<PAGE> 1
FILING PURSUANT TO RULE 424(B)(2)
REGISTRATION STATEMENT NO. 333-32256
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 27, 2000)
87,654 SHARES
GERON LOGO
GERON CORPORATION
COMMON STOCK
You should read this prospectus supplement and the accompanying prospectus
carefully before you invest. Both documents contain information you should
consider carefully before making your investment decision.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THE PROSPECTUS.
PLAN OF DISTRIBUTION
We are offering an aggregate of 87,654 shares of our common stock to Acqua
Wellington North American Equities Fund, Ltd. ("Acqua Wellington") pursuant to
this prospectus supplement. We have entered into a common stock purchase
agreement with Acqua Wellington pursuant to which we may, from time to time and
at our sole discretion, beginning in September 2000 and ending in September
2002, present Acqua Wellington with draw down notices constituting an offer to
purchase our common stock over an agreed to number of consecutive trading days.
Acqua Wellington will be required to purchase a pro rata portion of shares on
each day during the trading period on which the daily volume weighted average
price for our common stock exceeds a threshold price determined by us and set
forth in the draw down notice. In addition, we may, at our sole discretion,
grant Acqua Wellington an option to purchase additional shares during such
trading period. The aggregate amount Acqua Wellington will be required to invest
during any draw down period will depend on the threshold price established by us
for the draw down period.
The aggregate amount invested by Acqua Wellington pursuant to this common stock
purchase agreement will not exceed $50 million. We will issue and sell the
shares to Acqua Wellington at a per share price equal to the daily volume
weighted average price of our common stock on each date during the draw down
period on which shares are purchased, less a discount of 5.0%. We may present
Acqua Wellington with up to twelve (12) draw down notices during the term of the
common stock purchase agreement, provided that there are at least five (5)
trading days between each draw down period.
In connection with Acqua Wellington's purchase and potential resale of the
shares covered by this prospectus supplement, we have agreed to indemnify and
hold harmless Acqua Wellington and each person who controls Acqua Wellington
against certain liabilities, including liabilities under the Securities Act,
which may be based upon, among other things, any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact, unless made or omitted in reliance upon written information
provided to us by Acqua Wellington.
USE OF PROCEEDS
We will use the proceeds of this offering as described in the prospectus. See
"Use of Proceeds" beginning on page 17.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER 9, 2000.
S-1
<PAGE> 2
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to "incorporate by reference" information that we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus supplement and the accompanying prospectus. We
incorporate the documents listed on page 21 of the prospectus.
MARKET FOR OUR COMMON STOCK
On October 9, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $22.125 per share. Our common stock is listed on the
Nasdaq National Market under the symbol "GERN." The common stock sold under this
prospectus supplement will be listed on the Nasdaq National Market after we
notify the Nasdaq National Market that the shares have been issued.
As of October 6, 2000, we had 21,635,344 shares of common stock outstanding.
GENERAL
You should rely on the information provided or incorporated by reference in this
prospectus supplement and the prospectus. We have not authorized anyone else to
provide you with different information. You should not assume that the
information in this prospectus supplement is accurate as of any date other than
the date on the front of these documents.
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
S-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Plan of Distribution................................... S-1
Use of Proceeds........................................ S-1
Where You Can Find More Information.................... S-2
Market For Our Common Stock............................ S-2
General................................................ S-2
PROSPECTUS
Prospectus Summary..................................... 1
Risk Factors........................................... 3
Forward-Looking Statements............................. 16
Use of Proceeds........................................ 17
Description of Capital Stock........................... 17
Plan of Distribution................................... 20
Legal Matters.......................................... 20
Experts................................................ 20
Where You Can Find More Information.................... 20
Incorporation By Reference............................. 21
</TABLE>
S-3
<PAGE> 4
PROSPECTUS
5,000,000 Shares
GERON LOGO
GERON CORPORATION
Common Stock
This prospectus will allow us to issue common stock over time. This means:
- we will provide a prospectus supplement each time we issue common stock;
- the prospectus supplement will inform you about the specific terms of that
offering and also may add, update or change information contained in this
document;
- you should read this document and any prospectus supplement carefully before
you invest; and
- this prospectus may not be used to offer or sell the common stock unless
accompanied by a prospectus supplement.
Our common stock is listed on the Nasdaq National Market under the symbol
"GERN". On April 26, 2000, the last reported sale price of our common stock was
$21.00 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 3.
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.
April 27, 2000
<PAGE> 5
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
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 3
Forward-Looking Statements............. 16
Use of Proceeds........................ 17
Description of Capital Stock........... 17
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Plan of Distribution................... 20
Legal Matters.......................... 20
Experts................................ 20
Where You Can Find More Information.... 20
Incorporation by Reference............. 21
</TABLE>
<PAGE> 6
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
<PAGE> 7
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may from time to time sell any number of the shares of
common stock described in this prospectus in one or more offerings up to a total
of 5,000,000 shares.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with the additional information described below under the
heading "Where You Can Find More Information."
The registration statement that contains this prospectus, including the exhibits
to the registration statement and the information incorporated by reference,
contains additional information about the securities offered under this
prospectus. That registration statement can be read at the Securities and
Exchange Commission, or SEC, web site or at the SEC offices mentioned below
under the heading "Where You Can Find More Information."
You should rely only on the information provided in this prospectus and in any
prospectus supplement, including the information incorporated by reference. We
have not authorized anyone to provide you with different information. You should
not assume that the information in this prospectus, or any supplement to this
prospectus, is accurate at any date other than the date indicated on the cover
page of these documents.
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
1
<PAGE> 8
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.
As of March 9, 2000, 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 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.
2
<PAGE> 9
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.
3
<PAGE> 10
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 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.
4
<PAGE> 11
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.
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.
5
<PAGE> 12
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.
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
6
<PAGE> 13
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;
- 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
7
<PAGE> 14
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 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,
8
<PAGE> 15
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.
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
9
<PAGE> 16
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
- 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.
10
<PAGE> 17
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.
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
11
<PAGE> 18
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.
12
<PAGE> 19
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 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.
13
<PAGE> 20
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 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;
14
<PAGE> 21
- 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.
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.
15
<PAGE> 22
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.
16
<PAGE> 23
USE OF PROCEEDS
We cannot guarantee that we will receive any proceeds in connection with this
offering.
We intend to use the net proceeds of this offering, if any, 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, if any,
to be received upon consummation of this offering. Accordingly, our management
will have broad discretion in the application of any net proceeds received.
Pending such uses, we intend to invest the net proceeds, if any, from this
offering in short-term, interest-bearing, investment grade securities.
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. In December 1999, we agreed to issue shares of our common
stock to a consultant in exchange for consulting services to be rendered under a
letter agreement. Under the terms of the letter agreement, we are obligated to
issue shares of our common stock upon the completion of the consulting services
which we anticipate to be at the end of April 2000. At such time, we will be
obligated to issue approximately 40,000 shares of our common stock.
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
17
<PAGE> 24
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.
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
18
<PAGE> 25
- 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.
In addition, in December 1999, we agreed to issue warrants to purchase our
common stock to a consultant in exchange for consulting services to be rendered
under a letter agreement. Under the terms of the letter agreement, we are
obligated to issue warrants to purchase common stock upon the completion of the
consulting services which we anticipate to be at the end of April 2000. At such
time, we will be obligated to issue warrants to purchase approximately 150,000
shares of our common stock.
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.
19
<PAGE> 26
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.
PLAN OF DISTRIBUTION
We may offer the common stock:
- directly to purchasers;
- to or through underwriters;
- through dealers, agents or institutional investors; or
- through a combination of such methods.
Regardless of the method used to sell the common stock, we will provide a
prospectus supplement that will disclose:
- the identity of any underwriters, dealers, agents or investors who purchase
the common stock;
- the material terms of the distribution, including the number of shares sold
and the consideration paid;
- the amount of any compensation, discounts or commissions to be received by the
underwriters, dealers or agents;
- the terms of any indemnification provisions, including indemnification from
liabilities under the federal securities laws; and
- the nature of any transaction by an underwriter, dealer or agent during the
offering that is intended to stabilize or maintain the market price of the
common stock.
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.
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
20
<PAGE> 27
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.
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:
1. Our Annual Report on Form 10-K/A for the year ended December 31, 1999
(File No. 000-20859).
2. All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1999, if any.
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.
21
<PAGE> 28
LOGO
