Roslin Bio-Med Ltd., a commercial subsidiary of the Roslin
Institute which pioneered the use of nuclear transfer technology for the
creation of cloned animals, in order to complement and strengthen our technology
platform. We also entered into a research collaboration with the Roslin
Institute to focus on understanding the molecular mechanisms used by animal egg
cell cytoplasm to reprogram adult animal nuclei.
A key objective of our collaboration with the Roslin Institute is to learn how
to confer the reprogramming capability normally found in the egg cell cytoplasm
to the cytoplasm of a somatic cell in order to eliminate reliance on harvested
eggs. In this way, we believe that transplantable genetically-matched cells
could be derived from pluripotent stem cells generated through nuclear transfer
using adult cells taken from the intended transplant recipient. Such cells would
not trigger immune rejection because they would match exactly the tissue
antigens of the transplant recipient. We intend to develop this technology to
produce genetically-matched cells for use in repairing organs damaged by
degenerative disease.
COMMERCIAL OPPORTUNITIES FOR OUR PROGRAMS
Oncology
Cancer is a group of diseases characterized by uncontrolled growth and spread of
abnormal cells. The American Cancer Society estimates that approximately 1.2
million cancer cases will be diagnosed in the year 2000. Overall annual costs
associated with cancer currently amount to $107 billion in the United States
alone. Because telomerase is detectable in more
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than 30 human cancer types and in over 80 percent of cancer samples studied, we
believe that a telomerase inhibitor could overcome the limitations of current
cancer therapies and potentially be a broadly applicable and highly specific
drug treatment for cancer.
We are working to discover and develop telomerase inhibitors; oncolytic, or
cancer killing, viruses; and telomerase vaccines, for anti-cancer therapies. We
also intend to continue to develop and commercialize products using telomerase
as a marker for cancer diagnosis, prognosis, patient monitoring and screening.
We believe that we have achieved a dominant position in telomerase research and
in telomerase intellectual property which gives us a significant advantage in
the discovery and development of oncology products based on telomerase.
Telomerase Inhibition. Telomerase activation is necessary for most cancer cells
to replicate indefinitely thereby enabling tumor growth and metastasis. One of
our strategies for the development of anti-cancer therapies is to inhibit
telomerase activity in cancer cells. Inhibiting telomerase activity should
result in telomere shortening and therefore the aging and eventual death of the
cancer cell. Because telomerase is not expressed in most normal cells, the
telomerase inhibition therapies described below are not expected to be cytotoxic
to normal cells. We have focused our efforts on two approaches to produce a
telomerase inhibitor effective in the treatment of cancer. Both approaches have
produced compounds which should advance to animal studies in 2000. We and our
collaborators have research programs focused upon our telomerase-inhibiting
molecules with the goal of advancing an inhibitor to clinical development.
- - Oligonucleotides. We have designed and synthesized a special class of
short-chain nucleic acid-like molecules, also known as oligonucleotides, to
target the RNA component of telomerase. These oligonucleotides have
demonstrated highly potent telomerase inhibitory activity at sub-nanomolar, or
very low, concentrations in both biochemical assays and various cellular
systems. Based on these promising results, we plan to initiate tests of these
molecules in animal models of cancer in the coming year. We hold rights to
this class of oligonucleotides for telomerase inhibition, and have also
developed several new oligonucleotide-based chemistries for which we have
filed our own patent applications.
- - Small Molecules. Through high-throughput screening of highly diverse chemical
compound libraries, we have identified classes of small molecule compounds
that are effective telomerase inhibitors which are being evaluated by us and
our collaborators, Pharmacia & Upjohn and Kyowa Hakko. As a result of our
recent confirmation of telomerase inhibition by these small molecules in cell
culture, both of our collaborators have extended their funded research
collaborations with us.
Oncolytic Virus. Our second anti-cancer therapeutic strategy is based on viruses
which have been manipulated or engineered to have oncolytic, or cancer-killing
properties and which would selectively target and destroy cancer cells. We are
developing customized adenoviruses, also known as common cold viruses, that will
infect and kill cancer cells which express telomerase and not normal cells which
do not express telomerase. To pursue this goal, we have cloned the region of the
hTERT gene that is responsible for turning on or off the activity of telomerase
in a cell, called the promoter sequence. We have demonstrated that this promoter
is only turned on in telomerase-positive cells, and is turned off in normal
somatic cells.
We are using the hTERT promoter to turn on the genes which are required for the
adenovirus to replicate. Our data indicate that when tumor cells are infected
with the adenovirus which contains the hTERT promoter, the virus multiplies or
replicates within the cancer cells and causes the rupture and death, or lysis,
of the tumor cells. When these same adenoviruses containing the hTERT promoter
infect normal somatic tissue, there is no effect on the cells. We are currently
evaluating this oncolytic virus in both local and metastatic animal tumor
models. We believe that these oncolytic viruses could be used to treat many
types of primary and metastatic cancers.
Telomerase Vaccine. Our third approach to developing an anti-cancer therapy is a
telomerase vaccine. Telomerase is present in the majority of human cancer cells
but is absent in most normal somatic cells. In this approach, we deliver
telomerase to special immune cells called dendritic cells which instruct the
immune system to detect cells that express telomerase and kill them.
We are conducting research to confirm the safety and efficacy of telomerase
dendritic cell vaccine therapies. We are also developing procedures for direct
immunization of patients using telomerase. This direct method of vaccination
would eliminate the need for manipulation of dendritic cells in culture and
could potentially allow simple vaccination procedures to be available for all
cancer patients.
Cancer Diagnostics. Telomerase is a broadly applicable and highly specific
marker for cancer because it is detectable in more than 30 human cancer types
and in over 80 percent of cancer samples studied. We believe that the detection
of telomerase may have significant clinical utility for cancer diagnosis,
prognosis, monitoring and screening. Current cancer diagnostics apply only to a
single or limited number of cancer types because they rely on molecules
expressed only by particular cancer types; telomerase-based diagnostics could
potentially address a broad range of cancers.
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We have developed several proprietary assays for the detection of telomerase
which are based on its activity or the presence of its RNA or protein
components. The first-generation assay is the Telomeric Repeat Amplification
Protocol, or "TRAP," assay which can be used to detect telomerase activity in
human tissue or cells in culture. The second generation assays detect the
presence of hTR and hTERT in human tissues and body fluids. We own issued
patents for the detection of telomerase activity and the components of
telomerase including patents for the TRAP assay and diagnostic methods based on
telomerase detection. To date, our licensees have commercialized ten
research-use-only kits that incorporate our technology.
We are working with Roche Diagnostics to develop the full clinical potential of
our telomerase detection technology. Research data shows that an assay for
telomerase is a more sensitive and specific test for screening bladder cancer
than other commercially available tests. We believe that this and other data
support the clinical application of telomerase assays in diagnosis, staging,
monitoring and screening for bladder, cervical, prostate and other cancers.
Research Tools for Drug Discovery
Genomics. The Human Genome Project, an international research program conducted
by the United States Department of Energy and the National Institutes of Health,
is nearing completion with the goal of sequencing and mapping every human gene
within the genome. Despite this catalogue of human gene sequences, little is
known about when or in what cells genes are expressed or how they function. The
next major hurdle is to determine the function of these genes and to use this
information to develop new diagnostic and therapeutic approaches for many
diseases.
Pluripotent stem cells are especially suitable to help define the function of
genes involved in cell proliferation, differentiation and metabolism. The
effects of adding or knocking out specific genes in hPSCs can be monitored,
providing evidence for the function of the gene on a particular proliferation or
differentiation process. We are now developing screening procedures using hPSCs
to identify the function of multiple genes simultaneously. Identification of the
function of genes will allow the selection of genes that would be good targets
for drug development.
Immortalized Cells for Research. Scientists study specific cells from targeted
tissues in order to understand their biological function. In these studies,
cells are usually isolated from tissue and propagated in tissue culture. The
progressive changes in biological activity, morphology, and proliferation as a
result of tissue culture potentially limit the utility of these cells in
parallel experiments and long term research. Because of these limitations, most
research laboratories utilize transformed cell lines for their experimental
studies. Cells can be transformed by viral mechanisms, by using viruses to cause
the cells to grow indefinitely in culture. However, they have abnormal
characteristics compared to non-transformed cells. For this reason, such
transformed cells are not good models of normal tissues in the human body.
The telomerase-immortalized cells are ideal for use in biological research
because these cells proliferate indefinitely and function in culture in the same
manner as the normal, mortal cells from which they were derived. Moreover,
telomerase-immortalized cells can function in the body to form normal tissue and
their capacity to differentiate into mature tissue is maintained. Their
maintenance of normal physical and biological characteristics while retaining
proliferative capacity allows them to be a constant source of cells for repeat
and long-term studies on the function of cells both in culture and in the body.
Telomerase-immortalized cells can be used to study any of the normal biological
pathways in cells and can be used to screen for factors which influence the
appropriate function of those cells. Moreover, telomerase-immortalized cells
taken from diseased tissues can be used to explore the mechanism of the disease
process and to develop interventions to prevent or treat that disease.
We distribute the human telomerase gene under material transfer agreements to
academic laboratories worldwide in order to generate new applications and to
preserve our commercialization rights in these applications. To date, we have
material transfer agreements with over 300 academic laboratories worldwide.
To distribute our telomerase immortalized cell lines commercially, we
established an alliance with Clontech, to distribute telomerase immortalized
cell lines to the not-for-profit research market for basic research
applications. Under the alliance, we execute licenses with, and receive license
fees from, commercial entities that are supplied by Clontech.
Drug Screens. Three of the major hurdles of pharmaceutical drug development are
(i) identification of compounds with activity in diseased tissue; (ii)
understanding the metabolism and biodistribution of the compound; and (iii)
determination of the potential toxic side effects of the compound. Undesirable
activity of a compound being evaluated as a candidate drug in any one of these
areas can impact the development and commercialization of the drug. The earlier
in development that a compound is found to have undesirable characteristics, the
faster these characteristics can be potentially corrected. This potentially
translates into reduced costs and time in drug development, and less harmful
exposure to patients in clinical trials.
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Many prospective new drugs fail in clinical trials because of toxicity to the
liver or because of poor uptake, distribution, or elimination of the active
compound in the human body. Much of the efficacy and safety of a drug will
depend on how that drug is metabolized into an active or inactive form, and on
the toxic metabolites that might be generated in the process. Hepatocytes, the
major cells of the liver, metabolize most compounds and thereby affect a drug's
pharmacological characteristics.
There are no completely effective systems available today to accurately
determine the metabolism or toxicity of a compound in human livers. Rat and
mouse models only approximate human metabolism. The development of several drugs
has been terminated late in human clinical trials because rodent systems
utilized early in the development process failed to predict that the drug would
be toxic to humans. Human hepatocyte cell lines available today do not have the
same attributes as their normal counterparts in the body and must be transformed
in order to maintain their proliferative capacity in culture. Access to fresh
primary human liver tissue to be used in toxicity studies is very unreliable and
substantial variability can be observed depending on the individual donor, the
time and process of collection, and the culture conditions for the experiments.
We believe telomerase-immortalized hepatocytes would serve as a consistent
source of normal human liver tissue which would more closely predict the impact
of a new drug on human livers in the body. We believe that
telomerase-immortalized hepatocytes which retain normal drug metabolism enzymes
would revolutionize toxicity testing, address the largest bottleneck in new drug
research and accelerate the drug development process. To meet this need, we are
creating immortalized hepatocytes using two methods. First, we will apply our
telomerase technology to immortalize human hepatocytes. In every cell system
tested, telomerase-immortalized cells have been shown to function comparably to
their normal non-immortalized counterparts. Therefore, telomerase-immortalized
hepatocytes should also function comparably to hepatocytes in a whole human
liver in the body. Second, we are developing procedures to differentiate hPSCs
into hepatocyte precursors and eventually into mature hepatocytes. Functional
hepatocytes, developed by either immortalization by telomerase or derivation
from hPSCs, would provide a consistent and reliable source of material for
extensive and reproducible compound testing.
We intend to commercialize these cells to more accurately determine the
potential toxicity and metabolism of a new candidate drug. In addition, the
availability of immortalized hepatocytes from numerous individuals would allow a
more thorough understanding of the effects of a drug candidate on a specific
individual, allowing full development of the field of pharmacogenomics whereby a
compound's activity will be correlated with an individual's genetic make-up.
Regenerative Medicine
The preceding product opportunities are examples of how we plan to use each of
our three technology platforms. Additional opportunities arise from their
combination. The integration of our three scientific platforms:
telomerase-immortalized cells, hPSCs and nuclear transfer technologies allow the
development of cell-based therapies that would have broad application for the
treatment of chronic degenerative diseases which are occurring with increasing
frequency in our aging population. We are developing two basic approaches to
restore organ function lost to chronic diseases: gene-based therapies and
cell-based therapies.
We are developing gene-based therapies by which the hTERT gene is transferred
directly to cells to extend their replicative capacity and thereby restore
normal function. We expect that the restoration of telomerase activity in a
controlled manner directly in the body will have therapeutic applications for
the treatment of blood, skin, liver and immune disorders where deficiencies in
cell proliferation have been noted.
In cell-based therapies, differentiated cells derived from hPSCs would be
directly injected into the affected tissue where they would integrate into the
target tissue and thereby restore organ function. This approach is particularly
applicable for the regeneration of tissues that do not normally divide in the
body. Such cells include cardiomyocytes or heart muscle cells, neural cells,
hepatic cells and pancreatic (LOGO) islet cells. We are currently developing the
following cell types and therapeutic approaches.
Chronic Liver Disease. There are over 25,000 deaths in the United States every
year due to chronic liver disease. This number is expected to increase with the
growing number of people who are infected with hepatitis B and C viruses. Each
year over $9 billion is spent at hospitals in the United States alone for the
treatment and management of patients with chronic liver diseases.
Liver regeneration is not observed in most patients with chronic liver disease.
Compromised liver function and chronic liver disease can result from prolonged
exposure to various harmful factors such as chemical toxins, chronic alcohol
intake, autoimmune inflammation, metabolic disorders, viral infections and
others. Patients with advanced stages of chronic liver diseases often suffer
from other complications such as diabetes, bleeding disorders, portal
hypertension or localized high blood pressure, edema or fluid retention, mental
dysfunction, immune dysfunction, kidney failure and liver cancer, eventually
leading
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to death. Treatment for patients with advanced liver disease usually consists of
liver transplantation. Despite some success with this procedure, the majority of
candidate patients do not receive transplants due to low organ availability.
Telomerase is not normally expressed in human liver cells and recent studies
have shown that shortened telomere lengths are observed in the livers of
patients with chronic liver diseases. Studies in mice, in which the RNA
component of the telomerase gene has been removed, show that these animals have
increased sensitivity to liver damage. Restoring telomerase activity in those
mice results in the restoration of hepatic regenerative capacity.
We plan to utilize our technology platforms in several different formats to
treat liver diseases. In one application, we are developing methods to generate
telomerase activity in hepatocytes. In this approach, using gene-based therapy,
the telomerase gene is delivered directly to the liver to determine if
telomerase can restore the regenerative capacity of the damaged liver. As a
second approach, using cell-based therapy, we will apply the same techniques
being developed to produce human hepatocytes for drug discovery to create
hepatocytes for therapeutic intervention in liver disease. Several potential
alternative cell-based therapies are being explored. The first is an external
device which would incorporate immortalized human hepatocytes to supplement the
patient's own liver function during acute flares of chronic liver disease. The
second is the transplantation of immortalized hepatocytes into the patient's
liver to seed and stimulate hepatocyte repopulation. Successful development of
these therapies potentially could provide therapeutic alternatives for the high
proportion of patients who are not candidates for liver transplantation or for
whom transplantable organs are not available.
Heart Disease. Heart muscle cells, also known as cardiomyocytes, do not
regenerate during adult life. When heart muscle is damaged by injury or
decreased blood flow, functional contracting heart muscle is replaced with
nonfunctional scar tissue. Congestive heart failure, a common consequence of
heart muscle or valve damage, affects more than four million people in the
United States. This year, it is estimated that about 1.1 million people will
have a heart attack, which is the primary cause of heart muscle damage.
We intend to use cardiomyocytes derived from hPSCs to treat heart disease. Proof
of concept of our approach has been demonstrated in mice. Mouse embryonic stem
cells were used to derive mouse cardiomyocytes. When injected into the hearts of
recipient adult mice, the cardiomyocytes repopulated the heart tissue and stably
integrated into the muscle tissue of the adult heart. These results suggest that
hPSC-derived cardiomyocytes could be developed for cellular transplantation
therapy in humans suffering from congestive heart failure and heart attacks. We
have derived human cardiomyocytes from hPSCs and observed their normal
contractile function. We plan to test these cardiomyocytes in animal models to
establish the safety and efficacy of this cell-based therapy.
Parkinson's Disease, Stroke and Spinal Cord Injury. The major neural cells of
the nervous system typically do not regenerate after injury. If a nerve cell is
damaged due to disease or injury, there is no treatment at present to restore
lost function. Millions of patients worldwide suffer from injury to or disorders
associated with degeneration of the nervous system. Strokes are caused by blood
clots or local bleeding in the brain and result in the death or degeneration of
critical brain cells. Over 500,000 Americans suffer strokes each year. Stroke
patients are often permanently compromised by loss of cognitive motor and
sensory functions. There is no treatment available today except costly long-term
rehabilitation programs which have limited utility in restoring function. Over
one million Americans suffer from Parkinson's disease, a neurological disorder
caused by the progressive degeneration of specific cells within the brain that
control certain motor functions. In the case of spinal cord injuries, patients
are often left partly or wholly paralyzed because nerve cells in the spinal cord
have been severed and cannot regenerate. Such patients are permanently disabled,
often institutionalized, some requiring life support.
Embryonic stem cell-derived neurons have been used to treat nervous system
disorders in animal models. Mouse embryonic stem cells were stimulated to
differentiate into neural cells which, when transplanted into mice with
neurological disorders, helped to restore normal function. In the case of spinal
cord injuries, neurons derived from animal embryonic stem cells produced partial
recovery of the animal's ability to move and bear weight when injected into the
spinal cord injury site.
We have derived the major types of neural cells from hPSCs cells in
culture--human neurons, astrocytes, and oligodendrocytes. We have devoted a
significant portion of our research activities to develop procedures that should
enable us to produce these neural cells for transplantation therapy in humans.
We will first test these cells in appropriate animal models to determine whether
they can restore normal neural function. We intend to repair the damaged
portions of patients' nervous systems by transplanting differentiated neurons
produced from hPSCs.
Skin. The skin is a major organ system of the body whose deterioration with age
impacts not just human physical health but also our appearance and self-esteem.
The thinning and increased wrinkling of older skin is symptomatic of impaired
wound healing and results in increased frequency of chronic ulcers. Skin cancers
are more prevalent than any other form of cancer and are believed to be caused
in part by aging of skin cells.
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We have initiated a major skin program based upon the activation of telomerase
in skin cells. Our scientists and collaborators as well as other researchers
have established that skin cells age in tissue culture and in the body with loss
of telomeric DNA, and that restoration of telomerase activity is capable of
dramatically extending the healthy lifespan of these cells in culture. Animal
models of telomere loss also correlate cellular aging with thinning of skin,
graying of hair, chronic ulcerative lesions at areas of stress, and reduced
ability to repair wounds. Our approach to the therapeutic use of telomerase
activation in skin includes both small molecule drug discovery as well as
biological and genetic methods of introducing telomerase into various skin
cells.
Diabetes. It is estimated that there are as many as one million Americans
suffering from the type of diabetes known as Insulin Dependent Diabetes
Mellitus. Normally, certain cells in the pancreas called the islet (LOGO) cells
produce insulin which promotes the uptake of the sugar glucose by cells in the
human body. Degeneration of pancreatic islet (LOGO) cells results in a lack of
insulin in the bloodstream which results in diabetes. Although diabetics can be
treated with daily injections of insulin, these injections enable only
intermittent glucose control. As a result, patients with diabetes suffer chronic
degeneration of many organs, including the eye, kidney, nerves and blood
vessels. In some cases, patients with diabetes have been treated with islet
(LOGO) cell transplantation. However, poor availability of suitable sources for
islet (LOGO) cell transplantation and the complications of the required
co-administration of immunosuppressive drugs make this approach impractical as a
treatment for the growing numbers of individuals suffering from diabetes.
By integrating our three scientific platforms: telomerase-immortalization, hPSCs
and nuclear transfer, we intend to derive histocompatible, or
genetically-matched, insulin-producing islet (LOGO) cells for transplantation.
Pilot studies are underway with collaborators to determine the effects of
telomerase expression on primary (LOGO) cells derived from human islet tissue.
In addition, we are devising techniques to differentiate islet (LOGO) cells from
hPSCs which would be used in studies of animal models of diabetes. We intend to
derive long-lived, transplantable islet (LOGO) cells which could support the
patient's insulin requirements for life.
Other Applications
Xenotransplantation. The demand for organ transplantation far outweighs the
number of human organs available. It is estimated that there are over 150,000
people worldwide waiting for an organ. In the United States, more than 60,000
individuals were registered on transplant waiting lists at the end of 1998. That
year, however, less than half of the people listed received solid organ
transplants. The demand for organ transplantation will continue to increase as
improved technical skills and anti-rejection medication make whole organ
transplantation a realistic option for groups of people previously considered
not eligible for transplantation--for example, those suffering from diabetes or
those over age 55.
Programs to increase the number of registered donors are extremely
important--but these programs alone will not solve the problem of organ
shortage. One solution under consideration by the medical, pharmaceutical and
biotechnology communities is xenotransplantation--the process of transplanting
cells, tissues or organs from one species to another, for example, from an
animal to a human. This approach potentially could be used either as a bridge to
human organ transplantation or as long term therapy in the form of a permanent
transplant.
Pigs are the preferred source for xenotransplantation because they have organs
of comparable size and anatomy to human organs. Through nuclear transfer, we
intend to produce pigs that have been genetically modified to make their organs
more suitable for transplantation to humans without causing an acute immune
rejection. Acute immune rejection of transplanted pig organs is caused by
natural human antibodies which recognize and react to certain sugar structures
present in the blood vessels of the transplanted pig tissue. We intend to delete
from the pig genome the gene for the enzyme which generates the key sugar
structure that triggers the immune rejection. Once we have created the desired
donor animal, cloning of that animal via nuclear transfer would enable the
cost-effective and scalable production of identical animals for clinical trials.
Cloned herds of pigs which would no longer carry the foreign sugar structure
could become a commercial source of organs that would not be rejected by the
recipients' immune system. Such cloned pigs would serve as sources for multiple
transplantable organs such as hearts, kidneys and pancreases. Our
xenotransplantation program is conducted at Geron Bio-Med, located within the
Roslin Institute in Scotland.
Transgenic Animals. We intend to apply our nuclear transfer technology to clone
animals that have been genetically engineered to produce proteins for human
therapeutic use. For example, herds which carry the genes to make human
antibodies could be cloned, thereby allowing for the large-scale production of
therapeutic antibodies or vaccines.
Agriculture. We intend to use nuclear transfer and gene targeting for
applications in agriculture that improve livestock by producing unlimited
numbers of genetically identical animals with superior commercial qualities.
Such applications can be extended to major agricultural sectors, such as beef,
dairy, pig and chicken, to provide large numbers of animals with superior
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characteristics of disease resistance, longevity, growth rate or product
quality. We are focusing our research collaboration at the Roslin Institute on
developing more efficient nuclear transfer procedures suitable for agricultural
applications.
COMMERCIALIZATION
We believe that our broad scientific platforms will generate significant
opportunities for a variety of strategic collaborations. We have established and
intend to continue to establish selective collaborations with leading
pharmaceutical, diagnostic and technology companies to enhance our research,
development and commercialization capabilities and to participate in
commercialization opportunities. In each of these strategic collaborations and
in future collaborations, we retain and intend to retain co-promotion rights to
participate in the commercial success of our products.
Kyowa Hakko Collaboration
In April 1995, we entered into a license and research collaboration agreement
with Kyowa Hakko. Under the agreement, Kyowa Hakko agreed to provide $16.0
million of research funding over four years to support our program to discover
and develop in several Asian countries a telomerase inhibitor for the treatment
of cancer. All of this research funding had been received as of December 31,
1999. In addition, we are entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on product sales. Kyowa Hakko
also purchased $2.5 million of our common stock in connection with our initial
public offering. Under the Kyowa Hakko Agreement, we exercise significant
influence during the research phase and Kyowa Hakko exercises significant
influence during the development and commercialization phases. Kyowa Hakko has
agreed that it will not pursue independently telomerase inhibition for the
treatment of cancer in humans until March 2002. In February 2000, we amended our
agreement with Kyowa Hakko to extend the research and compound selection periods
under the original agreement to March 2002. We are entitled to receive
additional research funding as part of this extension subject to the terms of
the agreement.
Pharmacia & Upjohn Collaboration
In March 1997, we signed a license and research collaboration agreement with
Pharmacia & Upjohn to collaborate in the discovery, development and
commercialization of a new class of anti-cancer drugs that inhibit telomerase.
Under the collaboration, Pharmacia & Upjohn agreed to provide research funding
over three years. As of December 31, 1999, $13.8 million of research funding had
been received. In addition, we are entitled to receive future payments upon the
achievement of certain contractual milestones relating to drug development and
regulatory progress, as well as royalty payments on future product sales. We
also signed a stock purchase agreement with Pharmacia & Upjohn which provided
for equity investments of $2.0 million in January 1997, $4.0 million in April
1997 and $4.0 million in March 1998. Pharmacia & Upjohn purchased each round of
our common stock at a premium. This collaboration with Pharmacia & Upjohn was
enhanced in 1999 by accessing the high throughput screening capabilities and the
three million compound library of Pharmacopoeia, via an alliance between
Pharmacia & Upjohn and Pharmacopoeia which includes telomerase inhibition. In
October 1999, Pharmacia & Upjohn exercised an option to extend the research and
compound selection periods for an additional year to March 2002. The agreement
provides for payment of additional research funding to us as part of this
extension.
Through our agreements with Kyowa Hakko and Pharmacia & Upjohn, we have granted
to them exclusive worldwide rights to our telomerase inhibition technology for
the treatment of cancer in humans.
Roslin Institute Collaboration
In May 1999, we completed the acquisition of Roslin Bio-Med Ltd., a company
formed by the Roslin Institute in Midlothian, Scotland, in order to complement
and strengthen our technology platforms. Under the terms of the agreement, we
purchased all outstanding shares of Roslin Bio-Med in exchange for 2.1 million
shares of our common stock and Roslin Bio-Med became a wholly owned United
Kingdom subsidiary known as Geron Bio-Med Ltd. In addition, the Roslin Institute
transferred to us the exclusive rights to the patent applications covering
nuclear transfer technology for all animal and human-based biomedical
applications, excluding human reproductive cloning. The license covers all
animal and human-based biomedical applications with the exception of the
production of therapeutic proteins in the milk of ruminants and rabbits, and the
modification of milk composition for nutraceutical use.
In connection with this acquisition, we also formed a research collaboration
with the Roslin Institute and have agreed to provide approximately $20.0 million
in applied research funding over six years. Under this collaboration, we retain
exclusive license rights to commercialize the results of the research. This
alliance brings together three complementary technologies: telomerase
immortalization, human pluripotent stem cells and nuclear transfer technologies.
We and the Roslin Institute will focus on generating genetically-matched human
cells and tissues with extended replicative capacity for use in repairing organ
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damage caused by a range of degenerative diseases, including chronic liver
disease, heart disease, neurologic diseases, skin conditions and diabetes, while
also advancing work underway at the Roslin Institute on the development of
genetically modified cloned animals for applications in xenotransplantation and
agriculture.
Clontech Marketing Agreement
In March 1999, we entered into a development and license agreement with Clontech
to market the Infinity(TM) product family of primary human cell lines
immortalized with the enzyme telomerase. Under the terms of the agreement,
Clontech manufactures and markets products resulting from the use of our
telomerase technology to the not-for-profit research market. Clontech also
supplies products to the biotechnology and pharmaceutical industries under
licenses to be executed between us and the individual commercial companies.
Under the Clontech agreement, Clontech paid us an up-front fee of $50,000 for
development activities. We will equally share operating profits with Clontech
from the sales of the Infinity(TM) Cell Lines, while we will retain all
licensing revenues.
In 1999, Clontech launched the telomerase-immortalized hTERT-RPE1 human retinal
pigment epithelial cell line and the hTERT-BJ1 human fibroblast cell line. We
and Clontech plan to expand the family of Infinity Cell Lines in the future.
Diagnostic Collaborations
Research-Use-Only Kits. Roche Diagnostics has licensed all telomerase and
telomere length assay technologies, including TRAP, hTR, hTERT, and
immunoassays, for research-use-only kits in cancer. All telomerase licenses
previously licensed to Boehringer Mannheim were transferred to Roche Diagnostics
following their acquisition of Boehringer Mannheim. Boehringer Mannheim's
telomerase-related products are now marketed under the Roche Diagnostics label.
In late 1996, Boehringer Mannheim commenced commercial sale of the TRAP research
kit. In 1999, Roche Diagnostics launched three additional research kits.
Examples of other companies marketing research-use-only kits under license
include the following:
- - In 1999, Roche Diagnostics entered into a sublicense agreement with Dako under
which Dako has received non-exclusive rights to develop antibody mediated
telomerase detection assays for research and clinical diagnostic applications
in oncology. We will receive royalties from products commercialized under this
sublicense.
- - Kyowa Medex Co. has licensed our TRAP assay technology on a non-exclusive
basis for the research-use-only market in Japan and commenced commercial sale
of the TRAP kit in late 1996.
- - We licensed the TRAP assay for research-use-only to Oncor Inc. and it has been
subsequently transferred to the Intergen Company following the acquisition of
Oncor's research reagent division by Intergen.
- - PharMingen has licensed our TRAP assay and telomere length measurement
technology on a non-exclusive basis for sale to the research-use-only market.
Although we do not expect royalties from the sale of these kits to be
significant, the use of these kits has stimulated additional studies of
telomerase activity by academic laboratories and standardized the methodology
used to evaluate the role of telomerase in cancer.
In Vitro Diagnostics. In addition to the rights described above related to
research-use-only kits, our December 1997 license, product and marketing
agreement with Boehringer Mannheim also granted Boehringer Mannheim rights to
develop and commercialize clinical in vitro diagnostic products for cancer on an
exclusive, worldwide basis. Under the agreement, Boehringer Mannheim provided
reimbursement in the amount of $500,000 for research previously conducted and is
responsible for all clinical, regulatory, manufacturing, marketing and sales
efforts and expenses. We are entitled to receive future payments upon
achievement of certain contractual milestones relating to levels of product
sales, as well as royalties on product sales. Further, we have an option at our
sole discretion to exercise co-promotion rights with respect to in vitro
diagnostic products in the United States. After the acquisition of Boehringer
Mannheim by Roche Diagnostics in 1998, all telomerase licenses previously
licensed to Boehringer Mannheim were transferred to Roche Diagnostics following
their acquisition of Boehringer Mannheim.
GERON ETHICS ADVISORY BOARD
In July 1998, we created an Ethics Advisory Board whose members represent a
variety of philosophical and theological traditions with broad knowledge in
health care ethics. The advisory board functions as an independent entity,
consulting and giving advice to us on the ethical aspects of our work. Members
of the advisory board have no financial interest in Geron.
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RESEARCH COLLABORATIONS
We selectively enter into, and intend to continue to enter into, collaborative
research agreements with leading academic and research institutions. We design
these collaborative agreements to significantly enhance our research and
development capabilities while enabling us to obtain commercial rights to
intellectual property developed through the research collaboration. Under these
agreements, we generally provide funding or other resources for scientific
research in return for exclusive commercial rights to materials and discoveries
arising out of this research. We seek to retain rights to commercially develop
and market discoveries made under these research programs by obtaining options
to exclusively license technology developed under them, including patents and
patent applications filed in connection with these research programs.
As of December 31, 1999, we have collaborative research agreements in support of
our oncology program with a number of institutions, including Duke University,
Lawrence Berkeley National Laboratory, the National Cancer Institute, Madigan
Army Medical Center, Stanford University, the University of Colorado, the
University of Texas Southwestern Medical School at Dallas, the University of
California at San Francisco, and the University of Pittsburgh. We have
collaborative research agreements in support of our research of
telomerase-immortalized cells with numerous institutions, including Duke
University, the Lawrence Berkeley National Laboratory, the Memorial
Sloan-Kettering Cancer Center, Stanford University, and the University of
California at Los Angeles. We have exclusive license and collaborative research
agreements in support of our human pluripotent stem cell research and
regenerative medicine program with the Johns Hopkins University, the University
of California at San Francisco, the University of Edinburgh and the University
of Wisconsin-Madison.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Geron's three core technology platforms are supported by a broad intellectual
property portfolio of issued patents and pending patent applications. We
currently own or have licensed over 58 issued or allowed United States patents,
more than 17 granted foreign patents and over 265 patent applications that are
pending around the world.
Our policy is to seek, when appropriate, patent protection for inventions in our
core technology platforms as well as ancillary technologies that support these
platforms or otherwise provide a competitive advantage to us. We achieve this by
filing patent applications for discoveries made by us alone or made in
conjunction with our scientific collaborators and strategic partners. Typically,
although not always, we file patent applications in the United States and
internationally through the Patent Cooperation Treaty. In addition, we obtain
licenses or options to acquire licenses from other organizations to patent
filings that may be useful in advancing our scientific and commercial programs.
We hold rights in more than 30 issued United States patents relating to
telomerase. We currently have an issued United States patent covering purified
human telomerase, and exclusive rights to issued Swiss and United Kingdom
patents covering the cloned gene that encodes the human telomerase protein
component. We also have exclusive rights to an issued United Kingdom patent
covering the promoter that regulates the activity of this gene. With respect to
telomerase diagnostics, our portfolio includes 21 issued United States patents
and nine issued foreign patents. The patents cover compositions of the RNA and
protein components of telomerase, the TRAP assay for detecting telomerase
activity, telomerase activity detection kits, and methods of diagnosing disease
states, such as cancer. Our portfolio also includes issued United States patents
and pending applications relating to telomerase inhibitors, including nucleic
acids and small molecule telomerase inhibitors. We also own several patent
applications directed to oligonucleotide nucleic acid chemistry.
With respect to our pluripotent stem cells, we own or have licensed several
United States and foreign national patent applications relating to embryonic
stem cells and germ cells, and methods for obtaining and maintaining them. These
licenses include an issued United States patent covering primate embryonic stem
cells and allowed United States patent applications covering human embryonic
germ cells.
As part of our acquisition of Roslin Bio-Med, we acquired a license for a number
of United States and foreign national patent applications directed to nuclear
transfer, including the "quiescence" and "MAGIC" technologies. The quiescence
technology relates to the use of donor cell nuclei that are in resting or
quiescent state for nuclear transfer. The MAGIC technology combines a number of
technical advances that provide enhanced nuclear transfer efficiency. Two United
Kingdom patents, as well as patents in New Zealand and South Africa have now
been granted, and one United States patent application has been allowed,
covering the quiescence technology. Patents to the MAGIC technology have also
been granted in New Zealand and South Africa. We also have filed additional
patent applications to cover inventions that have been produced as a result of
our current research collaboration at the Roslin Institute.
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GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other countries
is a significant factor in the development, manufacture and marketing of our
proposed products and in our ongoing research and product development
activities. The nature and extent to which such regulation applies to us will
vary depending on the nature of any products which may be developed. We
anticipate that many, if not all, of our therapeutic products will require
regulatory approval by governmental agencies prior to commercialization. In
particular, human therapeutic and vaccine products are subject to rigorous
preclinical and clinical testing and other approval procedures of the Food and
Drug Administration, or FDA, and similar regulatory authorities in European and
other countries. Various governmental statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and recordkeeping
related to such products and their marketing. The process of obtaining these
approvals and the subsequent compliance with appropriate statutes and
regulations require the expenditure of substantial time and money. Any failure
by us or our collaborators to obtain, or any delay in obtaining, approval will
affect the marketing of any products developed by us, and prevent us from
generating product revenues and obtaining adequate cash to continue present and
planned operations.
FDA Regulation
Prior to commencement of clinical studies involving humans, preclinical testing
of new pharmaceutical products is generally conducted on animals in the
laboratory to evaluate the potential efficacy and the safety of the product. The
results of these studies are submitted to the FDA as a part of an
Investigational New Drug application, which must become effective before
clinical testing in humans can begin. Typically, human clinical evaluation
involves a time consuming and costly three-phase process. In Phase I, clinical
trials are conducted with a small number of people to assess safety and to
evaluate the pattern of drug distribution and metabolism within the body. In
Phase II, clinical trials are conducted with groups of patients afflicted with a
specific disease in order to determine preliminary efficacy, optimal dosages and
expanded evidence of safety. In Phase III, large-scale, multi-center,
comparative trials are conducted with patients afflicted with a target disease
in order to provide enough data to demonstrate the efficacy and safety required
by the FDA. The FDA closely monitors the progress of each of the three phases of
clinical testing and may, at its discretion, re-evaluate, alter, suspend, or
terminate the testing based upon the data which have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient. Monitoring of
all aspects of the study to minimize risks is a continuing process. Reports of
all adverse events must be made to the FDA, and studies must be conducted in
compliance with FDA requirements including obtaining informed consent and
approval from one or more Institutional Review Boards.
The results of the preclinical and clinical testing on a drug, along with
manufacturing information, proposed labeling and other information, are
submitted to the FDA in the form of a New Drug Application, or NDA, for approval
prior to commencement of commercial sales. In the case of vaccines or gene and
cell therapies the results of clinical trials are submitted as a Biologics
License Application. FDA may also request review by an outside panel of experts.
In responding to an NDA or Biologics License Application, the FDA may grant
marketing approval, request additional information or deny the application if
the FDA determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all, for any of our products. FDA may also significantly limit the
approved indications, restricting our ability to market the product. Similar
procedures are in place in countries outside the United States.
Once a product is approved by FDA, it is subject to continuing and pervasive
regulation. These regulations include the need for the product to be
manufactured in compliance with the good manufacturing practice regulations, the
reporting of adverse events to FDA, and marketing and promoting the products in
accordance with FDA's rules and policies. FDA routinely inspects companies to
determine if they are complying with the applicable regulations. The failure to
comply with these restrictions can result in FDA enforcement action, including
warning letters, seizure, prosecution, civil penalties, recall of the product,
and cessation of marketing the product.
In general, diagnostic products using our technologies will be regulated as
devices by the FDA. New devices also need FDA clearance before they can be
marketed. Devices may be cleared through the 510(k) premarket notification
process if they are substantially equivalent to devices that are legally on the
market or were on the market prior to May 28, 1976. 510(k) notices will need to
be supported by bench testing, and may also need to be supported by clinical
data. There can be no assurance that any devices that use our technology will be
eligible for clearance through a 510(k) notice, or that 510(k) clearance will be
granted. Devices that cannot be cleared through 510(k) notices will need to be
the subject of approved premarket approval applications, or PMAs, before they
may be marketed. PMAs must be supported by extensive preclinical testing and
clinical testing. The FDA review process for PMAs can be very prolonged, and may
involve review by an outside panel. A PMA for a device using our technology may
not be cleared in a timely fashion, or at all. In addition, some products using
our technology are sold as "research use only." FDA is in the process of
developing a policy that could restrict the sale of products labeled "research
use only." FDA's finalization of this policy could reduce the volume of these
products that are sold.
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Exports of drugs, biologics and devices are regulated by the FDA. Products that
have not yet been approved by FDA can, with a number of limitations and
restrictions, be exported to other countries. The failure to comply with these
restrictions on exports can subject the company to enforcement action.
European and Other Regulatory Approval
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities in Europe and other countries will likely be
necessary prior to commencement of marketing the product in such countries. The
regulatory authorities in each country may impose their own requirements and may
refuse to grant, or may require additional data before granting, an approval
even though the relevant product has been approved by the FDA or another
authority. As with the FDA, the regulatory authorities in the European Union, or
EU, countries and other developed countries have lengthy approval processes for
pharmaceutical products. The process for gaining approval in particular
countries varies, but generally follows a similar sequence to that described for
FDA approval. In Europe, the European Committee for Proprietary Medicinal
Products provides a mechanism for EU-member states to exchange information on
all aspects of product licensing. The EU has established a European agency for
the evaluation of medical products, with both a centralized community procedure
and a decentralized procedure, the latter being based on the principle of
licensing within one member country followed by mutual recognition by the other
member countries.
Other Regulations
We are also subject to various United States, federal, state, local and
international laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with our research work. We
cannot accurately predict the extent of government regulation which might result
from future legislation or administrative action.
EMPLOYEES
As of March 1, 2000, we had 101 full-time employees of whom 39 hold Ph.D.
degrees and 16 hold other advanced degrees. Of the total workforce, 75 are
engaged in, or directly support, our research and development activities and 26
are engaged in business development, finance and administration. We also retain
outside consultants. None of our employees is covered by a collective bargaining
agreement, nor have we experienced work stoppages. We consider relations with
our employees to be good.
PROPERTIES
We currently lease approximately 41,000 square feet of office space at 194
Constitution Drive, 200 Constitution Drive and 230 Constitution Drive, Menlo
Park, California. The lease for the office space expires in January 2002, with
an option to renew the lease for two additional periods of two and one-half
years each. We intend to use this space for general office and biomedical
research and development purposes. We also currently lease 900 square feet of
office space at Roslin Biotechnology Centre, Roslin, Midloyhian, United Kingdom.
The lease for the office space expires in May 2005. We believe that the existing
facilities are adequate to meet our requirements for the near term.
LEGAL PROCEEDINGS
We are not engaged in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our executive
officers and directors as of March 1, 2000:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas B. Okarma, Ph.D., M.D.............. 54 President, Chief Executive Officer and Director
David L. Greenwood........................ 48... Chief Financial Officer, Senior Vice President Corporate
Development, Treasurer and Secretary
David J. Earp, Ph.D. J.D.................. 35 Vice President, Intellectual Property
Calvin B. Harley, Ph.D.................... 47 Chief Scientific Officer
Jane S. Lebkowski, Ph.D................... 44 Vice President, Cell and Gene Therapies
Richard L. Tolman, Ph.D................... 58 Vice President, Drug Discovery
Alexander E. Barkas, Ph.D................. 52 Chairman of the Board, Director
Robert B. Stein, M.D., Ph.D............... 49 Director
Gary L. Neil, Ph.D........................ 59... Director
John P. Walker............................ 51... Director
Ronald W. Eastman......................... 47... Director
Thomas D. Kiley, Esq...................... 56 Director
Edward V. Fritzky......................... 49... Director
</TABLE>
THOMAS B. OKARMA, PH.D., M.D., has served as our President, Chief Executive
Officer and director since July 1999. He is also a director of Geron Bio-Med
Limited, a United Kingdom company. From May 1998 until July 1999, Dr. Okarma was
the Vice President of Research and Development. From December 1997 until May
1998, Dr. Okarma was Vice President of Cell Therapies. From 1985 until joining
us, Dr. Okarma, the scientific founder of Applied Immune Sciences, Inc., served
initially as Vice President of Research and Development and then as its
chairman, chief executive officer and a director, until 1995 when it was
acquired by Rhone-Poulenc Rorer. Dr. Okarma was a Senior Vice President at
Rhone-Poulenc Rorer from the time of the acquisition of Applied Immune Sciences,
Inc. until December 1996. From 1980 to 1985, Dr. Okarma was a member of the
faculty of the Department of Medicine at Stanford University School of Medicine.
Dr. Okarma holds a A.B. from Dartmouth College and a M.D. and Ph.D. from
Stanford University.
DAVID L. GREENWOOD has served as our Chief Financial Officer, Treasurer and
Secretary since August 1995, Vice President of Corporate Development since April
1997 and Senior Vice President of Corporate Development since August 1999. He is
also a Director of Geron Bio-Med Limited, a United Kingdom company. From 1979
until joining us, Mr. Greenwood held various positions with J.P. Morgan & Co.
Incorporated, an international banking firm, and its subsidiaries, J.P. Morgan
Securities Inc. and Morgan Guaranty Trust Company of New York. Mr. Greenwood
holds a B.A. from Pacific Lutheran University and an M.B.A. from Harvard
Business School.
DAVID J. EARP, J.D., PH.D., joined us in June 1999 and has served as our Vice
President, Intellectual Property since October 1999. From 1992 until joining us,
Dr. Earp was with the intellectual property law firm of Klarquist Sparkman
Campbell Leigh and Whinston, LLP where his practice focused on biotechnology
patent law. Dr. Earp holds a B.S. in microbiology from the University of Leeds,
England, a Ph.D. in biochemistry and molecular biology from The University of
Cambridge, England, and conducted postdoctoral research at the University of
California at Berkeley. He received his J.D., Magna cum laude from the
Northwestern School of Law of Lewis and Clark College in Portland, Oregon.
CALVIN B. HARLEY, PH.D., has served as our Chief Scientific Officer since July
1996. From May 1994 until July 1996, Dr. Harley was Vice President of Research
and from April 1993 to May 1994, Dr. Harley was Director, Cell Biology. Dr.
Harley was an Associate Professor from 1989 until joining us, and from 1982 to
1989, an Assistant Professor of Biochemistry at McMaster University. Dr. Harley
also was the Chair of the Canadian Association on Gerontology, Division of
Biological Sciences from October 1989 to October 1991 and Chairman Elect from
1987 to 1989. Dr. Harley holds a B.S. from the University of Waterloo and a
Ph.D. from McMaster University, and conducted postdoctoral work at the
University of Sussex and the University of California at San Francisco.
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<PAGE> 45
JANE S. LEBKOWSKI, PH.D., has served as our Vice President of Cell and Gene
Therapies since August 1999. Since joining us in April 1998 and until August
1999, Dr. Lebkowski served as Senior Director, Cell and Gene Therapies.
Formerly, Dr. Lebkowski was employed at Applied Immune Sciences, from 1986 to
1995 where she served as Vice President, Research and Development. In 1995,
Applied Immune Sciences was acquired by Rhone-Poulenc Rorer, at which time Dr.
Lebkowski was appointed Vice President, Discovery & Product Development. Dr.
Lebkowski graduated Phi Beta Kappa with a B.S. in Chemistry and Biology from
Syracuse University and received her Ph.D. from Princeton University.
RICHARD L. TOLMAN, PH.D., has served as our Vice President of Drug Discovery
since August 1999. From December 1998 until August 1999, Dr. Tolman served as
Senior Director, Medicinal Chemistry overseeing the program to discover and
develop a small molecule telomerase inhibitor. From 1973 until joining us, Dr.
Tolman was employed at the Merck Research Laboratories where he served as Senior
Director, Medicinal Chemistry. He received a B.A. in Chemistry with Honors from
Brigham Young University and earned a Ph.D. with distinction from the University
of Utah.
ALEXANDER E. BARKAS, PH.D., has served as our Chairman of the Board since July
1993 and as a director since March 1992. From March 1992 until May 1993, he
served as our President and Chief Executive Officer. He is a founding partner of
Prospect Venture Partners, a venture capital investment firm formed in October
1997. Dr. Barkas was a partner with Kleiner Perkins Caufield & Byers, a venture
capital investment firm, from 1991 to October 1997. Dr. Barkas is also a
director of Connetics Corp. and several privately held medical technology
companies. He holds a B.A. from Brandeis University and Ph.D. from New York
University.
ROBERT B. STEIN, M.D., PH.D., has served as our director since April 1996. Since
September 1996 Dr. Stein has been Executive Vice President of Research &
Preclinical Development at DuPont Pharmaceuticals. From August 1993 to September
1996, Dr. Stein was Senior Vice President and Chief Scientific Officer of Ligand
Pharmaceuticals, Inc., a pharmaceutical company, and from May 1990 to August
1993, he was Vice President of Research at Ligand. From 1982 to 1990, Dr. Stein
held various positions with Merck, Sharp, and Dohme Research Laboratories, a
pharmaceutical company, including Senior Director and Head of the Department of
Pharmacology from 1989 to 1990. Dr. Stein holds a B.S. in Biology and Chemistry
from Indiana University and an M.D. and a Ph.D. in Physiology and Pharmacology
from Duke University.
GARY L. NEIL, PH.D., has served as our director since September 1998. Dr. Neil
is also a director of Crescendo Pharmaceutical Corporation, Allergen Specialty
Therapeutics, Inc. and Signal Pharmaceuticals, Inc. He has also been the
president and chief executive officer of Crescendo Pharmaceuticals since its
inception in September 1997. From 1993 to 1997, he was the president and chief
executive officer of Therapeutic Discovery Corporation which was formed by ALZA
Corporation and purchased by them in 1997. From 1989 to 1993, Dr. Neil served as
executive vice president of American Home Products' subsidiary Wyeth-Ayerst
Research where he led Wyeth-Ayerst's worldwide pharmaceutical research and
development organization. Prior to joining American Home Products, Dr. Neil
served 23 years at The Upjohn company in a number of scientific and management
positions. Dr. Neil holds a B.Sc. in Chemistry from Queen's University, Canada
and a Ph.D. in Organic Chemistry from California Institute of Technology.
JOHN P. WALKER has served as our director since April 1997. He is currently
chairman and chief executive officer and a director of Axys Pharmaceuticals,
Inc., which is the corporation that resulted from the merger of Arris
Pharmaceutical Corporation and Sequana Therapeutics, Inc. Mr. Walker is also a
director of Microcide Pharmaceuticals. From 1993 to 1997, he was President,
Chief Executive Officer and a director of Arris Pharmaceutical Corporation.
Prior to his association with Arris, Mr. Walker was the Chairman and Chief
Executive Officer of Vitaphore Corporation, a biomaterials company which was
sold to Union Carbide Chemical and Plastics Company Inc. in 1990. From 1971 to
1985, Mr. Walker was employed by American Hospital Supply Corporation in a
variety of general management, sales and marketing positions, most recently
serving as President of the American Hospital Company. He holds a B.A. from the
State University of New York at Buffalo and conducted graduate business studies
at Northwestern University Institute for Management. Mr. Walker serves as a
director of Microcide Pharmaceuticals, Signal Pharmaceuticals, and the Northern
California Chapter of the Multiple Sclerosis Society.
RONALD W. EASTMAN has served as our director since May 1993. He served as our
President and Chief Executive Officer from May 1993 to July 1999. From 1978
until joining us, Mr. Eastman was employed with American Cyanamid Co., most
recently as a Vice President and General Manager of Lederle Laboratories,
American Cyanamid's pharmaceutical business. Mr. Eastman holds a B.A. from
Williams College and an M.B.A. from Columbia University.
THOMAS D. KILEY, ESQ., has served as our director since September 1992. He has
been self-employed since 1988 as an attorney, consultant, and investor. From
1980 to 1988, he was an officer of Genentech, Inc., a biotechnology company,
serving variously as Vice President and General Counsel, Vice President for
Legal Affairs and Vice President for Corporate Development. From 1969 to 1980,
he was with the Los Angeles law firm of Lyon & Lyon and was a partner in that
firm from 1975 to 1980. Mr. Kiley is also a director of Pharmacyclics, Inc.,
Connetics Corp., Cardiogenesis Corporation and certain
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<PAGE> 46
privately held biotechnology and other companies. Mr. Kiley holds a B.S. in
Chemical Engineering from Pennsylvania State University and a J.D. from George
Washington University.
EDWARD V. FRITZKY, has served as our director since July 1998. He is currently
and has been Chief Executive Officer, President, Chairman and Director of
Immunex Corporation since January 1994. Mr. Fritzky has served as a Director of
Sonosite, Inc. since March 1998. Mr. Fritzky served as President of Lederle
Laboratories, a division of American Cyanamid, from 1992 to 1994, and as Vice
President of Lederle Laboratories from 1989 to 1992. Prior to joining Lederle
Laboratories, Mr. Fritzky was an executive of Searle Pharmaceuticals, Inc., a
subsidiary of the Monsanto Company. During his tenure at Searle, Mr. Fritzky was
Vice President of Marketing in the United States, and later President and
General Manager of Searle Canada, Inc. and Lorex Pharmaceuticals, a joint
venture company. Mr. Fritzky holds a B.A. from Duquesne University and is a
graduate of the Advanced Executive Program, J.L. Kellogg Graduate School of
Management at Northwestern University.
There are no family relationships among our executive officers or directors.
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<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
As of December 31, 1999, our authorized capital stock consisted of 35,000,000
shares of common stock, $0.001 par value per share, and 3,000,000 shares of
preferred stock, $0.001 par value per share. As of December 31, 1999, there were
17,381,095 shares of common stock outstanding held of record by approximately
807 record holders.
COMMON STOCK
Each common stockholder is entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
any outstanding preferred stock, the common stockholders are entitled to receive
ratably any dividends that are declared from time to time by the board of
directors out of legally available funds. In the event of liquidation,
dissolution or winding up, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
rights of preferred stock, if any, then outstanding. The common stock has non-
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the common stockholders. All
outstanding shares of common stock are, and the shares offered by us in this
offering will be when issued and paid for, fully paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority to issue up to 3,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences and
privileges, including dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of the series, without any
further vote or action by stockholders. The issuance of preferred stock could
adversely affect the voting power of holders of common stock and the likelihood
that these holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deterring or preventing a change in
control. Satisfaction of any dividend preferences of outstanding preferred stock
would reduce the amount of funds available, if any, for the payment of dividends
on common stock. Holders of preferred stock would typically be entitled to
receive a preference payment.
CONVERTIBLE DEBENTURES
On September 30, 1999, we sold $12,500,000 series C convertible two-percent
coupon debentures and warrants to purchase 1,100,000 shares of common stock to
an institutional investor. The series C convertible debentures are convertible
at any time by the holder at a fixed conversion price of $10.25 per share. The
series C convertible debentures are convertible at our option when the common
stock has traded at a certain premium to the fixed conversion price for ten
consecutive trading days. The series C warrants to purchase 1,000,000 shares of
common stock are exercisable at $12.50 per share and the series C warrants to
purchase 100,000 shares of common stock are exercisable at $12.75 per share at
the option of the holder until June 2, 2001.
As of March 9, 2000, approximately $6.3 million of the $12.5 million originally
issued face amount of series C convertible debentures had been converted into
615,069 shares of our common stock.
The debentures are two-percent coupon securities and bear interest at the rate
of 2% per annum. In the event of a default, the debentures will accrue penalty
interest at a rate of 7% per year from the date of the default.
The debentures are convertible at any time, at the option of the holder, until
September 30, 2002. The debentures are convertible into that number of shares of
common stock as is determined by dividing the value of debentures converted by
the then current conversion price which, as of March 9, 2000, is fixed at $10.25
per share. The conversion price of the debentures is subject to customary
adjustments in the event of a stock split or stock dividend. The conversion
price is also subject to a weighted average adjustment in the event we have a
rights offering, or a similar offering of securities to all investors, at less
than $10.00 per share, within 15 months of the issuance date.
Additionally, the conversion price of the debentures will be adjusted in the
event that we issue common stock or securities convertible into common stock at
a price less than $10.00 per share, not including shares issued pursuant to our
option plans, or shares issued in connection with a strategic joint venture. In
the event that we issue shares of our stock at less than $10.00 per share, the
conversion price of the debentures will be adjusted to the actual price of that
issuance. This conversion price adjustment is operative for 15 months from the
date of issuance of the debentures. However, this term expires automatically on
the 180th day following the issuance of the debentures, which is March 28, 2000,
if the closing bid price of our common stock on the Nasdaq National Market or
any other national exchange or quotation system as permitted under the terms of
the
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<PAGE> 48
debentures is greater than 150% of the conversion price for five consecutive
trading days following the effective date of this prospectus.
The debentures may be converted at our option if the closing bid price of our
common stock on the Nasdaq National Market is greater than $17.94 for ten
consecutive trading days and a registration statement with respect to the common
stock issuable upon conversion of the series C convertible debentures has been
effective for at least 90 days. We will have five business days following the
ten trading day period in which to exercise our option to force conversion of
the debentures. We may convert all or a portion of the outstanding debentures,
but if only a portion of the debentures are to be converted, the forced
conversion will be prorata among all debenture holders. However, no debenture
holder will be forced to convert if (1) a prospectus for the securities subject
to the registration rights agreement by and between us and the debenture holder
has not been currently effective for a period of at least 90 consecutive trading
days and (2) the holder would not currently be permitted to resell the
underlying shares within 90 days under Rule 144(k) under the Securities Act
without volume restrictions.
Under the terms of the debenture, the maximum number of shares of common stock
that may be issued in connection with series C debenture conversions may not
equal or exceed, in the aggregate, 20% of the common shares outstanding
immediately prior to the last issuance of the debentures. If a debenture holder
wishes to convert after the share limit is reached, we will not issue shares,
but may elect to pay cash in an amount equal to the greater of (1) 115% of the
principal balance of the unconverted debentures or (2) the amount, in cash, the
shares that would have been issued would have been worth had they been issued,
based either on the conversion price and average share price on the trading day
immediately prior to the day the cash payment is made, or the conversion price
and average share price on the day of the conversion requesting. In the case
that we determine that the share limit has been reached and elect to pay cash in
the amount described above, we will notify all remaining debenture holders
within two trading days after we make this determination. Ten days following the
delivery of this notice, we will pay the required amount. If we do not pay this
amount in full within five business days after the date it is due, we will pay
interest at a rate of 7% per annum, to be accrued on a daily basis from the date
of conversion, to the converting debenture holders until we have paid the full
amount in cash as described above, plus all interest.
The debentures will be considered to be in default if, among other things:
- - we fail to make any payment due under the terms of the debentures;
- - we fail to make any payment due under the terms of any other debt of more than
$1 million;
- - we file for bankruptcy or are adjudged bankrupt;
- - our stock is delisted from Nasdaq and trading has not resumed on Nasdaq or
another national exchange or quotation system within three days;
- - we are acquired (unless the acquirer assumes the obligations); or
- - judgments or orders (that are not covered by insurance) for the payment of
money are entered against us, and remain in effect for 30 days, that are in
excess of $500,000 in the aggregate.
If not converted, the debentures will mature three years from the issuance date,
which is September 30, 2002. We have not set up a sinking fund to repay the
principal on any unconverted debentures.
WARRANTS
As of March 9, 2000, we had the following warrants outstanding.
In connection with a license agreement, there were 25,000 warrants to purchase
common stock outstanding held by a single investor which were issued in August
1997. These warrants are exercisable at $6.75 per share until August 2007.
In connection with a license agreement, there were 7,917 warrants to purchase
common stock outstanding held by seven investors which were issued in October
1998. These warrants are exercisable at $5.78 per share until October 2008.
In connection with the series B convertible debentures, there were 250,000
warrants to purchase common stock outstanding held by one investor which were
issued in June 1999. These warrants are exercisable at $12.00 per share until
December 2000.
In connection with a private placement, there are 300,000 warrants to purchase
common stock outstanding held by a single investor which were issued in March
2000. These warrants are exercisable at a weighted average exercise price of
$48.89 until March 2010.
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<PAGE> 49
DELAWARE LAW AND SOME BYLAW PROVISIONS
Our board of directors has adopted certain amendments to our bylaws intended to
strengthen our board of directors' position in the event of a hostile takeover
attempt. These bylaw provisions have the following effects:
- - they provide that only persons who are nominated in accordance with the
procedures set forth in the bylaws shall be eligible for election as our
directors, except as may be otherwise provided in the bylaws;
- - they provide that only business brought before the annual meeting by our board
of directors or by a stockholder who complies with the procedures set forth in
the bylaws may be transacted at an annual meeting of stockholders; and
- - they establish a procedure for our board of directors to fix, in advance, the
record date when stockholder action by written consent is undertaken.
Furthermore, we are subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware 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 approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and 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
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock Transfer
Company. It is located at 1745 Gardena Ave., Glendale, California, 91204, and
its telephone number is (818) 502-1404.
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<PAGE> 50
UNDERWRITING
Geron and the underwriters named below have entered into an underwriting
agreement covering the common stock to be offered in this offering. J.P. Morgan
Securities Inc., FleetBoston Robertson Stephens Inc. and Salomon Smith Barney
Inc. are acting as representatives of the underwriters. Each underwriter has
agreed to purchase the number of shares of common stock opposite its name below:
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
J.P. Morgan Securities Inc..................................
FleetBoston Robertson Stephens Inc..........................
Salomon Smith Barney Inc....................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares presented in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if such shares are delivered to and accepted by
them. The underwriters will initially offer to sell shares to the public at the
public offering price shown on the cover page of this prospectus. The
underwriters may sell shares to securities dealers at a discount of up to
$ per share from the public offering price. Any of these securities dealers
may resell shares to other brokers or dealers at a discount of up to $ per
share from the public offering price. After the initial offering, the
underwriters may vary the public offering price and other selling terms.
If the underwriters sell more shares than the total number shown in the table
above, the underwriters have the option to buy up to an additional 450,000
shares of common stock from us to cover such sales. The underwriters may
exercise this option during the 30-day period from the date of this prospectus.
If any shares are purchased with this option, the underwriters will purchase
shares in approximately the same proportion as shown in the table above.
The following table shows the per share and total underwriting discounts that we
will pay to the underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
----------------------------
PAYABLE BY GERON
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
-------- --------
Total................................................ $ $
======== ========
</TABLE>
The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while the offering is
in progress. The underwriters may also impose a penalty bid, which means that an
underwriter must repay to the other underwriters a portion of the underwriting
discount received by it. An underwriter may be subject to a penalty bid if the
representatives of the underwriters, while engaging in stabilizing or short
covering transactions, repurchase shares sold by or for the account of that
underwriter. These activities may stabilize, maintain or affect the market price
of the common stock. As a result, the price of the common stock may be higher
than the price that might exist in the open market. If the underwriters commence
these activities, they may discontinue them at any time.
We estimate that the total expenses of this offering payable by us, excluding
underwriting discounts, will be $1,000,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Prior to the pricing of the common stock, and until such time when a stabilizing
bid may have been made, some or all of the underwriters who are market makers in
the common stock may make bids for or purchases of shares of common stock
subject to certain restrictions, known as passive market making activities.
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<PAGE> 51
We and our executive officers and directors have agreed, with limited
exceptions, that, during the period beginning from the date of this prospectus
and continuing to and including the date 90 days after the date of this
prospectus, none of us will, directly or indirectly, offer, sell, offer to sell,
contract to sell or otherwise dispose of any shares of common stock or any of
our securities which are substantially similar to the common stock, including
but not limited to any securities that are convertible into or exchangeable for,
or that represent the right to receive, common stock or any such substantially
similar securities or enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequence of
ownership of common stock or any securities substantially similar to the common
stock, other than pursuant to the exercise of stock options and warrants
outstanding on the date of this prospectus, the conversion of our convertible
debentures outstanding on the date of this prospectus and employee stock option
plans existing on the date of this prospectus, without the prior written consent
of J.P. Morgan Securities Inc. J.P. Morgan Securities Inc. may release any or
all of the securities subject to this lockup at any time without prior notice.
The common stock is traded on the Nasdaq National Market under the symbol
"GERN."
It is expected that delivery of the shares will be made to investors on or about
, 2000.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates. We issued 25,000 shares of our common stock and warrants to
purchase 50,000 shares of our common stock to an affiliate of J.P. Morgan
Securities Inc. in connection with financial advisory services related to our
acquisition of Roslin Bio-Med Inc. On February 10, 2000, J.P. Morgan Ventures
Corporation sold all 75,000 shares under a registration statement filed by us
with the Securities and Exchange Commission.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon by
Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California. Certain legal
matters in connection with the offering will be passed upon for the underwriters
by Cahill Gordon & Reindel, New York, New York. Legal matters relating to our
patents and intellectual property will be passed upon by Townsend & Townsend &
Crew LLP, Palo Alto, California and Kilburn & Strode, London, England. As of
March 9, 2000, a partner at Skadden, Arps, Slate, Meagher & Flom LLP and its
affiliates owned an aggregate of 1,000 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1999, as set forth in their report which is incorporated by
reference in this prospectus and elsewhere in the Registration Statement. Our
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we filed
with the Securities and Exchange Commission, or the "Commission." Some
information in the registration statement has been omitted from this prospectus
in accordance with the Commission rules. We file annual, quarterly and special
reports, proxy statements and other information with the Commission. You can
read and copy the registration statement as well as reports, proxy statements
and other information we have filed with the Commission at the public reference
room maintained by the Commission at 450 Fifth Street, NW, Washington, D.C.
20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, New York, New York 10048, and Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. You can call the Commission at
1-800-732-0330 for further information about the public reference room. We are
also required to file electronic versions of these documents with the
Commission, which may be accessed through the Commission's World Wide Web site
at http://www.sec.gov. Our common stock is quoted on The Nasdaq National Market.
Reports, proxy and information statements and other information concerning our
company may be inspected at The Nasdaq Stock Market at 1735 K Street, NW,
Washington, D.C. 20006.
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<PAGE> 52
INCORPORATION BY REFERENCE
The Commission allows us to "incorporate by reference" the information we have
previously filed with them, which means we can disclose important information by
referring you to those documents. All information that we have incorporated by
reference is available to you in accordance with the above paragraph.
Information that we file with the Commission subsequent to the date of this
prospectus will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), until the selling stockholder has
sold all the shares.
The following documents filed with the Commission are incorporated by reference
in this prospectus:
Our Annual Report on Form 10-K/A for the year ended December 31, 1999 (File
No. 000-20859).
Our Current Report on Form 8-K filed on March 15, 2000 (File No.
000-20859).
We will furnish without charge to you, on written or oral request, a copy of any
or all of the documents incorporated by reference, including exhibits to these
documents. You should direct any requests for documents to David L. Greenwood,
Chief Financial Officer, Geron Corporation, 230 Constitution Drive, Menlo Park,
California 94025, telephone: (650) 473-7700.
48
<PAGE> 53
LOGO
<PAGE> 54
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant will bear no expenses in connection with any sale or other
distribution by the selling stockholder of the shares being registered other
than the expenses of preparation and distribution of this registration statement
and the prospectus included in this registration statement. The extent of these
expenses is set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC registration fee........................................ 51,233
Nasdaq listing fee.......................................... 17,500
NASD filing fee............................................. 19,907
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 425,000
Accounting fees and expenses................................ 150,000
Blue Sky fees and expenses.................................. 2,500
Registrar and Transfer Agent................................ 7,500
Miscellaneous expenses...................................... 126,360
----------
Total............................................. $1,000,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify these persons for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
registrant's certificate of incorporation and bylaws provide for indemnification
of the registrant's directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. The registrant has also entered into agreements with its directors and
officers that will require the registrant, among other things, to indemnify them
against liabilities that may arise by reason of their status or service as
directors to the fullest extent not prohibited by law. In addition, the
registrant carries director and officer liability insurance.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
23.3 Consent of Townsend & Townsend & Crew LLP
23.4 Consent of Kilburn & Strode
24.1+ Power of Attorney
</TABLE>
- ---------------
+ Previously filed.
II-1
<PAGE> 55
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to that
information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration
statement relating to the securities it offers, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
this offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC this form of indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
II-2
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Geron
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Menlo Park, State of California, on
April 6, 2000.
GERON CORPORATION
By: /s/ DAVID L. GREENWOOD
---------------------------------------
David L. Greenwood
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------- ------------------------------------------ --------------
<S> <C> <C>
* President, Chief Executive Officer and April 6, 2000
- ----------------------------------------------------- Director
Thomas B. Okarma
/s/ DAVID L. GREENWOOD Senior Vice President and Chief Financial April 6, 2000
- ----------------------------------------------------- Officer (Principal Financial and
David L. Greenwood Accounting Officer)
* Director April 6, 2000
- -----------------------------------------------------
Alexander E. Barkas
* Director April 6, 2000
- -----------------------------------------------------
Ronald W. Eastman
* Director April 6, 2000
- -----------------------------------------------------
Edward V. Fritzky
* Director April 6, 2000
- -----------------------------------------------------
Thomas D. Kiley
* Director April 6, 2000
- -----------------------------------------------------
Gary L. Neil
* Director April 6, 2000
- -----------------------------------------------------
Robert B. Stein
* Director April 6, 2000
- -----------------------------------------------------
John P. Walker
*By: /s/ DAVID L. GREENWOOD
---------------------------------------
David L. Greenwood
Attorney-in-fact
</TABLE>
II-3
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP is
contained in Exhibit 5.1 to this Registration Statement
23.3 Consent of Townsend & Townsend & Crew LLP
23.4 Consent of Kilburn & Strode
24.1+ Power of Attorney
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
GERON CORPORATION
3,000,000 Shares of Common Stock
Underwriting Agreement
April [ ], 2000
J.P. Morgan Securities Inc.
FleetBoston Robertson Stephens Inc.
Salomon Smith Barney Inc.
As Representatives of the several underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Geron Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters listed in Schedule I
hereto (the "Underwriters") for whom you are acting as representatives (the
"Representatives") an aggregate of 3,000,000 shares of Common Stock, par value
$.001 per share, of the Company (the "Underwritten Shares") and, for the sole
purpose of covering over-allotments in connection with the sale of the
Underwritten Shares, at the option of the Underwriters, up to an additional
450,000 shares of Common Stock of the Company (the "Option Shares"). The
Underwritten Shares and the Option Shares are herein referred to as the
"Shares". The shares of Common Stock of the Company to be outstanding after
giving effect to the sale of the Shares are herein referred to as the "Common
Stock".
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it shall become effective, including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospectus". If the Company has filed an abbreviated registration statement
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to in-
<PAGE> 2
-2-
clude such Rule 462 Registration Statement. Any reference in this Agreement to
the Registration Statement, any preliminary prospectus or the Prospectus shall
be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the
effective date of the Registration Statement or the date of such preliminary
prospectus or the Prospectus, as the case may be, and any reference to "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") that are deemed to be incorporated by
reference therein.
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares
to the several Underwriters as hereinafter provided, and each Underwriter, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees to purchase, severally and not
jointly, from the Company the respective number of Underwritten Shares set forth
opposite such Underwriter's name in Schedule I hereto (or such number increased
as set forth in Section 9 hereof) at a purchase price per share of $[ ] (the
"Purchase Price").
In addition, the Company agrees to issue and sell the Option
Shares to the several Underwriters as hereinafter provided, and the
Underwriters, on the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, shall have the
option to purchase, severally and not jointly, from the Company up to an
aggregate of 450,000 Option Shares at the Purchase Price, for the sole purpose
of covering over-allotments (if any) in the sale of Underwritten Shares by the
several Underwriters.
If any Option Shares are to be purchased, the number of Option
Shares to be purchased by each Underwriter shall be the number of Option Shares
which bears the same ratio to the aggregate number of Option Shares being
purchased as the number of Underwritten Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to the aggregate number of Underwritten Shares being
purchased from the Company by the several Underwriters, subject, however, to
such adjustments to eliminate any fractional Shares as the Representatives in
their sole discretion shall make.
The Underwriters may exercise the option to purchase the Option
Shares at any time (but not more than once) on or before the thirtieth day
following the date of this Agreement, by written notice from the Representatives
to the Company. Such notice shall set forth the aggregate number of Option
Shares as to which the option is being exercised and the date and time when the
Option Shares are to be delivered and paid for which may be the same date
<PAGE> 3
-3-
and time as the Closing Date (as hereinafter defined) but shall not be earlier
than the Closing Date nor later than the tenth full Business Day (as hereinafter
defined) after the date of such notice (unless such time and date are postponed
in accordance with the provisions of Section 9 hereof). Any such notice shall be
given at least two Business Days prior to the date and time of delivery
specified therein.
2. The Company understands that the Underwriters intend (i) to
make a public offering of the Shares as soon as in the judgment of the
Representatives is advisable after (A) the Registration Statement has become
effective and (B) the parties hereto have executed and delivered this Agreement
and (ii) initially to offer the Shares upon the terms set forth in the
Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representatives, in the case of the Underwritten Shares, on [ ], 2000, or at
such other time on the same or such other date, not later than the fifth
Business Day thereafter, as the Representatives and the Company may agree upon
in writing or, in the case of the Option Shares, on the date and time specified
by the Representatives in the written notice of the Underwriters' election to
purchase such Option Shares. The time and date of such payment for the
Underwritten Shares are referred to herein as the "Closing Date" and the time
and date for such payment for the Option Shares, if other than the Closing Date,
are referred to herein as the "Additional Closing Date". As used herein, the
term "Business Day" means any day other than a day on which banks are permitted
or required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates for
the Shares will be made available for inspection and packaging by the
Representatives at the office of J.P. Morgan Securities Inc. set forth above not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.
4. The Company represents and warrants to each Underwriter
that:
(a) the Company meets the requirements for use of Form S-3 under
the Securities Act; no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or
<PAGE> 4
-4-
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided that this representation and warranty
shall not apply to any statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter or the distribution of the
Shares furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Company,
threatened by the Commission; and the Registration Statement and
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) comply, or will comply,
as the case may be, in all material respects with the Securities Act and
do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the date of
the Prospectus and any amendment or supplement thereto, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or supplemented,
if applicable, at the Closing Date or Additional Closing Date, as the
case may be, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading; provided that the foregoing representations and warranties
shall not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter or the distribution of the
Shares furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;
(c) the documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Securities Act or the Exchange Act, as applicable, and none of such
documents contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and any
further documents so filed and incorporated by reference in the
Prospectus, when such documents are filed with the Commission, will
conform in all material respects to the requirements of the Exchange
Act, and will not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
<PAGE> 5
-5-
(d) the financial statements, and the related notes thereto,
included or incorporated by reference in the Registration Statement and
the Prospectus present fairly in all material respects the consolidated
financial position of the Company and its subsidiary as of the dates
indicated and the results of their operations and changes in their
consolidated cash flows for the periods specified in conformity with
United States generally accepted accounting principles applied on a
consistent basis; and the supporting schedules included or incorporated
by reference in the Registration Statement present fairly in all
material respects the information required to be stated therein;
(e) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company or its
subsidiary, or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general
affairs, business, prospects, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiary, taken as a whole (a "Material Adverse Change"), otherwise
than as set forth or contemplated in the Prospectus; and except as set
forth or contemplated in the Prospectus, neither the Company nor its
subsidiary has entered into any transaction or agreement (whether or not
in the ordinary course of business) material to the Company and its
subsidiary taken as a whole;
(f) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus, and has been
duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties or conducts any business, so as to
require such qualification, other than where the failure to be so
qualified or in good standing would not have a material adverse effect
on the general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiary taken as a whole (a "Material Adverse Effect");
(g) the Company has no other subsidiary than Geron Bio-Med Ltd.;
Geron Bio-Med Ltd. has been duly incorporated and is validly existing as
a corporation under the laws of its jurisdiction of incorporation, with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as
a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in
good standing would not have a Material Adverse Effect; and all the
outstanding shares of capital stock of the Company's subsidiary have
been
<PAGE> 6
-6-
duly authorized and validly issued, are fully-paid and non-assessable,
and are owned, directly or indirectly, by the Company free and clear of
all liens, encumbrances, security interests and claims;
(h) this Agreement has been duly authorized, executed and
delivered by the Company;
(i) the Company has an authorized capitalization as set forth in
the Prospectus and such authorized capital stock conforms as to legal
matters to the description thereof set forth in the Prospectus, and all
of the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully-paid and non-assessable and are
not subject to any preemptive or similar rights; and, except as
described in or contemplated by the Prospectus, there are no outstanding
rights (including, without limitation, preemptive rights), warrants or
options to acquire, or instruments convertible into or exercisable or
exchangeable for, any shares of capital stock or other equity interests
in the Company or its subsidiary, or any contract, commitment,
agreement, understanding or arrangement of any kind relating to the
issuance of any capital stock of the Company or its subsidiary, any such
convertible or exercisable or exchangeable securities or any such
rights, warrants or options;
(j) the Shares to be issued and sold by the Company hereunder
have been duly authorized, and, when issued and delivered to and paid
for by the Underwriters in accordance with the terms of this Agreement,
will be validly issued and will be fully paid and non-assessable and
will conform to the description thereof set forth in the Prospectus; and
the issuance of the Shares is not subject to any preemptive or similar
rights;
(k) neither the Company nor its subsidiary is, or with the giving
of notice or lapse of time or both would be, in violation or breach of,
or in default under, its certificate of incorporation or by-laws or any
indenture, mortgage, deed of trust, loan agreement, license or other
agreement or instrument to which the Company or its subsidiary is a
party or by which the Company or its subsidiary is bound or to which any
of their respective properties or assets is subject, except for
violations, breaches and defaults which individually or in the aggregate
would not have a Material Adverse Effect; the issuance and sale of the
Shares and the performance by the Company of its obligations hereunder
and the consummation of the transactions contemplated herein will not
conflict with or result in a violation or breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, license or other agreement or instrument
to which the Company or its subsidiary is a party or by which the
Company or its subsidiary is bound or to which any of the property or
assets of the Company or its subsidiary is subject, nor will any such
action result in any violation of the provisions of the certificate of
incorporation or the by-
<PAGE> 7
-7-
laws of the Company or any applicable law or statute or any applicable
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its subsidiary or any of their
respective properties or assets; and no consent, approval,
authorization, order, license, registration or qualification of or with
any court or governmental agency or body is required for the issuance
and sale of the Shares or the consummation by the Company of the
transactions contemplated herein, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications as
have been obtained under the Securities Act and as may be required by
the National Association of Securities Dealers, Inc. and under state
securities or blue sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(l) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company, threatened or
contemplated against or affecting the Company or its subsidiary or any
of their respective properties or assets or to which the Company or its
subsidiary is or may be a party or to which any property or assets of
the Company or its subsidiary is or may be the subject which, if
determined adversely to the Company or its subsidiary, could,
individually or in the aggregate, have or reasonably be expected to have
a Material Adverse Effect, and, to the knowledge of the Company, no such
investigations, actions, suits or proceedings are threatened or
contemplated by governmental authorities or threatened by others; and
there are no statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement that are not
described or filed as required;
(m) the Company and its subsidiary have good and marketable title
in fee simple to all items of real property and good and marketable
title to all items of personal property owned by them, in each case free
and clear of all liens, encumbrances, security interests and claims
except such as are described in or contemplated by the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made or proposed to be made of such property by
the Company and its subsidiary; and any real property and buildings held
under lease by the Company and its subsidiary are held by them under
valid, existing and enforceable leases with such exceptions as are not
material and do not interfere with the use made or proposed to be made
of such property and buildings by the Company or its subsidiary;
(n) no relationship, direct or indirect, exists between or among
the Company or its subsidiary on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or its
subsidiary on the other hand, which is re-
<PAGE> 8
-8-
quired by the Securities Act to be described in the Registration
Statement and the Prospectus which is not so described;
(o) no person has the right to require the Company to register
any securities for offering and sale under the Securities Act by reason
of the filing of the Registration Statement with the Commission or the
issuance and sale of the Shares;
(p) the Company is not and, after giving effect to the offering
and sale of the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(q) Ernst & Young LLP, who have certified certain financial
statements of the Company's subsidiary, are independent public
accountants as required by the Securities Act;
(r) the Company and its subsidiary have filed all material
federal, state, local and foreign tax returns which have been required
to be filed and have paid all taxes shown thereon and all assessments
received by them or either of them to the extent that such taxes have
become due and are not being contested in good faith; and, except as
disclosed in the Registration Statement and the Prospectus, there is no
material tax deficiency which has been or might reasonably be expected
to be asserted or threatened against the Company or its subsidiary;
(s) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock;
(t) each of the Company and its subsidiary owns, possesses or has
obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations
and filings with, all federal, state, local, foreign and other
governmental authorities (including, but not limited to, foreign
regulatory agencies), all self-regulatory organizations and all courts
and other tribunals, domestic or foreign, necessary to own or lease, as
the case may be, and to operate its properties and to carry on its
business as conducted as of the date hereof except where not possessing
or having made such licenses, permits, certificates, consents, orders,
approvals, authorizations or filings would not have a Material Adverse
Effect, and neither the Company nor its subsidiary has received any
notice of any proceeding relating to revocation or modification of any
such license, permit, certificate, consent, order, approval or other
authorization, except as described in the Registration Statement and the
Prospectus except where such notice would not have a Material Adverse
Effect; and each of the Company and its subsidiary is in compliance with
all laws and regulations re-
<PAGE> 9
-9-
lating to the conduct of its business as conducted as of the date hereof
except where such non-compliance would not have a Material Adverse
Effect;
(u) there are no existing or, to the knowledge of the Company,
threatened labor disputes with the employees of the Company or its
subsidiary that could reasonably be expected to have a Material Adverse
Effect;
(v) each of the Company and its subsidiary (i) is in compliance
with any and all applicable federal, state, local and foreign laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (collectively, "Environmental Laws"), (ii) has received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) is
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not individually or in the aggregate have a
Material Adverse Effect;
(w) each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the
Company or any of its affiliates for employees or former employees of
the Company and its affiliates has been maintained in compliance with
its terms and the requirements of any applicable statutes, orders, rules
and regulations, including but not limited to ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"); no prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the Code
has occurred with respect to any such plan excluding transactions
effected pursuant to a statutory or administrative exemption; and for
each such plan which is subject to the funding rules of Section 412 of
the Code or Section 302 of ERISA, no "accumulated funding deficiency" as
defined in Section 412 of the Code has been incurred, whether or not
waived, and the fair market value of the assets of each such plan
(excluding for these purposes accrued but unpaid contributions) exceeded
the present value of all benefits accrued under such plan determined
using reasonable actuarial assumptions;
(x) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
(y) except as disclosed in the Prospectus each of the Company and
its subsidiary owns, is licensed to use or otherwise possesses adequate
rights to use the patents, patent rights, licenses, inventions,
trademarks, service marks, trade names, copy-
<PAGE> 10
-10-
rights and know-how, including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems, processes
or procedures (collectively, the "Intellectual Property") which are
reasonably necessary to carry on their business as currently conducted
as described in the Prospectus, except to the extent that the failure to
own, be licensed to use or otherwise possess adequate rights to use such
Intellectual Property would not reasonably be expected to have a
Material Adverse Effect; except as disclosed in the Prospectus, the
Company has not received any notice of infringement from any third party
or from special patent counsel that the Intellectual Property,
discoveries, inventions, products or processes of the Company infringe
upon or conflict with any right or patent of that third party, which
infringement or conflict could reasonably be expected to have a Material
Adverse Effect; except as disclosed in the Prospectus, the Company is
not obligated to pay a royalty, grant a license or provide other
consideration to any third party in connection with its patents, patent
rights, licenses, inventions, trademarks, service marks, trade names,
copyrights and know-how other than such obligations the failure of which
to satisfy would not reasonably be expected to have a Material Adverse
Effect; and no third party, including any academic or governmental
organization, possesses rights to the Intellectual Property which, if
exercised (including by the development of products competitive with
those of the Company), would reasonably be expected to have a Material
Adverse Effect;
(z) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, the studies, tests and
preclinical trials conducted by or on behalf of the Company that are
described in the Registration Statement and the Prospectus were and, if
still pending, are being conducted in accordance with experimental
protocols, procedures and controls pursuant to, where applicable,
accepted professional scientific standards except where the failure to
do so could not be reasonably expected to have a Material Adverse
Effect; the descriptions of the results of such studies, tests and
trials contained in the Registration Statement and the Prospectus are
accurate and complete in all material respects; the Company has not
received any notices or correspondence from the United States Food and
Drug Administration (the "FDA") or any foreign, state or local
governmental body exercising comparable authority requiring the
termination, suspension or material modification of any studies, tests
or preclinical or clinical trials conducted by or on behalf of the
Company which termination, suspension or material modification would
reasonably be expected to have a Material Adverse Effect;
(aa) the Company carries insurance in such amounts and covering
such risks as is adequate for the present conduct of the Company's
business and the value of its current properties; and
<PAGE> 11
-11-
(bb) the Company has not distributed and, prior to the later of
(i) the Closing Date and (ii) the completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement,
the Prospectus, any amendment or supplement thereto, any preliminary
prospectus or any other materials, if any, permitted by the Securities
Act.
5. The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration Statement
to become effective at the earliest possible time and, if required, to
file the final Prospectus with the Commission within the time periods
specified by Rule 424(b) and Rule 430A under the Securities Act and to
file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery
of a prospectus is required in connection with the offering or sale of
the Shares; and to furnish copies of the Prospectus to the Underwriters
in New York City prior to 10:00 a.m., New York City time, on the
Business Day next succeeding the date of this Agreement in such
quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the
Representatives signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits and documents incorporated by reference therein, and to each
other Underwriter a conformed copy of the Registration Statement (as
originally filed) and each amendment thereto, in each case without
exhibits but including the documents incorporated by reference therein
and, during the period mentioned in paragraph (e) below, to each of the
Underwriters as many copies of the Prospectus (including all amendments
and supplements thereto) and documents incorporated by reference therein
as the Representatives may reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to
which the Representatives reasonably and timely object;
(d) to advise the Representatives promptly, and to confirm such
advice in writing, (i) when the Registration Statement has become
effective, (ii) when any amendment to the Registration Statement has
been filed or becomes effective, (iii) when any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof, (iv) of any request by the
<PAGE> 12
-12-
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of the Prospectus or any
preliminary prospectus or the initiation or threatening of any
proceeding for that purpose, (vi) of the occurrence of any event, within
the period referenced in paragraph (e) below, as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, and (vii) of the receipt by the Company of any notification
with respect to any suspension of the registration or qualification of
the Shares for offer and sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and to use its best
efforts to prevent the issuance of any such stop order, or of any order
preventing or suspending the use of the Prospectus or any preliminary
prospectus, or of any order suspending any such registration or
qualification of the Shares, or notification of any such order thereof
and, if issued, to obtain as soon as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the
public offering of the Shares as in the opinion of counsel for the
Underwriters a prospectus relating to the Shares is required by law to
be delivered in connection with sales by the Underwriters or any dealer,
any event shall occur as a result of which it is necessary as in the
opinion of counsel for the Underwriters to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary as in the opinion of counsel for the
Underwriters to amend or supplement the Prospectus to comply with law,
forthwith to prepare and furnish, at the expense of the Company, to the
Underwriters and to the dealers (whose names and addresses the
Representatives will furnish to the Company) to which Shares may have
been sold by the Representatives on behalf of the Underwriters and to
any other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus
as so amended or supplemented will not, in light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus will comply with law;
(f) to endeavor to register or qualify the Shares for offer and
sale under the securities or blue sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
registration or qualification in effect so long as reasonably required
for distribution of the Shares; provided that the Company shall not be
required to file a general consent to service of process in any such
jurisdiction;
<PAGE> 13
-13-
(g) to make generally available to its security holders and to
the Representatives as soon as practicable an earnings statement
covering a period of at least twelve months beginning with the first
fiscal quarter of the Company occurring after the effective date of the
Registration Statement, which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder;
(h) for a period of five (5) years from the date of issuance of
the Shares, to furnish to the Representatives copies of all reports or
other communications (financial or other) furnished to holders of the
Shares, and copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange;
(i) for a period of 90 days after the date of the public offering
of the Shares not to directly or indirectly (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock, or any
Securities of the Company which are substantially similar to the Common
Stock, or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap, option, future, forward or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise,
without the prior written consent of J.P. Morgan Securities Inc. (which
shall not be unreasonably withheld), other than (a) the Shares to be
sold hereunder, (b) any shares of Common Stock of the Company issued
upon the conversion of any convertible debentures or convertible
preferred stock or the exercise of options and warrants outstanding on
the date of the Prospectus or options granted under existing employee
stock purchase or option plans or the issuance of any rights by the
Company and (c) Common Stock of the Company issued in a strategic
private placement by the Company in connection with a research
collaboration or a license agreement; provided that at or prior to the
time of issuance each recipient of any such Common Stock executes and
delivers to the Representative a "lock-up" agreement substantially in
the form of Exhibit C hereto, which "lock-up" agreement shall apply for
a period of time equal to at least the number of days remaining under
the provisions of the first sentence of this Section 5(i);
(j) to use the net proceeds received by the Company from the sale
of the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(k) to use its best efforts to list, subject to notice of
issuance, the Shares on the Nasdaq National Market (the "Nasdaq National
Market"); and
<PAGE> 14
-14-
(l) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all reasonable costs and expenses incident to the
performance of its obligations hereunder, including without limiting the
generality of the foregoing, all costs and expenses (i) incident to the
preparation, issuance, execution and delivery of the Shares, (ii)
incident to the preparation, printing and filing under the Securities
Act of the Registration Statement, the Prospectus and any preliminary
prospectus (including in each case all exhibits, amendments and
supplements thereto), (iii) incurred in connection with the registration
or qualification of the Shares under the securities or blue sky laws of
such jurisdictions in the United States as the Representatives may
designate (including fees of counsel for the Underwriters and its
disbursements), (iv) in connection with the listing of the Shares on the
Nasdaq National Market, (v) expenses related to the filing with the
National Association of Securities Dealers, Inc., (vi) in connection
with the printing (including word processing and duplication costs) and
delivery of this Agreement, any blue sky survey and the furnishing to
the Underwriters and dealers of copies of the Registration Statement and
the Prospectus, including mailing and shipping, as herein provided,
(vii) any expenses incurred by the Company in connection with a "road
show" presentation to potential investors, (viii) the cost of preparing
stock certificates and (ix) the cost and charges of any transfer agent
and any registrar.
6. The several obligations of the Underwriters hereunder to
purchase the Shares on the Closing Date or the Additional Closing Date, as the
case may be, are subject to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) the Registration Statement shall have become effective (or if
a post-effective amendment is required to be filed under the Securities
Act, such post-effective amendment shall have become effective) not
later than 5:00 P.M., New York City time, on the date hereof; and no
stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment shall be in effect, and no proceedings for
such purpose shall be pending before or threatened by the Commission;
the Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Securities Act and in accordance
with Section 5(a) hereof; and all requests for additional information
shall have been complied with to the satisfaction of the
Representatives;
(b) the representations and warranties of the Company contained
herein are true and correct in all material respects on and as of the
Closing Date or the Additional Closing Date, as the case may be, as if
made on and as of the Closing Date or the Additional Closing Date, as
the case may be, and the Company shall have complied in all
<PAGE> 15
-15-
material respects with all agreements and all conditions on its part to
be performed or satisfied hereunder at or prior to the Closing Date or
the Additional Closing Date, as the case may be;
(c) since the respective dates as of which information is given
in the Prospectus there shall not have been any change in the capital
stock or long-term debt of the Company or its subsidiary or any Material
Adverse Change, or any development involving a prospective Material
Adverse Change, otherwise than as set forth or contemplated in the
Prospectus, the effect of which in the judgment of the Representatives
makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares on the Closing Date or the
Additional Closing Date, as the case may be, on the terms and in the
manner contemplated in the Prospectus; and neither the Company nor its
subsidiary has sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus which
would reasonably be expected to result in a Material Adverse Effect;
(d) the Representatives shall have received on and as of the
Closing Date or the Additional Closing Date, as the case may be, a
certificate of two executive officers of the Company, one of which with
specific knowledge about the Company's financial matters, satisfactory
to the Representatives to the effect set forth in subsections (a)
through (d) (with respect to the respective representations, warranties,
agreements and conditions of the Company) of this Section 6 and to the
further effect that there has not occurred any Material Adverse Change,
or any development involving a prospective Material Adverse Change, from
that set forth or contemplated in the Registration Statement;
(e) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Company, shall have furnished to the Representatives their written
opinion, dated the Closing Date or the Additional Closing Date, as the
case may be, in form and substance satisfactory to the Representatives,
in the form attached hereto as Exhibit A.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the States of Delaware and California, to the extent
such counsel deems proper and to the extent specified in such opinion,
if at all, upon an opinion or opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to the Underwriters' counsel, familiar with the applicable
laws; and (B) as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions
<PAGE> 16
-16-
having custody of documents respecting the corporate existence or good
standing of the Company. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel upon which they
relied is in form satisfactory to such counsel and, in such counsel's
opinion, the Underwriters and they are justified in relying thereon.
With respect to the matters to be covered in subparagraph (ix) above,
counsel may state that their opinion and belief is based upon their
participation in the preparation of the Registration Statement and the
Prospectus and any amendment or supplement thereto and review and
discussion of the contents thereof including the documents incorporated
by reference therein but is without independent check or verification
except as specified.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP described
above shall be rendered to the Underwriters at the request of the
Company and shall so state therein.
(f) Townsend & Townsend & Crew LLP and Kilburn & Strode, special
patent counsel for the Company, shall each have furnished to the
Representatives their written opinions, dated the Closing Date or the
Additional Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, in the form attached hereto as
Exhibit B:
In rendering such opinions, such counsel may rely as to matters
of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company.
The opinions of Townsend & Townsend & Crew LLP and Kilburn &
Strode described above shall be rendered to the Underwriters at the
request of the Company and shall so state therein.
(g) on the date of this Agreement and also on the Closing Date or
Additional Closing Date, Ernst & Young LLP shall have furnished to you
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, containing statements and information of
the type customarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus;
(h) the Representatives shall have received on and as of the
Closing Date or Additional Closing Date, as the case may be, an opinion
of Cahill Gordon & Reindel, counsel to the Underwriters, with respect to
the due authorization and valid issuance of the Shares, the Registration
Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have re-
<PAGE> 17
-17-
ceived such papers and information as they may reasonably request to
enable them to pass upon such matters;
(i) the Shares to be delivered on the Closing Date or Additional
Closing Date, as the case may be, shall have been approved for listing
on the Nasdaq National Market, subject only to official notice of
issuance;
(j) on or prior to the Closing Date or Additional Closing Date,
as the case may be, the Company shall have furnished to the
Representatives such further certificates and documents as the
Representatives shall reasonably request;
(k) the "lock-up" agreements, each substantially in the form of
Exhibit C hereto, between you on the one hand and each of the executive
officers and directors of the Company, on the other hand, relating to
sales and certain other dispositions of shares of Common Stock or
certain other securities, delivered to you on or before the date hereof,
shall be in full force and effect on the Closing Date or Additional
Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless each
Underwriter, each affiliate of any Underwriter which assists such Underwriter in
the distribution of the Shares and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the legal fees and other
expenses incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use
therein; provided that the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares if such untrue
statement or omission or alleged untrue statement or omission made in such
preliminary prospectus is eliminated or remedied in the Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) and, if required by law, a copy of the Prospectus (as so
amended or supplemented) shall not have been furnished to such person at or
prior to the written confirmation of the sale of such Shares to such person.
<PAGE> 18
-18-
Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses of such counsel related to such proceeding. In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person
has failed within a reasonable time to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person and the
Indemnified Person and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for all Indemnified Persons, and that all such fees and expenses
shall be reimbursed as they are incurred. Any such separate firm for the
Underwriters, each affiliate of any Underwriter which assists such Underwriter
in the distribution of the Shares and such control persons of Underwriters shall
be designated in writing by J.P. Morgan Securities Inc. and any such separate
firm for the Company, its directors, its officers who sign the Registration
Statement and such control persons of the Company shall be designated in writing
by the Company. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Indemnifying
Person agrees to indemnify any Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
pro-
<PAGE> 19
-19-
ceeding effected without its written consent if (i) such settlement is entered
into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first or second
paragraphs of this Section 7 is unavailable to an Indemnified Person or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Person under such paragraph, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Company and the total
underwriting discounts received by the Underwriters, in each case as set forth
in the table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any
<PAGE> 20
-20-
such action or claim. Notwithstanding the provisions of this Section 7, in no
event shall an Underwriter be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective number of Shares set forth opposite their names in Schedule I
hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any other person controlling
the Company and (iii) acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement (or
the obligations of the several Underwriters with respect to the Option Shares)
may be terminated in the absolute discretion of the Representatives, by notice
given to the Company, if after the execution and delivery of this Agreement and
prior to the Closing Date (or, in the case of the Option Shares, prior to the
Additional Closing Date) (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange or the American Stock Exchange, the Nasdaq National Market, the Chicago
Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of
Trade, (ii) trading of any securities of the Company shall have been suspended
on any exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
federal or New York State authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the Representatives, is material and
adverse and which, in the judgment of the Representatives, makes it
impracticable to market the Shares being delivered at the Closing Date or the
Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of
<PAGE> 21
-21-
the Registration Statement (or, if applicable, any post-effective amendment) by
the Commission.
If on the Closing Date or the Additional Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives and the
Company for the purchase of such Shares are not made within 36 hours after such
default, this Agreement (or the obligations of the several Underwriters to
purchase the Option Shares, as the case may be) shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date (or, in the case of the Option Shares, the Additional Closing Date), but in
no event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement or any condition of the Underwriters' obligations cannot be
fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and expenses of its counsel)
reasonably incurred by the Underwriter in connection with this Agreement or the
offering contemplated hereunder.
<PAGE> 22
-22-
11. This Agreement shall inure to the benefit of and be binding
upon the Company, the Underwriters, each affiliate of any Underwriter which
assists such Underwriter in the distribution of the Shares, any controlling
persons referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm or corporation any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Shares from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by
the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of
the Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: 212-648-5705); Attention: Syndicate Department. Notices to
the Company shall be given to it at 230 Constitution Drive, Menlo Park,
California 94025; Attention: Chief Financial Officer, with a copy to Gregory
Smith, Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Avenue, Palo
Alto, California 94301 (telefax: 650-470-4570).
13. This Agreement may be signed in counterparts, each of which
shall be an original and all of which together shall constitute one and the same
instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
<PAGE> 23
-23-
If the foregoing is in accordance with your understanding, please
sign and return four counterparts hereof.
Very truly yours,
GERON CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE> 24
-24-
Accepted as of the date first written above:
J.P. MORGAN SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
SALOMON SMITH BARNEY INC.
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
Acting on behalf of itself and the
several Underwriters listed in
Schedule I hereto.
By:
-------------------------------
Title:
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares
Underwriter To Be Purchased
- ----------- --------------------
<S> <C>
J.P. Morgan Securities Inc......................................... [ ]
Salomon Smith Barney Inc........................................... [ ]
FleetBoston Robertson Stephens Inc................................. [ ]
[ ]......................................... [ ]
---------
Total.......................... 3,000,000
=========
</TABLE>
<PAGE> 26
EXHIBIT A
[Form of Opinion of Skadden Arps pursuant to Section 6(e) of the
Underwriting Agreement]
<PAGE> 27
EXHIBIT B
[Form of Special Patent Counsel Opinion
pursuant to Section 6(f) of the Underwriting Agreement]
<PAGE> 28
EXHIBIT C
[Form of Lock-Up Agreement]
April , 2000
J.P. MORGAN SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
SALOMON SMITH BARNEY INC.
As Representatives of the several
Underwriters named in Schedule I to
the Underwriting Agreement referred to below
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Re: Geron Corporation - Common Stock Offering
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the
several Underwriters, propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Geron Corporation, a Delaware corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
several Underwriters named in Schedule I to the Underwriting Agreement (the
"Underwriters"), of Common Stock, $.001 par value (the "Common Stock"), of the
Company. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters' agreement to purchase and
make the Public Offering of the Common Stock, and for other good and valuable
consideration receipt of which is hereby acknowledged, the undersigned hereby
agrees that, without the prior written consent of J.P. Morgan Securities Inc. on
behalf of the Underwriters, which shall not be unreasonably withheld, the
undersigned will not, during the period ending 90 days after the date of the
prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, announce the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock of the Company, or any
securities of the Company which are substantially similar to the Common Stock,
<PAGE> 29
-3-
or any securities convertible into or exercisable or exchangeable for Common
Stock (including, but not limited to, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and securities which may
be issued upon exercise of a stock option or warrant) other than pursuant to the
exercise of stock options and warrants outstanding on the date of the
Prospectus, the conversion of convertible debentures outstanding on the date of
the Prospectus and employee stock option plans existing on the date of the
Prospectus or (2) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the Common Stock or any securities of the Company which are
substantially similar to the Common Stock, including, but not limited to, any
security convertible into or exercisable or exchangeable for Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, the undersigned agrees that, without the prior written
consent of J.P. Morgan Securities Inc. on behalf of the Underwriters, which
shall not be unreasonably withheld, it will not, during the period ending 90
days after the date of the Prospectus, make any demand for or exercise any right
with respect to, the registration of any shares of Common Stock or any
substantially similar securities of the Company, including but not limited to,
any security convertible into or exercisable or exchangeable for Common Stock.
In furtherance of the foregoing, the Company and any duly
appointed transfer agent for the registration or transfer of the securities
described herein are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Lock-Up Agreement.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this Lock-up Agreement.
All authority herein conferred or agreed to be conferred and any obligations of
the undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.
The undersigned understands that, if the Underwriting Agreement
does not become effective, or if the Underwriting Agreement (other than the
provisions thereof which survive termination) shall terminate or be terminated
prior to payment for and delivery of the Common Stock to be sold thereunder,
this Lock-Up Agreement shall terminate and be of no further force or effect and
the undersigned shall be released from all obligations under this Lock-Up
Agreement.
The undersigned understands that the Underwriters propose to
enter into the Underwriting Agreement and to proceed with the Public Offering in
reliance upon this Lock-Up Agreement.
<PAGE> 30
-4-
THIS LOCK-UP AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
Very truly yours,
By:
------------------------------
Name:
Title:
Accepted as of the date first set forth above:
J.P. MORGAN SECURITIES INC.
SALOMON SMITH BARNEY INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
Acting severally on behalf of
themselves and the several
Underwriters named in Schedule I
to the Underwriting Agreement
By: J.P. MORGAN SECURITIES INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
April 7, 2000
Geron Corporation
230 Constitution Drive
Menlo Park, California 94025
Re: Geron Corporation
Registration on Form S- 3
Ladies and Gentlemen:
We have acted as special counsel to Geron Corporation, a
Delaware corporation (the "Company"), in connection with the public offering by
the Company of up to 3,450,000 shares (including 450,000 shares subject to an
over-allotment option) (the "Shares") of the Company's Common Stock, par value
$.001 per share (the "Common Stock").
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-3 (File No. 333-32256) as filed with the
Securities and Exchange Commission (the "Commission") on March 10, 2000 under
the Act, Amendment No. 1 thereto filed with the Commission on March 17, 2000 and
Amendment No. 2 thereto filed with the Commission on April 7, 2000 (such
Registration Statement, as so amended, being hereinafter referred to as the
"Registration Statement"); (ii) the form of the Underwriting Agreement (the
"Underwriting Agreement") proposed to be entered into between the Company, as
issuer, and J.P. Morgan Securities Inc., FleetBoston Robertson Stephens Inc. and
Salomon Smith Barney Inc. as representatives of the several underwriters named
therein (the "Underwriters"), filed as an exhibit to the Registration Statement;
(iii) a specimen certificate representing the Common Stock; (iv) the Certificate
of Incorporation of the Company, as presently in effect; (v) the By-Laws of the
Company, as presently in effect; and (vi)
<PAGE> 2
Geron Corporation
April 7, 2000
Page 2
certain resolutions of the Board of Directors of the Company and drafts of
certain resolutions (the "Draft Resolutions") of the Pricing Committee of the
Board of Directors of the Company (the "Pricing Committee"), in each case
relating to the issuance and sale of the
Shares and related matters. We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Company and others.
Members of our firm are admitted to the bar in the states of
California and Delaware, and we do not express any opinion as to the laws of any
other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion
that when (i) the Registration Statement becomes effective; (ii) the Draft
Resolutions have been adopted by the Pricing Committee of the Board of
Directors; (iii) the price at which the Shares are to be sold to the
Underwriters pursuant to the Underwriting Agreement and other matters relating
to the issuance and sale of the Shares have been approved by the Pricing
Committee of the Board of Directors in accordance with the Draft Resolutions;
(iv) the Underwriting Agreement has been duly executed and delivered; and (v)
certificates representing the Shares in the form of the specimen certificates
examined by us have been manually signed by an authorized officer of the
transfer agent and registrar for the Common Stock and registered by such
transfer agent and registrar, and delivered to and paid for by the Underwriters
at a
2
<PAGE> 3
Geron Corporation
April 7, 2000
Page 3
price per share not less than the per share par value of the Common Stock
as contemplated by the Underwriting Agreement, the issuance and sale of the
Shares will have been duly authorized, and the Shares will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 2 to the Registration Statement on Form S-3 and related Prospectus
of Geron Corporation for the registration of 3,450,000 shares of its Common
Stock and to the incorporation by reference therein of our report dated February
11, 2000, with respect to the consolidated financial statements of Geron
Corporation included in its Annual Report on Form 10-K/A for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
April 7, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF TOWNSEND & TOWNSEND & CREW LLP
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement on Form S-3 and related Prospectus of
Geron Corporation for the registration of 3,450,000 shares of its Common Stock
and all subsequent amendments thereto. In giving this consent, we do not
thereby admit that we are included in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission.
Palo Alto, California
April 7, 2000
/s/ TOWNSEND & TOWNSEND & CREW LLP
<PAGE> 1
EXHIBIT 23.4
CONSENT OF KILBURN & STRODE
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement on Form S-3 and related Prospectus of
Geron Corporation for the registration of 3,450,000 shares of its Common Stock
and all subsequent amendments thereto. In giving this consent, we do not
thereby admit that we are included in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission.
London, England
April 7, 2000
/s/ KILBURN & STRODE
