<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1997
REGISTRATION NO. 333-36603
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CELL THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
WASHINGTON 2384 91-1533912
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
---------------
201 ELLIOTT AVENUE WEST, SUITE 400
SEATTLE, WASHINGTON 98119
(206) 282-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JAMES A. BIANCO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CELL THERAPEUTICS, INC.
201 ELLIOTT AVENUE WEST, SUITE 400
SEATTLE, WASHINGTON 98119
(206) 282-7100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
---------------
COPIES TO:
MICHAEL J. KENNEDY MARK B. WEEKS
MICHAEL S. DORF CRAIG E. SHERMAN
BROBECK, PHLEGER & HARRISON LLP VENTURE LAW GROUP
SPEAR STREET TOWER, ONE MARKET A PROFESSIONAL CORPORATION
SAN FRANCISCO, CALIFORNIA 94105 2800 SAND HILL ROAD
(415) 442-0900 MENLO PARK, CA 94025
(650) 854-4488
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value (including
associated Preferred Stock Purchase
Rights).................................. 2,300,000 shares $13.3125 $30,618,750 $9,279
- --------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 300,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 and based upon
the average of the high and low prices of the Company's Common Stock as
reported on the Nasdaq National Market on September 22, 1997.
---------------
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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Subject to Completion, Dated October 6, 1997
2,000,000 SHARES
[LOGO OF CTI APPEARS HERE]
CELL THERAPEUTICS, INC.
COMMON STOCK
-----------
All of the 2,000,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Cell Therapeutics, Inc. ("cti" or the "Company"). The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"CTIC." On October 2, 1997, the last reported sale price for the Company's
Common Stock on the Nasdaq National Market was $15.44. See "Price Range of
Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
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Total(3)............................... $ $ $
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</TABLE>
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1. For information regarding indemnification of the Underwriters, see
"Underwriting."
2. Before deducting expenses of the Offering payable by the Company, estimated
at $450,000.
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 300,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be
$ and the Proceeds to the Company will be $ . See
"Underwriting."
-----------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through
the offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or
about October , 1997.
-----------
UBS SECURITIES
NATIONSBANC MONTGOMERY SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
October , 1997
<PAGE>
[GRAPHIC SHOWING COMPANY'S TECHNOLOGY PLATFORM]
----------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto,
contained elsewhere in this Prospectus or incorporated herein by reference.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as those discussed elsewhere in this Prospectus
or incorporated herein by reference. As used in this Prospectus, unless
otherwise indicated or the context otherwise requires, all references to "cti"
or the "Company" include Cell Therapeutics, Inc. and its wholly owned
subsidiary, CTI Technologies, Inc., and all references to "Johnson & Johnson"
include Johnson & Johnson, Ortho Biotech, Inc., The R.W. Johnson Pharmaceutical
Research Institute (a division of Ortho Pharmaceutical Corporation) and Johnson
& Johnson Development Corporation, each of which are wholly-owned subsidiaries
of Johnson & Johnson, but does not include any other subsidiary of Johnson &
Johnson. Except as otherwise specified, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
THE COMPANY
Cell Therapeutics, Inc. ("cti" or the "Company") focuses on the discovery,
development and commercialization of small molecule drugs that selectively
regulate the metabolism of oxidized lipids and phospholipids relevant to the
treatment of cancer and inflammatory and immune diseases. The Company is
conducting three pivotal Phase III clinical trials for its lead product
candidate, Lisofylline ("LSF"), which is being developed to prevent or reduce
treatment-related toxicities, specifically serious and fatal infections,
mucositis and treatment-related mortality, among cancer patients receiving high
dose radiation and/or chemotherapy. In November 1996, cti entered into a
Collaboration and License Agreement (the "Collaboration Agreement") with
Johnson & Johnson for the joint development and commercialization of LSF to
prevent or reduce the toxic side effects among cancer patients receiving high
dose radiation and/or chemotherapy followed by bone marrow transplantation
("BMT"). In September 1997, Johnson & Johnson exercised an option under the
Collaboration Agreement to expand its participation in the development of LSF
for treatment of patients with newly diagnosed acute myelogenous leukemia
("AML") undergoing high dose induction chemotherapy.
In addition to its oncology applications, the Company is also investigating
LSF for use as an agent to prevent or reduce the incidence and severity of
acute lung injury ("ALI") and mortality among patients requiring mechanical
ventilation for respiratory failure for which it expects to begin a pivotal
Phase II/III trial in the fourth quarter of 1997. The Company is also
developing CT-2584, a novel small molecule drug for the treatment of patients
with multidrug (e.g., chemotherapy) resistant cancers, including prostate
cancer and sarcomas, for which it expects to begin a Phase II clinical trial in
the first quarter of 1998. The Company has devoted substantial resources to
building a unique drug discovery platform based on its proprietary technology
in oxidized lipid and phospholipid chemistry and believes it can leverage its
enabling oxidized lipid and phospholipid technologies to identify development
opportunities in other disease states, such as diabetes or cardiovascular
disease, where oxidized lipids may be implicated in the pathogenesis or
manifestations of such diseases.
Oncology
Cancer is the second leading cause of death in the United States, with
approximately 1.4 million new cases diagnosed each year. At some point in their
disease treatment, 70 percent of all cancer patients will receive radiation
therapy and 50 percent of all newly diagnosed cancer patients will receive
chemotherapy. Despite their benefits for treating cancer, there are significant
limitations of, and complications associated with, radiation and chemotherapy
which result in a high rate of treatment failure. The principal causes of
cancer treatment failure include treatment-related toxicities, multidrug
resistance and tumor resistance to radiation. The Company is focusing its
oncology development efforts on a portfolio of drugs that it believes will
address the three principal causes of cancer treatment failure: (i) LSF--a
supportive care agent being investigated to prevent or reduce the incidence of
serious and fatal infections, mucositis (damage to the epithelial cells lining
the mouth, stomach and intestinal tract) and treatment-related mortality among
cancer patients receiving high dose radiation and/or chemotherapy, (ii) CT-
2584--a novel anti-cancer drug in clinical trials for the treatment of patients
with multidrug resistant tumors and (iii) tumor sensitizing agents being
investigated to enhance sensitivity to radiation among tumors that have deleted
or mutated tumor suppressor genes. Additionally the Company may license or
acquire agents from third parties which, when used with other cti oncology
products, may provide added value to the integrated management of oncologic
disease.
3
<PAGE>
Lisofylline. LSF is a synthetic small molecule drug in three pivotal Phase
III clinical trials among cancer patients receiving high dose radiation and/or
chemotherapy. Unlike blood cell growth factors or chemotherapy protecting
agents, LSF is being developed to prevent or reduce the incidence of serious
and fatal infections, mucositis and treatment-related mortality. More than 578
people have participated in over 15 clinical trials of LSF as of September 30,
1997. The Company has completed two Phase II trials for LSF which resulted in a
statistically significant reduction in serious and fatal infections following
BMT and serious infections following induction chemotherapy for AML. The
Company is conducting two pivotal Phase III clinical trials of LSF in patients
who require BMT after receiving ablative, or bone marrow destroying, doses of
radiation and/or chemotherapy. In addition, the Company has an ongoing pivotal
Phase III trial in patients with newly diagnosed AML who receive high dose
induction chemotherapy. In the first quarter of 1998, the Company intends to
commence a Phase II/III clinical trial of LSF in patients with solid tumors
such as head and neck or breast cancers who receive dose-intensive radiation
and/or chemotherapy and who are at risk of developing severe mucositis and
neutropenic infections. Common to each of these three categories of anti-cancer
treatment (ablative, induction and dose-intensive) is the occurrence of
neutropenia and the breakdown of the epithelial barrier cells lining the mouth,
stomach and intestinal tract, placing patients at a high risk of life
threatening infections, severe mucositis and mortality.
CT-2584. CT-2584 is cti's novel small molecule drug under investigation for
the treatment of patients with multidrug resistant cancers, including prostate
cancer and sarcomas. The Company has an ongoing Phase I trial, co-sponsored by
the Cancer Research Campaign, at the Christie Hospital in the United Kingdom
among patients with advanced cancers and a parallel Phase I trial at the
Memorial Sloan Kettering Cancer Research Center in the United States for
patients with advanced cancers including prostate and ovarian cancer. As of
September 30, 1997, 36 patients have been treated with CT-2584 at five
different dose levels without exhibiting the bone marrow or gastrointestinal
toxicities observed with conventional high dose anti-cancer treatment regimens.
Based on the preliminary response rates observed in this trial the Company
anticipates initiating a Phase II trial in advanced hormone refractory prostate
cancer in the first quarter of 1998.
Inflammatory Disease
The Company believes that, in addition to its oncology applications, LSF may
be effective as an agent to prevent or reduce the incidence and severity of ALI
and mortality among patients requiring mechanical ventilation for respiratory
failure. The National Heart, Lung and Blood Institute (the "NHLBI") is
sponsoring a pivotal Phase II/III trial of LSF among patients experiencing ALI
which is expected to begin in the fourth quarter of 1997.
Corporate Collaboration
Under a Collaboration and License Agreement with Johnson & Johnson, cti is
responsible for the development of LSF in the United States, and Johnson &
Johnson has committed to fund 60 percent of cti's budgeted development expenses
incurred with obtaining regulatory approval for LSF in the United States for
BMT and AML indications. The Company and Johnson & Johnson will co-promote LSF
in the United States, and each will share equally in any resulting operating
profits and losses. Johnson & Johnson has the exclusive right to develop and
market LSF, at its own expense, for markets other than the United States and
Canada, subject to specified royalty payments to cti. The Company has recorded
approximately $19.1 million in equity payments, license fees and development
cost reimbursements from Johnson & Johnson as of June 30, 1997. It is currently
anticipated that Johnson & Johnson will make an equity investment of
approximately $2.0 million in this Offering.
Cell Therapeutics, Inc. was incorporated in Washington in September 1991. The
Company has not received any revenue from the sale of products to date and does
not expect to receive revenues from the sale of products for at least the next
several years. The Company's executive offices are located at 201 Elliott
Avenue West, Seattle, Washington 98119, and its telephone number is (206) 282-
7100.
---------------
cti(R) is a registered trademark of the Company. LSF(TM) is a proprietary
trademark of the Company. This Prospectus contains trademarks and service marks
of companies other than cti.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company.......... 2,000,000 shares
Common Stock Outstanding after this
Offering.................................... 15,063,337 shares(1)
Use of Proceeds.............................. For general corporate purposes
including clinical trials,
other research and development
activities and working capital.
See "Use of Proceeds."
Nasdaq National Market Symbol................ CTIC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues..................... $ -- $ 100 $ 9,121 $ 3,000 $ 5,267
Research and development
expense..................... 14,368 14,606 16,109 7,397 12,627
General and administrative
expense..................... 5,283 6,144 7,602 3,527 4,133
-------- -------- -------- ------- --------
Total operating expenses... 19,651 20,750 23,711 10,924 16,760
-------- -------- -------- ------- --------
Loss from operations......... (19,651) (20,650) (14,590) (7,924) (11,493)
Other income (expense)....... 152 658 662 288 977
-------- -------- -------- ------- --------
Net loss..................... $(19,499) $(19,992) $(13,928) $(7,636) $(10,516)
======== ======== ======== ======= ========
Pro forma net loss per
share(2).................... $ (1.69) $ (0.98) $ (0.92)
======== ======= ========
Shares used in computation of
pro forma net loss per
share....................... 8,228 7,770 11,452
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
AS
ACTUAL ADJUSTED(3)
-------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.................... $ 47,917 $ 76,610
Working capital............................................................. 45,071 73,764
Total assets................................................................ 56,490 85,183
Long-term obligations, less current portion................................. 1,389 1,389
Deficit accumulated during development stage................................ (84,684) (84,684)
Total shareholders' equity.................................................. 49,354 78,047
</TABLE>
- -------
(1) Excludes (i) 1,523,513 shares of Common Stock issuable upon exercise of
stock options outstanding as of September 30, 1997 at a weighted average
exercise price of $11.86 per share and (ii) 17,070 shares of Common Stock
issuable upon exercise of warrants outstanding as of September 30, 1997 at
a weighted average exercise price of $24.89 per share.
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements incorporated by reference herein.
(3) Adjusted to reflect the net proceeds from the sale of the 2,000,000 shares
of Common Stock offered hereby and receipt by the Company of the estimated
net proceeds therefrom, at an assumed public offering price of $15.44 per
share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information contained in this Prospectus. This Prospectus contains forward-
looking statements which involve risks and uncertainties. When used in this
Prospectus, the words "believes," "anticipates," "expects," "intends" and
other predictive, interpretive and similar expressions are intended to
identify such forward-looking statements. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations," as well as those discussed
elsewhere in this Prospectus or incorporated herein by reference. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Dependence on Single Drug Candidate. The Company is conducting three pivotal
Phase III clinical trials for its lead product candidate, LSF. There can be no
assurance that such Phase III trials will be successfully completed, that
further clinical studies will not be needed or that any such clinical trials
will lead to product approval by the United States Food and Drug
Administration (the "FDA"). Furthermore, there can be no assurance that the
Company will be successful in its efforts to develop LSF for any indications.
The remainder of the Company's drug candidates are still in research and
development, preclinical trials or clinical trials. Any additional product
candidates will require significant research, development, preclinical and
clinical testing, regulatory approval and commitments of resources prior to
commercialization. The Company is, therefore, dependent on the successful
completion of its pivotal Phase III trials and obtaining regulatory approval
of LSF to generate revenues while it continues the research, development and
regulatory approval processes for its other drug candidates. Although the
Company is currently seeking to develop other drug candidates and to expand
the number of drug candidates it has under development, there can be no
assurance that it will be successful in such development or expansion. If LSF
does not successfully complete clinical testing and meet applicable regulatory
requirements, or is not successfully manufactured or marketed, the Company may
not have the financial resources to continue research and development of other
product candidates. The failure to successfully develop, manufacture or market
LSF would have a material adverse effect on the Company's business, prospects,
financial condition, liquidity and results of operations. See "--No Assurance
of FDA Approval; Comprehensive Government Regulations" and "Business--Products
Under Development."
No Assurance of Successful Product Development; Uncertainties Related to
Clinical Trials. The Company has no products commercially available for sale
and does not expect to have any products commercially available for sale for
at least the next several years, if ever. The time frame for achievement of
market introduction for any potential product is long and uncertain. Two of
the Company's product candidates, LSF and CT-2584, are currently in clinical
trials for certain indications. However, the results obtained to date in
preclinical and clinical studies of LSF and in preclinical studies and
preliminary clinical trials of CT-2584 are not necessarily indicative of
results that will be obtained during future clinical testing. A number of
companies in the pharmaceutical industry, including biotechnology companies,
have suffered significant setbacks in advanced clinical trials, even after
reporting promising results in earlier trials. In addition, data obtained from
clinical trials are susceptible to varying interpretations. There can be no
assurance that the Company and its collaborators will agree on the
interpretation of the Company's future clinical trial results or that the
Company's clinical trials will demonstrate sufficient terms of safety and
efficacy necessary to obtain the requisite regulatory clearance or will result
in marketable products.
The Company's research and development programs for products other than LSF
and CT-2584 are at an early stage of development. Preclinical in vitro and
animal studies are not necessarily indicative of results that may be obtained
during human clinical testing. Many potential therapeutic products indicate
positive preclinical
6
<PAGE>
results which are not subsequently reproduced in humans. Any additional
product candidates will require significant research, development, preclinical
and clinical testing, regulatory approval and commitments of resources prior
to commercialization. There can be no assurance that the Company's research
will lead to the discovery of additional product candidates or that LSF, CT-
2584 or any other products will be successfully developed, prove to be safe
and efficacious in clinical trials, meet applicable regulatory standards, be
capable of being produced in commercial quantities at acceptable costs or be
successfully or profitably marketed. There can be no assurance as to the
extent to which any products developed by cti will be able to penetrate the
potential market for a particular therapy or indication or gain market
acceptance among health care providers, patients or third-party payors.
The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient enrollment may
result in increased costs, delays or termination of clinical trials, which
could have a material adverse effect on the Company's business, prospects,
financial condition, liquidity and results of operations. There can be no
assurance that the Company will be able to submit a New Drug Application
("NDA") as scheduled if clinical trials are completed, or that any such
application will be reviewed and cleared by the FDA in a timely manner, or at
all.
There can be no assurance that unacceptable toxicities or side effects will
not occur at any dose level at any time in the course of toxicology studies or
clinical trials of the Company's potential products. The appearance of any
such unacceptable toxicities or side effects in toxicology studies or clinical
trials could cause the Company or regulatory authorities to interrupt, limit,
delay or abort the development of any of the Company's potential products and
could ultimately prevent their clearance by the FDA or foreign regulatory
authorities for any or all targeted indications. Even after being cleared by
the FDA or foreign regulatory authorities, a product may later be shown to be
unsafe or to not have its purported effect, thereby preventing widespread use
or requiring withdrawal from the market. There can be no assurance that any
potential products under development by the Company will be safe or effective
when administered to patients.
Reliance on Relationship with Johnson & Johnson. The Company is dependent on
the future payments from Johnson & Johnson to continue the development and
commercialization of LSF as presently planned. Under the terms of the
Collaboration Agreement between Johnson & Johnson and the Company, Johnson &
Johnson has committed to fund 60 percent of cti's budgeted development
expenses in the United States incurred in connection with obtaining regulatory
approval for LSF for the prevention or reduction of the toxic side effects
among cancer patients receiving high dose radiation and/or chemotherapy
followed by BMT and the treatment of patients with newly diagnosed AML
undergoing high dose chemotherapy. Johnson & Johnson will be responsible for
obtaining regulatory approval for LSF outside of the United States and Canada
at its own expense. Although cti and Johnson & Johnson will co-promote LSF in
the United States, Johnson & Johnson will have primary responsibility for
commercializing LSF. There can be no assurance that Johnson & Johnson will be
able to establish effective sales and distribution capabilities or will be
successful in gaining market acceptance for LSF or that Johnson & Johnson will
devote sufficient resources to the commercialization of products under the
Collaboration Agreement. If Johnson & Johnson did not continue its
participation in the development and commercialization of LSF, the Company
would not be able to continue the development of LSF as presently planned
which could have a material adverse effect on the Company's business,
prospects, financial condition, liquidity and results of operations.
Although Johnson & Johnson has committed to fund 60 percent of cti's
budgeted development expenses incurred with obtaining regulatory approval in
the United States for the BMT and AML indications, Johnson & Johnson may
terminate the Collaboration Agreement at any time based upon material safety
or tolerability issues related to LSF upon 30 days notice, and for any reason
after November 8, 1997, subject to a six month notice period. Johnson &
Johnson would have no further obligation to fund cti's development expenses
related to LSF following such termination. However, the financial and other
obligations of Johnson & Johnson (aside from Johnson & Johnson's obligation to
make additional payments to, and equity investments in, cti if certain
development milestones are achieved after the notice date) would continue
during such six month notice period. If Johnson &
7
<PAGE>
Johnson were to terminate its participation in the Collaboration Agreement,
the Company would not be able to continue the development of LSF as presently
planned which could have a material adverse effect on the Company's business,
prospects, financial condition, liquidity and results of operations. If
adequate funds were not then available from other sources, the Company would
be required to delay, reduce the scope of, or eliminate one or more of its
research, development and clinical activities or seek to obtain funds through
arrangements with collaborative partners or others on terms which may be less
favorable to cti than the Collaboration Agreement. See "--Need for Substantial
Additional Funds."
Ability to Protect Intellectual Property. The Company's success will depend
in part on its ability to obtain patent protection for its products and
technologies in the United States and other countries, effectively preserve
its trade secrets, enforce its rights against third parties which may infringe
on its technology and operate without infringing on the proprietary rights of
third parties. The patent positions of biotechnology and pharmaceutical
companies can be highly uncertain and involve complex legal and factual
questions, and therefore the breadth of claims allowed in biotechnology or
pharmaceutical patents, or their enforceability, cannot be predicted. The
Company intends to file applications as appropriate for patents covering both
its products and processes. There can be no assurance that any patents will
issue from any present or future applications or, if patents do issue, that
such patents will be issued on a timely basis or that claims allowed on issued
patents will be sufficient to protect the Company's technology. In addition,
there can be no assurance that the patents issued to cti will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide proprietary protection or commercial advantage to the Company.
There can be no assurance that patents issued to the Company currently or in
the future will effectively protect the technology involved, foreclose the
development of competitive products by others or otherwise be commercially
valuable.
The commercial success of the Company will also depend in part on the
Company's neither infringing the patents or proprietary rights of third
parties nor breaching any technological licenses which relate to the Company's
technologies and potential products. In general, the development of
therapeutic products is intensely competitive and many pharmaceutical
companies, biotechnology companies, universities and research institutions
have filed and will continue to file patent applications and receive patents
in this field. If patents are issued to other entities that contain
competitive or conflicting claims with respect to technology pursued by cti
and such claims are ultimately determined to be valid, no assurance can be
given that cti will be able to obtain licenses to these patents at a
reasonable cost or develop or obtain alternative technology or compounds. In
such case, the Company could be precluded from using technology that is the
subject matter of such patents, which could have a material adverse effect on
the Company's business, prospects, financial condition, liquidity and results
of operations. There has been significant litigation in the pharmaceutical and
biotechnology industry regarding patents and other proprietary rights, and
although the Company is not currently engaged in litigation regarding
intellectual property matters, from time to time the Company sends and
receives communications to and from third parties regarding such matters. In
order to enforce any patents issued to the Company or determine the scope,
validity or priority of other parties' proprietary rights, the Company may
have to engage in litigation or interference or other administrative
proceedings, which would result in substantial cost to, and diversion of
efforts by, the Company. There can be no assurance that third parties will not
assert infringement claims in the future with respect to the Company's current
or future products or that any such claims will not require the Company to
enter into license arrangements or result in litigation or interference or
other administrative proceedings, regardless of the merits of such claims. No
assurance can be given that any necessary licenses can be obtained on
commercially reasonable terms, or at all. Should litigation or interference or
other administrative proceedings with respect to any such claims commence,
such litigation or interference or other administrative proceedings could be
extremely costly and time consuming and could have a material adverse effect
on the Company's business, prospects, financial condition, liquidity and
results of operations, regardless of the outcome of such litigation or
interference or other administrative proceedings.
The Company has seven issued patents covering the pharmaceutical
composition, commercial manufacturing process and oncology and anti-
inflammatory uses of LSF in the United States. The Company is aware of a
patent belonging to third parties that could be interpreted to compromise the
Company's freedom to sell LSF in the United States for certain non-oncology
applications. The Company believes, upon the advice of its patent
counsel, that
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any such interpretation is relevant only in connection with the Company's use
of LSF in preventing lung injury following traumatic injury (such as acute
lung injury and Acute Respiratory Distress Syndrome) or sepsis and,
irrespective of such interpretation, that the Company's planned manufacture,
sale or use of LSF as described in this Prospectus does not infringe any valid
claim of such third party patent. If such third party patent rights were
interpreted to limit the use of LSF, the Company could be required to obtain a
license from such parties. There can be no assurance that any such license
would be available to the Company upon reasonably acceptable terms, if at all.
If the Company were so required to obtain a license from such parties, the
inability of the Company to obtain such a license on reasonably acceptable
terms would have a material adverse effect on the Company's business,
prospects, financial condition, liquidity and results of operations. The
Company could also face significant costs associated with any litigation
relating to such patent.
In order to protect its proprietary technology and processes, cti also
relies on confidentiality and material transfer agreements with its corporate
partners, employees, consultants, outside scientific collaborators and
sponsored researchers and other advisors. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for such a breach or that the Company's trade secrets will not otherwise
become known or independently discovered by competitors. See "Business--
Patents and Proprietary Rights."
Technological Uncertainty and Medical Advances. The Company currently relies
exclusively upon its lipid-based technology for the discovery, development and
commercialization of drugs for the treatment of cancer and inflammatory and
immune diseases. To date, the Company's resources have been dedicated
primarily to the research and development of potential pharmaceutical products
that the Company believes regulate the production and/or degradation of
oxidized lipids such as hydroperoxyoctadecadienoic acids ("HPODEs") or
phospholipids such as phosphatidic acids ("PAs"). The physiology of cancer,
inflammatory and immune disease is complex, and the roles of HPODEs and PAs,
and the stress-activated pathways ("SAPs") which they appear to activate, are
not fully known. Although preclinical and clinical data to date suggest that
the species of HPODEs and PAs targeted by the Company's products under
development play an important role in the cellular inflammatory and injurious
response to cell-damaging stimuli such as radiation, chemotherapy and
oxidative injury, there can be no assurance that the Company's therapeutic
approaches are correct or that its drug candidates will be proven safe or
effective. The Company believes that the elevation and production of HPODEs
and PAs and the activation of SAPs do not appear to be primarily utilized for
normal cellular processes, and that the Company's drug candidates will not
substantially interfere with normal cellular processes at therapeutically
relevant levels. There can be no assurance that the HPODEs, PAs or SAPs
believed to be targeted by the Company's drug candidates do not serve a
currently unidentified beneficial purpose which might be adversely affected by
the mechanism of action of the Company's drug candidates. No assurance can be
given that unforeseen problems will not develop with the Company's
technologies or applications, or that commercial products will ultimately be
developed by cti. There can be no assurance that research and discoveries by
others will not render some or all of cti's programs or products
noncompetitive or obsolete or that the Company will be able to keep pace with
technological developments or other market factors. Technological changes or
medical advancements could diminish or eliminate the commercial viability of
the Company's focus on cell membrane lipids in regulating cellular processes.
The failure to commercialize such products would have a material adverse
effect on the Company's business, prospects, financial condition, liquidity
and results of operations.
History and Continuation of Losses; Development Stage Company. The Company
is a development stage company which currently has no sources of operating
revenues and has incurred net operating losses since its inception. As of June
30, 1997, the Company had an accumulated deficit of approximately $84.7
million. Such losses have resulted principally from costs incurred in
research, development, clinical trials and general and administrative costs
associated with the Company's operations. The Company expects that operating
losses will continue at increasing levels for at least the next several years
as its research, product development, clinical testing and marketing
activities expand, and does not expect to receive revenues from the sale of
products for at least the next several years, if ever. The Company is working
on a number of costly long-term development projects which involve
experimental and unproven technology and which may ultimately prove
unsuccessful. In addition, since cti does not currently have any marketable
products, it expects to incur substantial operating losses for a number of
years. The amount of net losses
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and the time required by the Company to reach profitability are highly
uncertain. There can be no assurance that the Company will be able to develop
additional revenue sources or that its operations will ever become profitable.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Need for Substantial Additional Funds. To date, the Company's operations
have been funded primarily through the sale of equity securities, which has
raised aggregate net proceeds of approximately $132.8 million as of June 30,
1997. The Company expects that its revenue sources for at least the next
several years will consist primarily of future expense reimbursements and
milestone payments under its collaboration agreements with Johnson & Johnson
and with an affiliate of BioChem Pharma, Inc. ("BioChem Pharma"), and interest
income. The Company will require substantial additional funds to conduct its
existing and planned preclinical and clinical trials, to establish
manufacturing and marketing capabilities for any products it may develop and
to continue research and development activities. The Company expects that its
existing capital resources and the interest earned thereon, combined with
anticipated funding from Johnson & Johnson under the Collaboration Agreement
and the proceeds from this Offering will enable the Company to maintain its
current and planned operations at least through the middle of 1999. The
Company will need to raise substantial additional capital to fund its
operations beyond such time. See "--Reliance on Relationship with Johnson &
Johnson," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Collaborations."
The Company's future capital requirements will depend on, and could increase
as a result of, many factors, including: the continuation of the Company's
collaboration with Johnson & Johnson; continued scientific progress in its
research and development programs; the magnitude and scope of such programs;
the terms of any additional collaborative arrangements that the Company may
enter into; the progress of preclinical and clinical testing; the time and
costs involved in obtaining regulatory approvals; the costs involved in
preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims; competing technological and market developments; changes in
collaborative relationships; the ability of the Company to establish research,
development and commercialization arrangements pertaining to products other
than those covered by existing collaborative arrangements; the cost of
establishing manufacturing facilities; the cost of commercialization
activities; and the demand for the Company's products if and when approved.
The Company intends to raise additional funds through additional equity or
debt financings, research and development financings, collaborative
relationships, or otherwise. The Company may engage in these capital raising
activities even if it does not have an immediate need for additional capital
at that time. There can be no assurance that any such additional funding will
be available to cti or, if available, that it will be on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
existing shareholders may result. If adequate funds are not available, cti may
be required to delay, reduce the scope of, or eliminate one or more of its
research, development and clinical activities. If the Company seeks to obtain
funds through arrangements with collaborative partners or others such partners
may require cti to relinquish rights to certain of its technologies, product
candidates or products that the Company would otherwise seek to develop or
commercialize itself. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
No Assurance of FDA Approval; Comprehensive Government
Regulation. Regulatory approval to market human therapeutics must be obtained
from the FDA and comparable health authorities in foreign countries and, to a
lesser extent, by state and local regulatory authorities in the United States.
This process requires lengthy and detailed laboratory and clinical testing and
other costly and time-consuming procedures, which must establish that such
therapeutics are safe and efficacious. Obtaining regulatory approval to market
drugs typically takes one or more years after the completion of clinical
trials and the filing of an NDA, with no assurance that such approval will
ever be obtained. The time involved for regulatory review varies substantially
based upon the type, complexity and novelty of the drug. In addition, delays
or rejections may be encountered based upon existing and changing policies of
regulatory authorities for drug approval during the period of drug development
and regulatory review of each submitted NDA. The results obtained in
preclinical and early clinical studies are not necessarily indicative of
results that will be obtained during future clinical testing. There can be no
assurance that the results obtained by the Company to date will continue as
testing and trials progress or that the Company's products will ever be
approved for commercial sale by the FDA or other regulatory authorities.
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In addition to the substantial time commitment required, the regulatory
process, which includes preclinical testing and clinical trials of each
compound to establish its safety and efficacy, requires the expenditure of
substantial resources. Preclinical studies must be conducted in conformity
with the FDA's current Good Laboratory Practices ("GLP"). Clinical trials must
meet requirements for institutional review board oversight and informed
consent, as well as FDA prior review and acceptance of Investigational New
Drug applications ("IND"), continued FDA oversight and current Good Clinical
Practices ("GCP"). The Company's experience in conducting clinical trials is
limited. Data obtained from preclinical studies and clinical trials are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Furthermore, studies conducted with alternative designs
or alternative patient populations could produce results which vary from those
obtained by the Company. There can be no assurance that the Company's data or
its interpretation of its data will be accepted by governmental regulators,
the medical community or the Company's collaborators. See "--No Assurance of
Successful Product Development; Uncertainties Related to Clinical Trials."
Government regulation also affects the manufacture and marketing of
pharmaceutical drug products. Any future FDA or other governmental approval of
drug products developed by cti may entail significant limitations on the
indicated uses for which such products may be marketed. Approved drug products
will be subject to additional testing and surveillance programs required by
the regulatory agencies. For example, the Company will be obligated to report
certain adverse reactions, if any, to the FDA. In addition, product approvals
may be withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. Failure to
comply with applicable regulatory requirements can result in, among other
things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions or criminal proceedings. In the event that cti were to
manufacture therapeutic products, cti would be required to adhere to
applicable standards for current Good Manufacturing Practices ("GMP")
prescribed by the FDA, engage in extensive record keeping and reporting, and
submit its manufacturing facilities to periodic inspections by state and
federal agencies, including the FDA, and comparable agencies in other
countries. In the event that third parties were to manufacture cti's
therapeutic products, cti would be required to obtain FDA approval for such
manufacture (or any change in manufacturer), and those third party
manufacturers would also be required to adhere to GMP requirements.
The effect of government regulation may be to considerably delay or prevent
the marketing of any product that cti may develop and/or to impose costly
procedures upon cti's activities, the result of which may be to furnish an
advantage to its competitors. There can be no assurance that regulatory
approval for any products developed by cti will be granted on a timely basis
or at all. Any such delay in obtaining or failure to obtain such approvals
would adversely affect cti's ability to market the proposed products and earn
product revenue. The Company is unable to predict the extent and impact of
regulation resulting from future federal, state or local legislation or
administrative actions, or whether such government regulation may have a
material adverse effect on cti.
Outside the United States, the Company's ability to market a product is
contingent upon receiving marketing authorizations from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied
for at a national level, although within the European Union ("EU") certain
registration procedures are available to companies wishing to market a product
in more than one EU member state. This foreign regulatory approval process
includes all of the risks associated with FDA approval set forth above.
Substantial Competition. The Company faces substantial competition from a
variety of sources, both direct and indirect. The Company faces direct
competition from many companies focusing on areas such as cell signal
transduction, surface receptor technology, transcription factors and gene
therapies. There are many companies, both public and private, including well-
known pharmaceutical companies, chemical companies and specialized
biotechnology companies, engaged more generally in developing synthetic
pharmaceutical and biotechnological products for the same therapeutic
applications as those which are the subject of the Company's research and
development efforts. In some instances, such products have already entered
clinical trials or received approval from the FDA. In addition, many of these
competitors have significantly greater experience than cti in undertaking
preclinical testing and clinical trials of new pharmaceutical products and
obtaining FDA and other regulatory approvals. The Company also competes with
companies that have substantially greater capital
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resources and research and development, manufacturing, marketing and sales
capabilities. Moreover, certain academic institutions, governmental agencies
and other public and private research organizations are conducting research in
areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These
institutions may also market competitive commercial products on their own or
through joint ventures and compete with the Company in recruiting highly
qualified scientific personnel. Other companies may succeed in developing
products that are more effective or less costly than any that may be developed
by cti and may also prove to be more successful than cti at marketing such
products. Competition may increase further as a result of the potential
advances in the commercial applicability of genetic engineering technologies
and organic chemistry. There can be no assurance that the Company's
competitors will not develop more effective or more affordable products or
achieve earlier patent protection or product commercialization than cti. See
"Business--Competition."
Reliance on Third Party Manufacturers; Manufacture of Products in Commercial
Quantities. The manufacturing of sufficient quantities of new drugs is a time
consuming, complex and unpredictable process. The Company currently has no
internal facilities for the manufacture of any of its products for clinical or
commercial production. The Company currently relies on one third party,
ChiRex, Ltd. ("ChiRex"), to manufacture LSF for preclinical testing and
clinical trials. The Company's manufacture and supply agreement with ChiRex
provides for the manufacture and supply of LSF bulk drug and corresponding
intermediate compounds for the Company's requirements for ongoing and future
clinical trials and commercial requirements during product launch and
commercialization. Under the terms of the Collaboration Agreement with Johnson
& Johnson, the Company will be responsible for the manufacture of LSF for
development and commercialization purposes until November 8, 1999. Thereafter,
Johnson & Johnson will assume responsibility for the manufacture of LSF.
However, Johnson & Johnson may elect to assume responsibility for the
manufacture of LSF at any time prior to such date. LSF has never been
manufactured on a commercial scale, and no assurance can be given that the
Company, together with Johnson & Johnson will be able to make the transition
to commercial production. The Company has recently entered into an agreement
with a third party vendor to furnish CT-2584 bulk drug substance for future
clinical studies. The Company may need to develop additional manufacturing
resources, or may seek to enter into collaborative arrangements with other
parties which have established manufacturing capabilities or may elect to have
other third parties manufacture its products on a contract basis. All
manufacturing facilities must comply with applicable regulations of the FDA.
The Company has established a quality control and quality assurance program,
including a set of standard operating procedures and specifications, designed
to ensure that the Company's products are manufactured in accordance with
current GMP and other applicable domestic and foreign regulations. However,
the Company is dependent upon Johnson & Johnson and contract manufacturers
including ChiRex to comply with such procedures and regulations. There can be
no assurance that Johnson & Johnson or these contract manufacturers will meet
the Company's requirements for quality, quantity or timeliness. See
"Business--Competition."
Absence of Sales and Marketing Organization. The Company has no experience
in marketing, sales or distribution. To directly market any of its potential
products, the Company must obtain access to marketing and sales forces with
technical expertise and with supporting distribution capability. To this end,
the Company has entered into a collaboration with Johnson & Johnson which
permits cti to co-promote LSF with Johnson & Johnson in the United States
while providing that Johnson & Johnson will have primary responsibility for
commercializing LSF. If the Company develops additional products with
commercial potential outside of the Johnson & Johnson collaboration, cti may
need to develop marketing and additional sales resources, may seek to enter
into collaborative arrangements with other parties which have established
marketing and sales capabilities or may choose to pursue the commercialization
of such products on its own. There can be no assurance that the Company,
Johnson & Johnson or any other third parties with whom the Company may enter
into any commercialization arrangements will establish adequate sales and
distribution capabilities or be successful in gaining market acceptance for
the Company's products.
The successful commercialization of the Company's products in certain
markets will be dependent, among other things, on the establishment of
commercial arrangements with others in such markets. Such arrangements
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could include the granting of marketing or other rights to third parties in
exchange for royalties, milestone development payments or other payments.
There can be no assurance that any such additional arrangements will be
established. If the Company is not able to establish such arrangements it
would encounter delays in introducing its products into certain markets. While
the Company believes that parties to any such arrangements will have an
economic motivation to succeed in performing their contractual
responsibilities, the amount and timing of resources they devote to these
activities will not be within the Company's control. There can be no assurance
that the Company will enter into any such arrangements on acceptable terms or
that any such parties will perform their obligations as expected or that any
revenue will be derived from such arrangements. See "Business--Marketing."
Management of Growth. The Company has recently experienced, and expects to
continue to experience, significant growth in the number of its employees and
the scope of its operations. This growth has placed, and may continue to
place, a significant strain on the Company's management and operations. The
Company's ability to manage effectively such growth will depend upon its
ability to broaden its management team and its ability to attract, hire and
retain skilled employees. The Company's success will also depend on the
ability of its officers and key employees to continue to implement and improve
its operational, management information and financial control systems and to
expand, train and manage its employee base. These demands are expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. In addition, if cti
reaches the point where its activities require additional expertise in
clinical testing, in obtaining regulatory approvals, and in production and
marketing, there will be increased demands on cti's resources and
infrastructure. There can be no assurance that the Company will be able to
effectively manage the expansion of its operations, that its systems,
procedures or controls will be adequate to support the Company's operations or
that Company management will be able to exploit opportunities for the
Company's products or proprietary technology. There can be no assurance that
the Company will be successful in adding technical personnel as needed to meet
the staffing requirements of the Company's collaboration with Johnson &
Johnson or any additional collaborative relationships into which the Company
may enter. An inability to manage growth, if any, could have a material
adverse effect on the Company's business, prospects, financial condition,
liquidity and results of operations.
Attraction and Retention of Key Employees and Consultants. The Company is
highly dependent on the principal members of its scientific and management
staff, the loss of whose services might impede the achievement of research and
development objectives. Recruiting and retaining qualified scientific
personnel to perform research and development work are critical to cti's
success. There is intense competition for qualified scientists and managerial
personnel from numerous pharmaceutical and biotechnology companies, as well as
from academic and government organizations, research institutions and other
entities. Although cti believes it will be successful in attracting and
retaining skilled and experienced scientific and technical personnel, there
can be no assurance that cti will be able to attract and retain such personnel
on acceptable terms. Loss of the services of, or the failure to recruit, key
managerial and scientific and technical personnel could have a material
adverse effect on cti's research and product development programs, as well as
its business, financial condition and results of operations. In addition, cti
relies on consultants and advisors, including its scientific and clinical
advisors, to assist the Company in formulating its research and development
strategy. All of cti's consultants and advisors are employed by employers
other than the Company or are self-employed, and have commitments to or
consulting or advisory contracts with other entities that may limit their
availability to the Company. See "Business--Human Resources" and "Management."
Product Liability; Potential Difficulty of Obtaining Insurance. The
Company's business exposes it to potential product liability risks which are
inherent in the testing, manufacturing and marketing of human pharmaceutical
products. Although the Company is insured against such risks up to a $20
million annual aggregate limit in connection with human clinical trials, there
can be no assurance that the Company's present clinical trials liability
insurance coverage is adequate or that the Company will be able to maintain
such insurance on acceptable terms. The Company has no products commercially
available for sale and has not procured product liability insurance covering
claims in connection with commercially marketed products. There can be no
assurance that the Company will be able to obtain comparable insurance on
commercially reasonable terms if and when it commences the commercial
marketing of any products or that such insurance will provide adequate
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coverage against potential liabilities. In addition, there can be no assurance
that any collaborators and licensees of the Company will agree to indemnify
the Company from, be adequately insured against or have a sufficient net worth
to protect the Company from product liability claims. A successful product
liability claim in excess of the Company's insurance coverage could have a
material adverse effect on the Company and may prevent the Company from
obtaining adequate product liability insurance in the future on commercially
reasonable terms.
Uncertainty of Pharmaceutical Pricing and Reimbursement. Sales of cti's
proposed products will be dependent in part on the availability and extent of
reimbursement for the cost of such products and related treatments from third-
party health care payors, such as government and private insurance plans.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products. Government and other third-party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new medical products and services and by
refusing, in some cases, to provide any coverage of uses of approved products
for disease indications other than those for which the FDA has granted
marketing approval. If cti succeeds in bringing any of its proposed products
to the market, there can be no assurance that any such products will be
considered cost-effective or that third-party reimbursement will be available
or will be sufficient to enable cti to sell its proposed products on a
competitive basis and to maintain price levels sufficient to realize an
appropriate return on its investment in product development. If adequate
coverage and reimbursement levels are not provided by government and other
third-party payors, the market acceptance of cti's products would be adversely
affected. In addition, legislation and regulations affecting the pricing of
pharmaceuticals may change in ways adverse to cti before or after any of the
Company's proposed products are approved for marketing. While cti cannot
predict whether any such legislative or regulatory proposals will be adopted,
the adoption of such proposals could have a material adverse effect on cti's
business, financial condition and results of operations.
No Assurance of Market Acceptance. There can be no assurance that the
Company's drug candidates, if approved by the FDA and other regulatory
agencies, will achieve market acceptance. The degree of market acceptance will
depend on a number of factors, including the receipt and timing of regulatory
approvals, the availability of third-party reimbursement and the establishment
and demonstration in the medical community of the clinical safety, efficacy
and cost-effectiveness of the Company's drug candidates and their advantages
over existing technologies and therapeutics. There can be no assurance that
the Company will be able to manufacture and successfully market its drug
candidates even if they perform successfully in clinical applications.
Furthermore, there can be no assurance that physicians or the medical
community in general will accept and utilize any therapeutic products that may
be developed by the Company.
Use of Hazardous Materials. The Company's research and development involves
the controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability not covered by insurance could exceed the resources of
the Company.
Concentration of Ownership. Upon completion of this Offering, directors and
officers of cti, and their affiliates, will beneficially own in the aggregate
2,380,128 shares of the Company's Common Stock (including shares of Common
Stock subject to options or warrants exercisable or convertible within 60 days
of September 30, 1997), representing approximately 15.4 percent of the voting
power of the Company's outstanding securities. Such concentration of ownership
may have the effect of delaying, deferring or preventing a change in control
of the Company. See "Principal Shareholders."
Possible Volatility of Stock Price. The market price for securities of
biopharmaceutical and biotechnology companies, including that of cti,
historically have been highly volatile, and the market from time to time has
experienced significant price and volume fluctuations that are unrelated to
the operating performance of such companies. Factors that may have a
significant impact on the market price and marketability of the Company's
Common Stock include: announcements of technological innovations or new
commercial therapeutic products by the Company, its collaborative partners or
the Company's present or potential competitors; announcements by
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the Company or others of results of preclinical testing and clinical trials;
developments or disputes concerning patent or other proprietary rights;
developments in the Company's relationships with Johnson & Johnson or future
collaborative partners; acquisitions; litigation; adverse legislation; changes
in governmental regulation, third party reimbursement policies, or the status
of the Company's regulatory approvals or applications; changes in earnings;
changes in securities analysts' recommendations; changes in health care
policies and practices; economic and other external factors; period-to-period
fluctuations in financial results of the Company and general market
conditions. Fluctuations in the trading price or liquidity of the Company's
Common Stock may adversely effect the Company's ability to raise capital
through future equity financing.
Shares Available for Future Sale; Registration Rights. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this Offering or the prospect
of such sales could adversely affect the market price of the Common Stock and
the Company's ability to raise additional equity capital. The number of shares
of Common Stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), and lock-up agreements ("Lock-Ups") under which the holders of
4,410,846 shares have agreed not to sell or otherwise dispose of any of their
shares for a period of 90 days after the date of this Prospectus without the
prior written consent of UBS Securities LLC. In its sole discretion and at any
time without notice, UBS Securities LLC may release all or any portion of the
shares subject to Lock-Ups. While a majority of the shares of Common Stock
outstanding at September 30, 1997 will be freely tradeable without restriction
or further registration under the Securities Act following the Lock-Up period,
(i) 3,667,584 shares currently owned by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Affiliates"), and (ii)
1,165,785 additional shares, generally may be sold only in compliance with the
volume limitations and other provisions of Rule 144. The Company has
registered 2,615,720 shares of Common Stock reserved for issuance under the
Company's 1994 Equity Incentive Plan and 1996 Employee Stock Purchase Plan as
of the date of this Prospectus. Pursuant to certain registration rights, the
Company intends to file a resale registration statement with respect to
2,861,037 shares during or promptly after the Offering. The holders of such
shares are: International Biotechnology Trust plc (1,108,156 shares), Kummell
Investments Limited (1,287,456 shares), Johnson & Johnson Development
Corporation (443,262 shares) and Strategic Healthcare Investment Fund (22,163
shares). Each of these holders, other than Strategic Healthcare Investment
Fund, has signed a Lock-Up. Upon effectiveness of such resale registration
statement, all of such shares will be freely tradeable without registration,
subject to the Lock-Ups. In addition, the holders of approximately 1,854,716
shares of Common Stock and 17,070 warrants exercisable for shares of Common
Stock, outstanding as of September 30, 1997, will be entitled to certain
registration rights. Sales of a large number of such shares in the public
market could have a material adverse effect on the market price of the
Company's Common Stock. See "Underwriting."
Anti-Takeover Provisions; Possible Issuance of Preferred Stock; Rights
Plan. The Company's Restated Articles of Incorporation and Bylaws contain
provisions that may make it more difficult for a third party to acquire, or
may discourage acquisition bids for, cti. These provisions could limit the
price that certain investors might be willing to pay in the future for shares
of Common Stock. In addition, shares of the Company's preferred stock may be
issued in the future without further shareholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the
Board of Directors may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of any
holders of preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of cti.
The Company has no present plans to issue any shares of preferred stock. In
addition, the Company has adopted a shareholder rights plan that, along with
certain provisions of the Company's Restated Articles of Incorporation, may
have the effect of discouraging certain transactions involving a change of
control of the Company.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$28.7 million ($33.0 million if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $15.44 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to use the net proceeds of this Offering for general
corporate purposes which include funding its expanded research and development
activities with respect to the Company's LSF and CT-2584 programs and
expanding its drug discovery efforts by applying its enabling technology to
other potential therapeutic areas, such as diabetes and cardiovascular
disease. These expenditures will include preclinical testing, clinical trials
and process development and pre-commercialization activities relating to LSF.
The amounts actually expended for research and development activities and the
timing of such expenditures will depend upon numerous factors, including the
progress of the Company's research and development programs, the results of
preclinical and clinical trials, the timing of regulatory submissions and
approvals (if any), technological advances, determinations as to the
commercial potential of the Company's compounds, and the status and timing of
competitive products. The amount of expenditures will also depend upon the
continued participation of Johnson & Johnson in the Collaboration Agreement,
the timing and availability of alternative methods of financing the Company's
research and development activities and preclinical and clinical trials, and
the establishment of collaborative agreements with other companies. In
addition, the Company's research and development expenditures will vary as
product development programs are added, expanded or discontinued. A variety of
other factors, some of which are beyond the Company's control, could also
affect the application of the proceeds.
The balance of the net proceeds of this Offering is expected to be used to
improve facilities, to purchase capital equipment and for general corporate
purposes. The Company has not identified precisely the amount it plans to
spend on these specific programs or the timing of such expenditures. Pending
such uses, the Company intends to invest the net proceeds from this Offering
in United States government obligations and other highly rated liquid debt
instruments. The Company may also from time to time consider the acquisition
of other companies, technologies or products that complement the business of
the Company, although no agreements or understandings are in effect with
respect to any such transactions at this time. See "Risk Factors--Need for
Substantial Additional Funds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
JJDC INVESTMENT
It is currently anticipated that Johnson & Johnson Development Corporation
("JJDC"), an affiliate of one of the Company's collaborative partners and an
existing shareholder, will purchase from the Underwriters shares of Common
Stock having an aggregate purchase price of approximately $2.0 million (the
"JJDC Investment"). All of such shares will be registered and will be
purchased at the per share Price to Public set forth on the cover of this
Prospectus. At an assumed offering price of $15.44 per share, JJDC would
purchase an aggregate of 129,555 shares of Common Stock. The Underwriters will
not receive underwriting discounts or commissions on the JJDC Investment. JJDC
has agreed with the Company and the Underwriters that it will not sell or
otherwise dispose of any shares held by it, including shares purchased in the
JJDC Investment, until 90 days after the closing of the Offering. See
"Business--Collaborations" and "Underwriting."
16
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock commenced trading on the Nasdaq National Market
under the symbol "CTIC" on March 21, 1997. The following table sets forth, for
the periods indicated, the high and low reported sales prices per share of the
Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
1997
<S> <C> <C>
Fourth Quarter (through October 2, 1997).................. $15 1/2 $14 7/8
Third Quarter............................................. 16 1/4 10 5/8
Second Quarter............................................ 13 5/8 7 5/8
First Quarter (commencing March 21, 1997)................. 10 7/8 10
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on October 2, 1997 was $15.44 per share. At September 30, 1997, there
were approximately 534 shareholders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since its inception. The Company currently intends to retain all of its cash
and any future earnings to finance the growth and development of its business
and therefore does not anticipate paying any cash dividends in the foreseeable
future. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth, at June 30, 1997, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby and receipt by the Company of the estimated net proceeds
therefrom, at an estimated public offering price of $15.44 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(in thousands)
<S> <C> <C>
Long-term obligations, less current portion.......... $ 1,389 $ 1,389
Shareholders' equity:
Preferred stock, 10,000,000 shares authorized (of
which 100,000 shares have been designated as
Series C Preferred Stock, no par value); no shares
issued and outstanding, actual and as adjusted.... -- --
Common Stock, no par value, 100,000,000 shares
authorized; 13,028,377 shares issued and
outstanding, actual; 15,028,377 shares issued and
outstanding, as adjusted(1)....................... 134,038 162,731
Deficit accumulated during development stage....... (84,684) (84,684)
-------- --------
Total shareholders' equity....................... 49,354 78,047
-------- --------
Total capitalization............................. $ 50,743 $ 79,436
======== ========
</TABLE>
- --------
(1) Excludes (i) 1,349,085 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1997 at a weighted average
exercise price of $11.75 per share and (ii) 77,907 shares of Common Stock
issuable upon exercise of warrants outstanding as of June 30, 1997 at a
weighted average exercise price of $19.12 per share.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
consolidated statement of operations for each of the three years in the period
ended December 31, 1996 and with respect to the consolidated balance sheets at
December 31, 1995 and 1996 are derived from the consolidated financial
statements of the Company incorporated by reference in this Prospectus that
have been audited by Ernst & Young LLP, independent auditors, and is qualified
by reference to such financial statements and the notes related thereto. The
consolidated balance sheet data at December 31, 1992, 1993 and 1994 and the
consolidated statements of operations data for the years ended December 31,
1992 and 1993 are derived from audited financial statements of the Company not
included or incorporated by reference in this Prospectus. The consolidated
statement of operations data for the six months ended June 30, 1996 and June
30, 1997 and the consolidated balance sheet data at June 30, 1997 are derived
from unaudited consolidated financial statements incorporated by reference in
this Prospectus. The unaudited financial statements have been prepared on the
same basis as the audited consolidated financial statements and in the opinion
of management contain all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the financial position at such
date and the results of operations for such periods. The historical results
are not necessarily indicative of the results of operations to be expected for
the entire year. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto and
other financial information incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues:
Collaboration
agreements........... $ -- $ -- $ -- $ 100 $ 9,121 $ 3,000 $ 5,267
Operating expenses:
Research and
development.......... 3,926 11,862 14,368 14,606 16,109 7,397 12,627
General and
administrative....... 1,661 4,052 5,283 6,144 7,602 3,527 4,133
------- -------- -------- -------- -------- ------- --------
Total operating
expenses............ 5,587 15,914 19,651 20,750 23,711 10,924 16,760
------- -------- -------- -------- -------- ------- --------
Loss from operations.... (5,587) (15,914) (19,651) (20,650) (14,590) (7,924) (11,493)
Other income (expense):
Investment income..... 292 723 616 1,167 1,174 547 1,182
Interest expense...... (29) (137) (464) (509) (512) (259) (205)
------- -------- -------- -------- -------- ------- --------
Net loss................ $(5,324) $(15,328) $(19,499) $(19,992) $(13,928) $(7,636) $(10,516)
======= ======== ======== ======== ======== ======= ========
Pro forma net loss per
share(1)............... $ (1.69) $ (0.98) $ (0.92)
======== ======= ========
Shares used in
computation of
pro forma net loss per
share.................. 8,228 7,770 11,452
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEETS DATA:
Cash, cash equivalents
and securities
available-for-sale..... $28,648 $ 27,452 $ 9,131 $ 21,906 $ 30,987 $ 47,917
Working capital......... 27,563 23,387 4,094 18,342 26,300 45,071
Total assets............ 33,422 35,230 17,278 28,048 37,002 56,490
Long-term obligations,
less current portion... 319 3,635 2,620 2,606 2,005 1,389
Deficit accumulated
during development
stage.................. (5,324) (20,652) (40,151) (60,119) (74,083) (84,684)
Total shareholders'
equity................. 31,851 28,848 10,051 21,858 30,054 49,354
</TABLE>
- -------
(1) See Note 1 of Notes to Consolidated Financial Statements, incorporated by
reference herein, for information concerning the computation of pro forma
net loss per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. When used in this Prospectus, the words "believes,"
"anticipates," "expects," "intends" and other predictive, interpretive and
similar expressions are intended to identify such forward-looking statements.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below and in "Risk
Factors," as well as those discussed elsewhere in this Prospectus or
incorporated herein by reference. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
OVERVIEW
Since commencement of operations in 1992, the Company has been engaged in
research and development activities, including conducting preclinical studies
and clinical trials, and recruiting its scientific and management personnel,
establishing laboratory facilities and raising capital. The Company has not
received any revenue from the sale of products to date and does not expect to
receive revenues from the sale of products for at least the next several
years.
In the fourth quarter of 1995, the Company began to receive revenue under a
collaboration agreement with BioChem Pharma, and in the fourth quarter of
1996, the Company began to receive revenue under the Collaboration Agreement
with Johnson & Johnson. The Company has recorded approximately $19.1 million
in equity payments, license fees and development cost reimbursements from
Johnson & Johnson as of June 30, 1997. The Company expects that its revenue
sources for at least the next several years will consist primarily of future
expense reimbursements and milestone payments under its collaboration
agreements with Johnson & Johnson and BioChem Pharma, and of interest income.
The timing and amounts of such revenues will likely fluctuate. The Company
will be required to conduct significant research, development and clinical
activities during the next several years to fulfill its obligations under the
Collaboration Agreement with Johnson & Johnson. There can be no assurance that
Johnson & Johnson will not terminate the Collaboration Agreement in accordance
with its terms. See "Risk Factors--Reliance on Relationship with Johnson &
Johnson" and "Business--Collaborations."
As of June 30, 1997, the Company had an accumulated deficit of approximately
$84.7 million. The Company expects to continue to incur significant additional
net losses over the next several years as its research, development and
clinical trial efforts expand. Operating losses may fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and
revenues recognized. To date, the Company's operations have been funded
primarily from the sale of equity securities, which have raised aggregate net
proceeds of approximately $132.8 million.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
During the six months ended June 30, 1997, the Company recorded
approximately $5.3 million of revenues for development cost reimbursements
from Johnson & Johnson in accordance with the Collaboration Agreement. During
the six months ended June 30, 1996, the Company received a $3.0 million
signing fee from Schering AG ("Schering") pursuant to an agreement to
collaborate on the funding, research, development and commercialization of LSF
and CT-2584. This agreement was terminated by Schering in April 1996. See Note
11 of Notes to Consolidated Financial Statements incorporated herein by
reference.
Research and development expenses increased to approximately $12.6 million
for the six months ended June 30, 1997 from approximately $7.4 million for the
six months ended June 30, 1996. This increase was primarily due to the
recruitment of additional personnel and expanded research, manufacturing,
preclinical and clinical-related development activities with respect to LSF.
19
<PAGE>
General and administrative expenses increased to approximately $4.1 million
for the six months ended June 30, 1997 from approximately $3.5 million for the
six months ended June 30, 1996. This increase was primarily due to operating
expenses associated with supporting the Company's increased research,
development and clinical activities, offset in part by transaction costs
associated with the collaboration agreement with Schering discussed above
during the six months ended June 30, 1996.
Investment income increased to approximately $1.2 million for the six months
ended June 30, 1997 from approximately $548,000 for the six months ended June
30, 1996. This increase was primarily associated with interest earnings on a
higher average cash balance between the six month periods due to the proceeds
of the Company's initial public offering and concurrent sale of Common Stock
to Johnson & Johnson completed late in the first quarter of 1997. Interest
expense decreased to approximately $206,000 for the six months ended June 30,
1997 from approximately $259,000 for the six months ended June 30, 1996. This
decrease was primarily due to lower average balances of outstanding long-term
obligations.
Years Ended December 31, 1996 and 1995
During the year ended December 31, 1996 the Company recorded a $5.0 million
license fee and $871,000 in development cost reimbursements from Johnson &
Johnson in connection with the Collaboration Agreement and a $250,000
milestone payment from BioChem Pharma. The Company also received a $3.0
million signing fee from Schering in connection with the collaboration
agreement which was terminated in April 1996. See Note 11 of Notes to
Consolidated Financial Statements incorporated herein by reference. During the
year ended December 31, 1995, the Company received a milestone payment of
$100,000 under the collaboration agreement with BioChem Pharma. See
"Business--Collaborations."
Research and development expenses increased to approximately $16.1 million
for the year ended December 31, 1996 from approximately $14.6 million for the
year ended December 31, 1995. This increase was primarily due to expanded
manufacturing and preclinical and clinical development activities with respect
to LSF, which increase was partially offset by costs of approximately $1.2
million incurred in connection with the purchase of all the intellectual
property of Lipomed Corporation in October 1995, which was accounted for as
in-process research and development expense. The Company expects that research
and development expenses will increase significantly in future years as the
Company expands its research and development programs and undertakes
additional clinical trials, including research, development and clinical
activities undertaken pursuant to the Collaboration Agreement with Johnson &
Johnson.
General and administrative expenses increased to approximately $7.6 million
for the year ended December 31, 1996 from approximately $6.1 million for the
year ended December 31, 1995. This increase was primarily due to transaction
costs associated with the collaboration agreement with Schering, transaction
costs associated with the Collaboration Agreement with Johnson & Johnson,
offering costs associated with the Company's withdrawn registration statement
in 1996, and operating expenses associated with supporting the Company's
increased research, development and clinical activities. General and
administrative expenses are expected to increase to support the Company's
expected increase in research, development and clinical trial efforts.
Investment income was approximately $1.2 million for each of the years ended
December 31, 1996 and 1995, as average cash balances and interest earned
thereon were substantially unchanged. Interest expense was approximately
$500,000 for both the year ended December 31, 1996 and 1995.
Years Ended December 31, 1995 and 1994
Revenue from the BioChem Pharma collaboration totalled $100,000 in 1995, all
of which was received in the third quarter of 1995. The Company did not have
any operating revenue during 1994.
Research and development expenses increased to approximately $14.6 million
in 1995 from approximately $14.4 million in 1994. This increase was primarily
due to costs of approximately $1.2 million incurred in connection
20
<PAGE>
with the purchase of all the intellectual property of Lipomed Corporation in
October 1995, which was accounted for as in-process research and development
expense, partially offset by a reduction in manufacturing costs associated
with LSF.
General and administrative expenses increased to approximately $6.1 million
in 1995 from approximately $5.3 million in 1994. This increase was primarily
due to operating expenses associated with supporting the Company's increased
research, development and clinical activities, including business development,
marketing studies and recruitment of additional personnel.
Investment income net of interest expense increased to approximately
$658,000 in 1995 from approximately $152,000 in 1994. This increase was
associated with interest earnings on a higher average balance of cash reserves
resulting from a private placement of equity securities in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the sale of equity securities. As of June 30, 1997, the Company had raised
aggregate net proceeds of approximately $132.8 million from such financing
activities, including approximately $26.8 million net proceeds from the sale
of Common Stock in its initial public offering in March 1997 and $3.0 million
from the sale of Common Stock to Johnson & Johnson concurrent with the closing
of the Company's initial public offering. The remaining proceeds of
approximately $103.0 million were raised from private placements of Series A
and B Convertible Preferred Stock and Common Stock, a bridge loan and the
exercise of stock options and warrants. In addition, the Company financed the
purchase of approximately $11.3 million of property and equipment through
financing agreements, of which approximately $2.6 million remained outstanding
as of June 30, 1997.
The Company's principal sources of liquidity are its cash balances, cash
equivalents and securities available-for-sale, which totaled approximately
$47.9 million as of June 30, 1997. The Company invests in U.S. government
obligations and other highly rated liquid debt instruments.
The Company expects that its capital requirements will increase as the
Company expands its research and development programs and undertakes
additional clinical trials. In connection with such expansion, the Company
expects to incur substantial expenditures for hiring additional management,
scientific and administrative personnel, for planned expansion of its
facilities, and for the purchase or lease of additional equipment. See "Risk
Factors--Management of Growth."
The Company does not expect to generate a positive cash flow from operations
for several years due to substantial additional research and development
costs, including costs related to drug discovery, preclinical testing,
clinical trials, manufacturing costs and operating expenses associated with
supporting such activities. The Company expects that its existing capital
resources, together with the net proceeds of this Offering and the interest
earned thereon, combined with anticipated funding from Johnson & Johnson under
the Collaboration Agreement, will enable the Company to maintain its current
and planned operations at least through the middle of 1999. In the event that
Johnson & Johnson were to terminate its participation in the Collaboration
Agreement prior to such date, cti expects that it would eliminate certain
presently planned development activities. Furthermore, the Company will need
to raise substantial additional capital to fund its operations beyond such
time. The Company's future capital requirements will depend on, and could
increase as a result of, many factors, including; the continuation of the
Company's collaboration with Johnson & Johnson; continued scientific progress
in its research and development programs; the magnitude of such programs; the
terms of any additional collaborative arrangements that the Company may enter
into; the progress of preclinical testing and clinical trials; the time and
costs involved in obtaining regulatory approvals; the costs involved in
preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims; competing technological and market developments; changes in
collaborative relationships; the ability of the Company to establish research,
development and commercialization arrangements pertaining to products other
than those covered by existing collaborative arrangements; the cost of
establishing manufacturing facilities; the cost of commercialization
activities and the demand for the Company's products if and when approved.
21
<PAGE>
The Company intends to raise additional funds through additional equity or
debt financings, research and development financings, collaborative
relationships, or otherwise. The Company may engage in these capital raising
activities even if it does not have an immediate need for additional capital
at that time. There can be no assurance that any such additional funding will
be available to cti or, if available, that it will be on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
existing shareholders may result. If adequate funds are not available, cti may
be required to delay, reduce the scope of, or eliminate one or more of its
research, development and clinical activities. If the Company seeks to obtain
funds through arrangements with collaborative partners or others, such
partners may require cti to relinquish rights to certain of its technologies,
product candidates or products that the Company would otherwise seek to
develop or commercialize itself. See "Risk Factors--History and Continuation
of Losses; Development Stage Company," "--Need for Substantial Additional
Funds," and "--Reliance on Relationship with Johnson & Johnson."
As of June 30, 1997 the Company had available for Federal income tax
purposes net operating loss carryforwards of approximately $81 million and
research and development credit carryforwards of approximately $2.2 million.
These carryforwards begin to expire in 2007. The Company's ability to utilize
its net operating loss and research and development credit carryforwards is
subject to an annual limitation in future periods pursuant to the "change in
ownership" rules under Section 382 of the Internal Revenue Code of 1986. See
Note 10 of Notes to Consolidated Financial Statements incorporated herein by
reference.
22
<PAGE>
BUSINESS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. When used in this Prospectus, the words "believes,"
"anticipates," "expects," "intends" and other predictive, interpretative and
similar expressions are intended to identify such forward-looking statements.
The Company's actual results may differ significantly 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 "Management's Discussion and Analysis of Financial Condition and Results
of Operations," as well as those discussed elsewhere in this Prospectus or
incorporated herein by reference. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
GENERAL
Cell Therapeutics, Inc. ("cti" or the "Company") focuses on the discovery,
development and commercialization of small molecule drugs that selectively
regulate the metabolism of oxidized lipids and phospholipids relevant to the
treatment of cancer and inflammatory and immune diseases. The Company is
conducting three pivotal Phase III clinical trials for its lead product
candidate, Lisofylline ("LSF"), which is being developed to prevent or reduce
treatment-related toxicities, specifically serious and fatal infections,
mucositis and treatment-related mortality, among cancer patients receiving
high dose radiation and/or chemotherapy. In November 1996, cti entered into a
Collaboration and License Agreement (the "Collaboration Agreement") with
Johnson & Johnson for the joint development and commercialization of LSF to
prevent or reduce the toxic side effects among cancer patients receiving high
dose radiation and/or chemotherapy followed by bone marrow transplantation
("BMT"). In September 1997, Johnson & Johnson exercised an option under the
Collaboration Agreement to expand its participation in the development of LSF
for treatment of patients with newly diagnosed acute myelogenous leukemia
("AML") undergoing high dose induction chemotherapy.
In addition to its oncology applications, the Company is also investigating
LSF for use as an agent to prevent or reduce the incidence and severity of
acute lung injury ("ALI") and mortality among patients requiring mechanical
ventilation for respiratory failure for which it expects to begin a pivotal
Phase II/III trial in the fourth quarter of 1997. The Company is also
developing CT-2584, a novel small molecule drug for the treatment of patients
with multidrug (e.g., chemotherapy) resistant cancers, including prostate
cancer and sarcomas, for which it expects to begin a Phase II clinical trial
in the first quarter of 1998. The Company has devoted substantial resources to
building a unique drug discovery platform based on its proprietary technology
in oxidized lipid and phospholipid chemistry and believes it can leverage its
enabling oxidized lipid and phospholipid technologies to identify development
opportunities in other disease states, such as diabetes or cardiovascular
disease, where oxidized lipids may be implicated in the pathogenesis or
manifestations of such diseases.
SCIENTIFIC OVERVIEW
Cell communication occurs through a complex process that commences when
"first messengers" outside the cell, such as hormones, cytokines and growth
factors, recognize and bind to cellular receptors, some of which are embedded
in the cell membrane. The first messenger initiates a series of biochemical
events within the cell, known as signal transduction, which result in cellular
responses. In the 1970s, scientists discovered that in response to
extracellular binding of first messengers certain molecules, including cell
membrane lipids, are chemically altered to form "second messengers" which
participate in transducing chemical information from the cell membrane to the
cell nucleus. Certain signal transduction pathways are essential for normal
day-to-day cellular processes and are often referred to as "housekeeping
pathways" or "physiologic pathways." These housekeeping pathways are involved
in the normal growth and replenishment of cells in the body, such as blood
cells and the cells lining the intestinal tract. In contrast, there are also
signal transduction pathways, termed "stress-activated pathways" or "SAPs,"
which are part of the cellular response to injury following exposure to cell-
damaging stimuli such as radiation, chemotherapy or oxidative injury and which
are also activated in many disease states.
23
<PAGE>
The Company believes that such cell-damaging stimuli cause a number of their
toxic effects by altering the chemical composition of certain cell membrane
lipids and phospholipids, resulting in the production of biologically reactive
oxidized lipids such as hydroperoxyoctadecadienoic acids ("HPODEs") and
phospholipids termed phosphatidic acids ("PAs"). These oxidized lipids and
phospholipids in turn activate stress-related signaling pathways within the
cell which carry the cell-damaging message to the cell nucleus, resulting in
the activation of transcription factors. The activation of these transcription
factors may in turn lead to (i) the production of inflammatory cytokines and
the resulting activation of inflammatory and immune responses, (ii) the
production of cytokines which inhibit the growth and renewal of the stem cells
in the bone marrow and of the cells lining the intestinal tract and (iii) cell
membrane damage leading to cell death.
Appearance of oxidized lipids, PA elevation and activation of SAPs are
associated with many disease states and do not appear to be primarily utilized
for normal cellular processes. The Company believes that therapeutics which
regulate the production and/or degradation of oxidized lipids or phospholipids
such as HPODEs and PAs and which regulate the activation of SAPs may offer
greater specificity and safety profiles for the treatment of oncologic,
inflammatory and immune diseases than pharmaceuticals that modulate the
housekeeping or physiologic pathways necessary for normal day-to-day cellular
function.
PRODUCTS UNDER DEVELOPMENT
The following table summarizes the potential therapeutic indications,
current development status and current collaborators for the Company's
products under development:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
DEVELOPMENT POTENTIAL DEVELOPMENT
PROGRAM THERAPEUTIC INDICATIONS STATUS(1) COLLABORATORS(2)
- -----------------------------------------------------------------------------------------
ONCOLOGY
- -----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Lisofylline Prevent or reduce Pivotal Phase III trial for Johnson & Johnson
infection, mucositis BMT- related donors BioChem Pharma
and treatment-related (enrollment complete;
mortality following results expected
high dose radiation Q1 1998)
and/or chemotherapy
Pivotal Phase III trial for Johnson & Johnson
BMT-unrelated donors BioChem Pharma
(ongoing)
Pivotal Phase III trial for Johnson & Johnson
AML (ongoing) BioChem Pharma
Phase II/III trial for Johnson & Johnson
mucositis (expected to BioChem Pharma
begin Q1 1998)
CT-2584 Anti-cancer agent Phase I trials (ongoing) BioChem Pharma
targeting multidrug
resistant tumors
Phase II trial for prostate BioChem Pharma
cancer (expected to begin
Q1 1998)
CT-2412 Tumor sensitizer Research lead --
- -----------------------------------------------------------------------------------------
INFLAMMATION
- -----------------------------------------------------------------------------------------
Lisofylline Prevent or reduce ALI Pivotal Phase II/III trial Johnson & Johnson
and mortality among for ALI (expected to begin BioChem Pharma
patients requiring Q4 1997)
mechanical ventilation
for respiratory failure
- -----------------------------------------------------------------------------------------
IMMUNOLOGY
- -----------------------------------------------------------------------------------------
CT-3578 Treatment of acute organ Research lead --
transplant rejection
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Research lead refers to a compound that exhibits pharmacological
properties which are evaluated in vitro and in animal models prior to
the commencement of the additional pharmacology and toxicology studies,
formulation work and manufacturing scale-up. The Company will then be
required to submit an IND. See "--Government Regulation" for a
description of the phases of human clinical trials.
(2) See "--Collaborations" for a description of cti's collaboration
agreements and commercial rights to such products.
24
<PAGE>
ONCOLOGY
Overview
Cancer is the second leading cause of death in the United States, resulting
in over 550,000 deaths annually. The National Cancer Advisory Board reports
that more than eight million people in the United States have cancer, and
projects that cancer will surpass heart disease as the leading cause of death
in the United States by the end of the decade. Approximately 1.4 million new
cases of cancer are diagnosed each year in the United States. The most
commonly used methods for treating cancer patients include surgery, radiation
and chemotherapy. A cancer patient often receives a combination of these
treatment modalities depending upon the type and extent of the disease. At
some point in their disease treatment, 70 percent of all cancer patients will
receive radiation therapy and 50 percent of all newly diagnosed cancer
patients will receive chemotherapy. Despite their benefits for treating
cancer, there are significant limitations of, and complications associated
with, radiation and chemotherapy which result in a high rate of treatment
failure. For example, only ten percent of patients treated with chemotherapy
are cured. The three principal causes of treatment failure include treatment-
related toxicities, multidrug resistance and tumor resistance to radiation.
Treatment-Related Toxicities. Despite their benefits for treating cancer,
radiation and chemotherapy treatment result in toxicities that limit the use
of potentially more effective doses. These treatment-related toxicities are
directly responsible for placing patients at risk for serious and often life-
threatening infections and other undesirable side effects. Radiation and
chemotherapy are toxic to rapidly dividing cells, which include not only
cancer cells but also certain normal cells such as bone marrow cells, hair
follicle cells and the epithelial cells lining the mouth, stomach and
intestinal tract. The most common and problematic of the severe side effects
attributable to radiation and chemotherapy are neutropenia, or bone marrow
suppression of infection-fighting white blood cells ("WBCs"), and mucositis,
or damage to the epithelial cells lining the mouth, stomach and intestinal
tract. Epithelial cells form an important barrier, preventing potentially
lethal bacterial, fungal and viral organisms which reside in the intestinal
tract from entering the sterile blood stream and organs. Damage from radiation
or chemotherapy to intestinal epithelial cells disrupts this important
barrier, allowing infectious pathogens to gain access to the systemic blood
circulation. When neutropenia and mucositis occur together, patients are at
high risk for serious and fatal infections. Patients often require supportive
care agents as an adjunct to the primary therapy in order to lessen the
toxicities associated with radiation and chemotherapy.
Approximately 575,000 patients receive chemotherapy each year in the United
States, with more than 20 percent developing severe neutropenia and/or
mucositis. WBC growth factors such as Neupogen(R) (G-CSF), marketed by Amgen
Inc., target the fever and neutropenia (two surrogate markers that indicate
risk for developing infection) induced by radiation and chemotherapy, but in
most studies have failed to prevent serious or fatal infections, have had no
impact on survival, and have failed to treat other acute toxicities of cancer
treatment such as mucositis. Despite these limitations, Neupogen generated
worldwide sales in excess of $1 billion in 1996. There are currently no
supportive care measures that prevent mucositis.
Multidrug Resistance. Multidrug resistance to conventional chemotherapeutic
agents is a major impediment to the effective treatment of certain cancers.
Approximately 90 percent of all cancer patients undergoing chemotherapy
express or will develop multidrug resistance. Because most chemotherapeutic
agents share a similar mechanism of action, once a tumor develops resistance
to a single therapeutic agent, it becomes resistant to a broad range of
chemotherapeutic drugs.
Tumor Resistance to Radiation. Radiation therapy kills tumor cells by
generating highly reactive and toxic oxygen free radicals, resulting in damage
to cell replication machinery (e.g., DNA). Tumors are classified as being
sensitive (e.g., lymphomas) or resistant (e.g., colon or skin cancers) to
radiation therapy. Almost 50 percent of certain cancer cell types, such as
prostate and lung cancer, are resistant to radiation therapy at the time of
diagnosis. Mechanisms by which tumor cells develop resistance to radiation
include mutations or deletions in tumor suppressor genes (e.g., p53) that
control cell replication, abnormal regulation of proteins which inhibit
programmed cell death, such as bcl-2, or mechanisms by which DNA is repaired
during cell replication. The p53 tumor suppressor gene is mutated or deleted
in approximately 50 percent of newly diagnosed cancers and is a major
contributor to the failure of radiation therapy among such malignancies.
25
<PAGE>
The Company is focusing its oncology development efforts on a portfolio of
drugs that it believes will address the three principal causes of cancer
treatment failure. These include (i) LSF--a supportive care agent being
investigated to prevent or reduce the incidence of serious and fatal
infections, mucositis and treatment-related mortality among patients receiving
high doses of radiation and/or chemotherapy, (ii) CT-2584--a novel anti-cancer
drug in clinical trials for the treatment of patients with multidrug resistant
tumors and (iii) tumor sensitizing agents including CT-2412--a research lead
with the potential ability to enhance sensitivity to radiation among tumors
that have deleted or mutated tumor suppressor genes, which the Company
believes will increase the effectiveness of radiation treatment on such
tumors. Additionally, the Company may license or acquire agents from third
parties which, when used with other cti oncology products, may provide added
value to the integrated management of oncologic disease.
Lisofylline
LSF is a synthetic small molecule drug in three pivotal Phase III clinical
trials among cancer patients receiving high dose radiation and/or
chemotherapy. Unlike blood cell growth factors or chemotherapy protecting
agents, LSF is being developed to prevent or reduce the incidence of serious
and fatal infections, mucositis and treatment-related mortality. The Company
believes that the use of LSF may permit the safer delivery of higher,
potentially more effective doses of radiation and chemotherapy. The Company is
collaborating with Johnson & Johnson to jointly develop and commercialize LSF
for the BMT and AML indications. See "--Collaborations."
The Company's development strategy for LSF has been to target anti-cancer
treatment regimens which are accompanied by a high incidence of serious
neutropenic infections, mucositis and treatment-related mortality. The Company
is pursuing the development of LSF for the treatment of cancer patients
receiving high dose radiation and/or chemotherapy followed by BMT and for
patients with AML undergoing high dose induction chemotherapy for the
following reasons: (i) following BMT or induction chemotherapy for AML, up to
50 percent of patients may develop serious infections, and up to 50 percent of
those patients may die from the side effects of the high doses of radiation
and chemotherapy, (ii) in these patient groups there is a high unmet need for
agents which reduce serious and fatal infections, (iii) under recent FDA
initiatives, New Drug Applications ("NDAs") for serious, life threatening or
severely debilitating indications that provide a meaningful therapeutic
benefit to patients over existing treatments may be eligible to receive
accelerated review and approval and (iv) the Company believes that once
approved, agents which target life threatening side effects of cancer therapy
and improve patient outcomes will be adopted by health care providers,
patients and third party payors. The FDA staff has indicated that priority
review status may be appropriate for the Company's BMT application; however,
there can be no assurance such priority review will be granted or, if granted,
will be successful.
In 1995, more than 20,000 patients in the United States were treated with
ablative doses of chemotherapy requiring BMT or peripheral blood stem cell
replacement. This type of chemotherapy regimen is one of the fastest growing
types of cancer treatments in the United States, with an estimated annual
growth rate of 15 to 20 percent. Despite this growth rate, only 25 percent of
patients will find an acceptable family member bone marrow donor. In 1987 the
National Marrow Donor Program was established to provide bone marrow from
unrelated donors for patients who lacked a family member donor. However, the
high incidence of infection and mortality associated with this type of
treatment limits its more widespread potential application. In 1995, in the
United States 75,000 patients received induction-type chemotherapy regimens
for the treatment of leukemias, such as AML, and lymphomas, and almost 200,000
patients received dose-intensive chemotherapy for a variety of solid tumor
types, 30 percent of whom are at risk to develop severe mucositis.
The Company is conducting two pivotal Phase III clinical trials of LSF in
patients who require BMT after receiving ablative, or bone marrow destroying,
doses of radiation and/or chemotherapy. In addition, the Company is conducting
an ongoing pivotal Phase III trial in patients with newly diagnosed AML who
receive high dose induction chemotherapy. Additionally, in the first quarter
of 1998, the Company intends to commence a
26
<PAGE>
Phase II/III clinical trial of LSF in patients with solid tumors such as head
and neck or breast cancers who receive dose-intensive radiation and/or
chemotherapy and who are at risk of developing severe mucositis and
neutropenic infection. Common to each of these three categories of anti-cancer
treatment (ablative, induction and dose-intensive) is the occurrence of
neutropenia and the breakdown of the epithelial barrier cells lining the
mouth, stomach and intestinal tract, placing patients at a high risk of life
threatening infections, severe mucositis and mortality.
Clinical Trials--Related Donor BMT. In the first quarter of 1996, the
Company completed a 60 patient, multi-center, double blind placebo controlled
Phase II trial which investigated the effect of two different doses (2 mg/kg
and 3 mg/kg) of LSF on the rate of blood cell recovery and the incidences of
fever, infection, toxicity and mortality in cancer patients undergoing high
dose radiation and/or chemotherapy followed by BMT from related donors
(siblings).
The table below summarizes the results on an intent to treat analysis of the
Phase II BMT trial of LSF at 100 days following BMT which the Company plans to
more fully assess in its Phase III clinical trials:
<TABLE>
<CAPTION>
LSF
3 MG/KG(1) PLACEBO P VALUE(2)
---------- ------- ----------
<S> <C> <C> <C>
Mortality rate............................ 11% 44% 0.026
Incidence of neutropenic infections(3).... 0% 39% 0.003
Incidence of serious neutropenic
infections............................... 0% 28% 0.015
Incidence of serious and fatal
infections(4)............................ 0% 39% 0.005
Duration of absolute neutropenia(5)....... 3 days 6 days 0.046
Incidence of severe mucositis............. 26% 44% 0.104
</TABLE>
--------
(1) Patients receiving a 2 mg/kg dose of LSF did not demonstrate
statistically significant results when compared with placebo
recipients.
(2) A p value of less than or equal to 0.05 is considered
statistically significant.
(3) Neutropenic period was measured through the first 35 days
after BMT.
(4) Through first 100 days after BMT.
(5) Duration of absolute neutropenia is defined as the number of
days following BMT with fewer than 100 neutrophils per
microliter of blood.
Certain endpoints of the trial regarding neutrophil and platelet recovery,
the duration of fever and transfusion requirements were not met. No serious
adverse side effects attributable to LSF were detected in this trial.
In October 1997, the Company plans to complete the enrollment of 132
patients in a multi-center, double blind placebo controlled pivotal Phase III
trial for LSF in patients undergoing high dose radiation and/or chemotherapy
followed by BMT from related donors (siblings). This trial utilizes a 3 mg/kg
dose of LSF. The primary endpoints of this study are the prevention or
reduction of neutropenia-related infection and treatment-related mortality at
100 days following BMT. Based on the Company's discussions with the FDA, if
either endpoint of this study is met with statistical significance, the
Company believes that the results of this trial, together with the results of
the completed Phase II BMT trial discussed above and the safety data from the
recently completed Phase II AML trial discussed below, may be adequate to
provide a basis for an NDA for LSF for BMT indications. See "Risk Factors--No
Assurance of Successful Product Development; Uncertainties Related to Clinical
Trials."
Clinical Trials--Unrelated Donor BMT. In the first quarter of 1997, the
Company commenced a 100 patient pivotal Phase III trial which will examine the
effect of a 5 mg/kg dose of LSF on patients with cancer receiving high dose
radiation and/or chemotherapy followed by BMT from unrelated donors. In
addition to being at high risk for serious and fatal infections, these
patients have a high incidence of severe mucositis and treatment-related
deaths. This study will determine the effect of higher doses of LSF on serious
neutropenic infection and treatment-related mortality and will provide
supportive dosing and efficacy data for mucositis applications of LSF. If
effective, the Company believes that the use of LSF may increase the number of
patients who receive BMT from unrelated donors. See "Risk Factors--No
Assurance of Successful Product Development; Uncertainties Related to Clinical
Trials."
27
<PAGE>
Clinical Trials--AML. In the third quarter of 1997, the Company reported the
preliminary results of its 70 patient, single center, double blind placebo
controlled Phase II trial of LSF (3 mg/kg) among patients with newly diagnosed
AML undergoing high dose induction chemotherapy. This trial examined the
effects of LSF on the incidence of neutropenic infections (serious and non-
serious), infection related deaths, overall mortality and complete remission.
The table below summarizes the results on an intent to treat analysis of the
Phase II trial of LSF following high dose induction chemotherapy:
<TABLE>
<CAPTION>
LSF
3 MG/KG PLACEBO P VALUE(1)
------- ------- ----------
<S> <C> <C> <C>
Incidence of serious neutropenic
infections(2)................................ 17% 34% 0.04
Incidence of fungal neutropenic
infections(2)................................ 0% 14% 0.01
Overall incidence of neutropenic infections
(serious and non-serious)(2)................. 37% 49% 0.23
Infection-related deaths(3)................... 9% 17% 0.29
Overall mortality rate(3)..................... 17% 20% 0.75
Complete remission............................ 77% 74% >0.90
</TABLE>
--------
(1) A p value of less than or equal to 0.05 is considered
statistically significant.
(2) Incidence of infections was scored after completion of the
first 28-day cycle of high dose induction chemotherapy.
(3) Infection-related deaths and overall mortality were scored
for the first 60 days following the start of induction
chemotherapy.
This trial did not demonstrate that LSF had an effect on overall mortality.
No serious adverse side effects attributable to LSF were detected in this
trial. The most common side effect was mild to moderate nausea seen in LSF
recipients. Despite this side effect, 99.5 percent of the anticipated doses of
LSF were received by trial participants.
In the fourth quarter of 1996, the Company initiated an 80 patient, multi-
center, double blind placebo controlled pivotal Phase III trial of LSF (3
mg/kg) among patients with newly-diagnosed AML undergoing high dose induction
chemotherapy. The primary endpoint of this study is the reduction of the
incidence of serious neutropenic infections. The Company plans to amend this
ongoing Phase III AML trial to increase enrollment to 160 patients to provide
adequate statistical power for this endpoint. Based on the Company's
discussions with the FDA in connection with the ongoing Phase III related
donor BMT trial, the Company believes that if both primary endpoints in the
Phase III related donor BMT trial are met with statistical significance, those
results together with the results of the recently completed Phase II AML trial
and the completed Phase II BMT trial may be adequate to provide the basis for
an expanded NDA label which would include both BMT and AML indications. There
can be no assurance however that such clinical trials will be successful or
that LSF will be eligible for such an expanded NDA label before completion of
additional Phase III trials, if at all. See "Risk Factors--No Assurance of
Successful Product Development Uncertainties Related to Clinical Trials."
Clinical Trials--Mucositis. In the first quarter of 1998, the Company
intends to commence a 100 patient, multi-center, double blind placebo
controlled Phase II/III trial of LSF in patients with head and neck tumors
receiving dose-intensive radiation and/or chemotherapy who are at risk for
developing severe mucositis and neutropenic infections.
Mechanism of Action. Following exposure to radiation, chemotherapy or
oxidative injury, highly reactive oxygen free radicals are generated. These
oxygen free radicals are "soaked up" both in the blood stream and in cell
membranes by a pool of lipids termed "oxidizable lipids" to produce highly
reactive oxidized lipids and lipid peroxides such as HPODEs. HPODEs are
elevated in hematological cancers such as AML or lymphoma and are further
elevated following induction chemotherapy or high dose radiation and
chemotherapy followed by BMT. By comparison, elevated HPODE levels have not
been detected among normal volunteers. It has been shown that elevated HPODE
levels statistically correlate with the development of toxicity and mortality
28
<PAGE>
following high dose radiation and/or chemotherapy followed by BMT. Oxidized
lipids have also been shown to have immediate effects on cell membranes,
resulting in membrane perturbation or disruption which may lead to cell damage
or cell death among the barrier cells lining the intestine or respiratory
tract. As such, lipid peroxides such as HPODEs may contribute to the early
breakdown in mucosal barrier function observed following radiation,
chemotherapy or oxidative injury, allowing potentially pathogenic bacteria and
fungi to gain access to an otherwise sterile bloodstream and tissues. In
addition to the direct effects that HPODEs may have on cell membranes, they
may also lead to the activation of a number of SAPs within the cell, resulting
in further tissue injury, inflammation and delayed healing.
While the biomolecular target for LSF is presently unknown, its therapeutic
activity appears to be due to the result of LSF's effect on oxidized lipids,
and the subsequent activation of SAPs. In the Phase II BMT clinical trial, LSF
decreased elevated HPODE levels present at study entry. In addition, LSF
blocked the rise or reduced the levels of such lipid peroxides following
exposure to radiation and/or chemotherapy when compared to the elevated levels
present among placebo recipients. In doing so, LSF appears to inhibit the
early, immediate effects of HPODEs on cell membranes, thereby reducing injury
to mucosal barriers such as the gastrointestinal tract. LSF also appears to
prevent the activation of SAPs, and the ensuing cellular inflammatory and
injurious response which contribute to the delay in tissue healing following
dose-intensive radiation and chemotherapy.
The Company believes that the effects of LSF on lipid peroxides and on the
activation of SAPs may represent a critical upstream point of intervention in
the initiation of the cellular stress and injury response. By modulating the
production of such oxidized lipids and the activation of SAPs, LSF may be able
to prevent the early and late damage to the epithelial barrier cells lining
the mouth, stomach and intestinal tract, resulting in a reduction in
infection, mucositis and mortality following high dose anti-cancer treatment.
Because epithelial barrier cells also line the lung tissue in the respiratory
tract, cells which are also susceptible to such oxidative injury, the Company
believes that LSF may also be effective for preventing or reducing ALI in
patients requiring mechanical ventilation for respiratory failure. See "--
Inflammatory Disease." The Company is utilizing its proprietary oxidized lipid
and phospholipid technologies as a platform to investigate structure-function
relationships with respect to the LSF chemical moiety and its anti-lipid
oxidation effects. The Company is developing chemical analogs of LSF, such as
CT-2408R and other agents, which have the potential to be administered orally.
CT-2584
CT-2584 is the Company's novel small molecule drug under investigation for
the treatment of patients with multidrug (e.g., chemotherapy) resistant
cancers, including prostate cancer and sarcomas. The Company believes that CT-
2584 has a unique mechanism of action which may allow the drug to be (i) toxic
to cancers which have multidrug resistance to conventional chemotherapeutic
agents, (ii) more toxic to cancer cells than to non-cancerous cells and (iii)
not susceptible to multidrug resistance.
The Company's development strategy for CT-2584 is to target multidrug
resistant cancers, such as hormone-refractory prostate cancer and sarcomas,
for which effective treatments are lacking and for which such applications may
qualify for accelerated regulatory approval. The Company believes that
targeting therapeutic applications of the drug where alternative treatments
are lacking or ineffective may also accelerate market acceptance. The Company
intends to pursue line extensions of CT-2584 to be used as a second line
therapy for cancers such as colon, lung and breast cancers which frequently
express or acquire multidrug resistance to conventional first line
chemotherapeutic agents, resulting in treatment failure. Because CT-2584's
mechanism for tumor cell killing appears to be unique, and because it has not
demonstrated the toxicities of conventional anti-cancer agents, the Company
believes that CT-2584 ultimately may be used both alongside conventional
chemotherapeutic agents and as a first line therapy for a variety of cancer
types.
29
<PAGE>
Preclinical and Clinical Trials. In preclinical testing, CT-2584
demonstrated toxicity to all tumor cell lines tested and to human tumor biopsy
samples. These cell lines and samples included prostate, sarcomas, brain,
colon, breast, lung and ovarian cancers, as well as certain leukemias and
lymphomas.
The Company has ongoing a Phase I trial, co-sponsored by the Cancer Research
Campaign, at the Christie Hospital in the United Kingdom, among patients with
advanced cancers, and a parallel Phase I trial at the Memorial Sloan Kettering
Cancer Research Center in the United States, for patients with advanced
cancers including prostate and ovarian cancer. As of September 30, 1997, 36
patients have been treated with CT-2584 at five different dose levels without
exhibiting the bone marrow or gastrointestinal toxicities observed with
conventional high dose anti-cancer treatment regimens. To date, a maximum
tolerated dose level has not been achieved. The majority of patients enrolled
in this trial have tumor types which are known to express multidrug resistance
and have failed or were ineligible for conventional chemotherapy and surgery.
Among these 36 patients, 11 patients (30%) experienced disease stabilization
or disease regression following more than two cycles of CT-2584 therapy. As of
September 30, 1997, nine of these patients remain alive at a median of 11
months since initiating CT-2584 therapy (range 2-18 months). Each of the three
patients with endstage prostate cancer experienced stabilization of disease.
Four of 13 patients (28%) with advanced sarcomas experienced stabilization of
disease and clinical improvement. Based on the preliminary response rates
observed in this trial the Company anticipates initiating a Phase II trial in
advanced hormone refractory prostate cancer in the first quarter of 1998 and a
Phase II trial for sarcomas by the end of 1998. See "Risk Factors--No
Assurance of Successful Product Development; Uncertainties Related to Clinical
Trials."
Mechanism of Action. CT-2584's unique mechanism of action of tumor cell
killing is believed to result from the effects it has on tumor cell
phospholipids such as PAs. Unlike normal growing cells, such as bone marrow
cells, tumor cells overproduce PAs through the activation of an enzyme called
phosphatidylcholine phospholipase-D ("PC-PLD"). CT-2584 appears to further
activate tumor cell PC-PLD leading to tumor cell death. This enzyme may be one
of the biochemical targets responsible for effecting tumor cell killing.
Because of its unique mechanism of action, CT-2584 appears to inactivate or
bypass multidrug resistance mechanisms and does not appear to be susceptible
to multidrug resistance. Company scientists have cloned PC-PLD, and the
Company intends to establish high throughput assays based on PC-PLD and its
other proprietary technologies to discover more potent or selective analogs of
CT-2584.
Tumor Sensitizing Agents
The Company has recently focused a drug discovery effort on the development
of agents which would enhance the effectiveness of radiation therapy. The
Company believes that its drug discovery and core technology platform may
provide a novel approach to the development of tumor sensitizing agents. The
Company is investigating the role of oxidized lipids and phospholipids and
their contribution to the mechanisms by which tumors express or develop
resistance to radiation. The Company has identified compounds, including CT-
2412, which have the potential ability to enhance sensitivity to radiation in
certain resistant cancers, including those which have deleted or mutated tumor
suppressor genes.
INFLAMMATORY DISEASE
Acute lung injury ("ALI") may be caused by or associated with many diseases
or conditions, but is most frequently observed following mechanical
ventilation for respiratory failure. More than one million patients are at
risk each year in the United States for developing ALI. When severe, ALI can
be fatal in a substantial percentage of patients and can also lead to a
condition termed Acute Respiratory Distress Syndrome ("ARDS"). There are no
specific therapies to prevent or treat the estimated 150,000 new cases of ARDS
diagnosed each year. ALI results from oxidative injury to the epithelial
barrier cells which line the respiratory tract following exposure to high
levels of oxygen in connection with mechanical ventilation and/or following
resuscitation with blood transfusions after multiple traumatic injury. In each
setting, oxidative injury to the epithelial cell membranes lining the lung
causes a breakdown in the normal barrier function, leading to the inability to
provide adequate oxygen to the blood stream and organs and resulting in
multiorgan failure ("MOF") and death.
30
<PAGE>
In addition to its potential oncology applications, LSF is also under
investigation by cti as an agent to prevent or reduce the incidence and
severity of ALI and mortality among patients requiring mechanical ventilation
for respiratory failure. The mechanisms underlying the toxicity to
gastrointestinal barrier cells observed in the oncology setting may also
operate to cause the toxicity to respiratory barrier cells observed in the
critical care setting. The Company's development strategy for LSF in critical-
care applications is to target patient populations at high risk for developing
ALI, where early intervention is feasible and clinically meaningful endpoints
can be assessed after relatively short (14-21 days) duration of drug
treatment.
Clinical Trials. The Company has completed a 13 patient, multi-center,
double blind placebo controlled Phase II feasibility study of LSF in patients
suffering from septic shock randomized to receive a low dose (1.5 mg/kg) of
LSF or placebo. This study examined the safety and pharmacokinetics of LSF
given to critically ill patients. Of the 12 patients evaluable for endpoint
analysis, the improvement from baseline in median MOF scores experienced by
LSF recipients was 40 percentage points greater than the improvement
experienced by placebo recipients. All patients receiving LSF survived to day
28 compared to 67 percent of placebo recipients.
The National Heart, Lung and Blood Institute (the "NHLBI"), through its ARDS
Network, notified the Company that after reviewing the preclinical and
clinical data to date, it had selected LSF for investigation in a multi-
center, double blind placebo controlled pivotal Phase II/III trial among
patients experiencing ALI. The ARDS Network was established by the NHLBI in
cooperation with the FDA and the National Institutes of Health to accelerate
the investigation and approval of novel therapies for ALI. The trial, expected
to begin in the fourth quarter of 1997, will examine the effect of a 3 mg/kg
dose of LSF on the duration of mechanical ventilation and early (day 28)
mortality among 800 patients who develop ALI. After each group of 200 patients
enters the study, an independent data safety monitoring board will recommend
continuing the trial based on trends toward efficacy, or stopping the trial
for successful completion of study endpoint or lack of efficacy or safety. The
Company believes the design of this trial and NHLBI sponsorship, including its
provision for a majority of the direct patient costs, provides a cost-
effective investigation of LSF expansion into this patient population.
Mechanism of Action. The Company believes that following exposure to high
levels of inspired oxygen by mechanical ventilation or following blood
transfusion resuscitation after multiple traumatic injury, the generation of
reactive oxygen free radicals leads to the production of oxidized lipids and
lipid peroxides such as HPODEs. See "--Oncology--Lisofylline--Mechanism of
Action." These HPODEs exert their damaging effects on cell membrane lipids and
phospholipids which may lead to the activation of SAPs, resulting in cellular
inflammation and injury. In addition, HPODEs may also cause an immediate
disturbance in the integrity of the cells lining the respiratory tract,
allowing the undesired movement of proteins and fluids into the lung air
spaces, and decreasing the ability of oxygen in the lung to cross into the
bloodstream and reach the tissues.
In animal studies, LSF prevented the occurrence of lung injury and/or
mortality following exposure to high levels of inspired oxygen, resuscitation
following blood loss and shock, and following severe systemic bacterial
infections. In clinical studies, LSF decreased the pool of oxidized lipids and
decreased HPODE generation and the activation of SAPs and subsequent
production of multiple inflammatory cytokines. The Company believes that the
effects of LSF on such lipids and on the activation of SAPs may represent a
critical upstream point of intervention in the initiation of the complex
biochemical cascade that leads to cellular and systemic inflammation, cell
injury and cell death.
IMMUNE DISEASE
The Company is investigating a class of novel compounds which inhibit the PA
regulating enzyme diacylglycerol kinase ("DAG Kinase") and which have been
identified for potential use in the prevention of organ transplant rejection
and in the treatment of immune diseases. Early in vitro testing suggests that
one of these compounds, CT-3578, unlike currently used immunosuppressives
including cyclosporine A, leads to non-responsiveness of the immune system to
specific foreign antigens. The Company believes that such a compound could
induce tolerance to a specific foreign antigen and thus allow patients to
accept organ transplants from genetically different donors without the need
for long-term immunosuppressive therapy.
31
<PAGE>
METABOLIC DISEASE
The Company believes it can leverage its enabling oxidized lipid and
phospholipid technologies to identify opportunities in other disease states
where elevated levels of oxidized lipids may play an important role in the
pathogenesis and clinical manifestations of disease. Oxidized lipids,
including HPODEs, have been reported to be elevated in a variety of metabolic
and cardiovascular diseases. In diabetes, oxidized lipids have been associated
with the destruction of pancreatic islet cells (the cells responsible for
insulin production) in Type I, juvenile onset diabetes, and are believed to be
responsible for development of resistance to insulin and its ability to lower
blood sugar in Type II, adult onset diabetes. In addition, oxidized lipids
have been linked to the glycosylation of proteins resulting in what are termed
advanced glycosylation end products, which are believed to contribute to the
blood vessel damage leading to heart disease, kidney disease and blindness
that accompanies diabetes.
In 1995, the Company established a research collaboration with a leading
diabetes research and treatment center utilizing the Company's proprietary
technologies and drug prototypes to investigate the role of specific forms of
oxidized lipids and phospholipids in the development of diabetes and its
complications. Company scientists and their collaborators have demonstrated
that agents like LSF, which reduce oxidized lipids, can significantly restore
blood sugar utilization by the body and decrease blood sugar to normal levels
in diabetic animal models.
PROPRIETARY DRUG DISCOVERY TECHNOLOGY
The Company's proprietary drug discovery technology consists of four
components: (i) analytical technology for quantitative measuring of specific
species of oxidized lipids and phospholipids; (ii) cloning of critical lipid
regulatory enzymes; (iii) using the cloned enzymes and drug candidate probes
to validate targets and to develop high throughput screens capable of
analyzing large chemical libraries; and (iv) development of novel linker
chemistry to develop directed mini-diversity chemical libraries.
The Company has developed proprietary technology that enables it to
determine the effects of a variety of physical and chemical stimuli (such as
radiation and chemotherapy), growth factors, hormones, cytokines and oncogene-
induced events on the production of oxidized lipids such as HPODEs, various
species of PAs and the enzymes which control their production and degradation.
Standard industry techniques for measuring oxidized lipids, such as HPODEs,
complex lipids and phospholipids such as PAs are time consuming and often
inadequate. Moreover, separation of specific species of oxidized lipids and
PAs is difficult. The Company possesses several proprietary lipid analytical
technologies which can identify different oxidized lipids and different
species of PA produced in response to a variety of stimuli in various cell
types. These technologies provide a qualitative and quantitative methodology
to examine the effects of cti compounds on a variety of such lipids and
phospholipids that are involved in normal and/or pathological functions in
certain cells.
The Company has also developed certain proprietary technologies that permit
the qualitative and quantitative analysis of a variety of complex lipids for
their content of oxidizable and oxidized lipid components such as HPODEs. The
Company believes that such technologies may be utilized in conjunction with
its chemical libraries and novel cloned enzymes to elucidate the relationship
of such complex oxidized lipids to conditions such as cancer, inflammatory and
immune disease. From these studies, the Company intends to identify additional
novel targets for future drug development.
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The Company believes that PAs have different functions within cells,
depending on how they are made and their biochemical species. In order to
further investigate the role of these phospholipids in cellular response
mechanisms and to provide a platform to develop novel targets for drug
development, Company scientists have cloned several of the critical enzymes
that produce or metabolize (degrade) PAs. The following table lists some of
the human enzymes cloned by the Company, their biological effects and implied
areas of indication:
<TABLE>
<CAPTION>
CLONED ENZYME BIOLOGICAL EFFECT DISEASE AREA
- ---------------------------------------- -------------------------------- ------------
<S> <C> <C>
PC-PLD (phosphatidylcholine- Cancerous transformation, Cancer
phospholipase-D) angiogenesis
LPAAT (lyso-PA acyl transferase) Stress activated protein kinase Inflammation
("SAPK") activation; TNFa,
Interleukin-6 release
CDS (cytidyl diphosphate-diacylgycerol SAPK activation; TNFa, Inflammation
synthase) Interleukin-6 release
PAP (phosphatidic acid phosphatase) Glycerolipid synthesis, signal Inflammation
transduction
</TABLE>
The PA regulating enzyme, DAG-Kinase, has been identified as a target enzyme
for modifying the immune response and is inhibited by cti's lead
immunosuppressive compound, CT-3578.
Through application of genetic, molecular and biochemical techniques, the
Company may be able to determine the relationship between the PA species
controlled by these enzymes and abnormal cellular functions which are thought
to be related to disease processes. The Company believes that its oxidized
lipid technologies and PA modulating enzymes, when coupled with high
throughput screens and combinatorial diversity libraries, may provide it with
unique therapeutic targets for drug development for oncological, inflammatory
and immune diseases.
STRATEGY
The key elements of the Company's business strategy are to:
Target large markets which are not adequately served by existing
therapeutics. The Company focuses its drug development activities on cancer
and inflammatory and immune diseases--three therapeutic areas that represent
large market opportunities not adequately served by existing therapeutics. The
Company intends to develop its oncology product portfolio by integrating its
understanding of cancer disease management with novel products derived from
its internal research and discovery efforts. The Company's two potential
cancer drugs in clinical trials, LSF and CT-2584, target the toxic side
effects of current cancer treatment modalities and multidrug resistant cancer
cells, respectively. LSF is also in clinical trials as an agent for the
prevention or reduction of ALI and mortality among patients requiring
mechanical ventilation for respiratory failure, conditions for which no
effective therapies currently exist. The Company believes that these agents,
if effective, may provide additional treatment options and opportunities which
are not presently available to health care providers and their patients. The
Company intends to further develop its product portfolio to exploit these
potential opportunities through internal research and discovery efforts, in-
licensing or product acquisitions.
Maximize product opportunities by entering into late-stage collaborative
relationships. The Company believes that by developing its products through
mid- to late-stage clinical development before seeking potential development
and/or commercialization partners, the Company is better positioned to (i)
assess the potential value of its products, (ii) evaluate the
commercialization requirements for such products and (iii) if advantageous,
choose a suitable collaborative partner on more favorable terms than would be
available if the Company were to enter into collaborative relationships for
products in early-stage clinical or preclinical development. The Company is
collaborating with Johnson & Johnson for the worldwide (excluding Canada)
development and commercialization of LSF for the BMT and AML indications and
with BioChem Pharma for the development and commercialization of LSF and CT-
2584 in Canada. See "--Collaborations."
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Accelerate regulatory approval, market penetration and acceptance. The
Company initially intends to launch its products for life threatening
indications, followed by product line extensions to less urgent indications.
The Company believes that this strategy will accelerate the regulatory review
and approval of its products and facilitate their acceptance for use and
adoption by health care providers, patients and third party payors. The
Company intends to pursue approval for LSF for BMT and AML, and CT-2584 for
advanced prostate cancer and sarcomas, under FDA initiatives intended to
provide accelerated review and approval of therapies to treat patients
suffering from serious, life-threatening or severely debilitating diseases and
that provide a meaningful therapeutic benefit to patients over existing
treatments. Once approval has been obtained for the initial indication, cti
will seek to extend the use of LSF in less urgent, but clinically meaningful
applications such as mucositis. However, there can be no assurance that any of
the Company's products will be evaluated for regulatory approval on such an
accelerated basis.
Focused sales and marketing efforts. The Company intends to develop its own
sales and marketing infrastructure in the United States to co-promote LSF with
Johnson & Johnson as permitted under the Collaboration Agreement and to launch
and commercialize its portfolio of other potential oncology products, either
on its own or jointly with Johnson & Johnson or other collaborators. With
respect to the commercialization of its oncology products outside the United
States, and with respect to the worldwide commercialization of its portfolio
of products for inflammatory and immune diseases, the Company's strategy is to
pursue commercialization arrangements with collaborators, including Johnson &
Johnson.
Leverage proprietary technology to create a unique drug discovery platform
for new product opportunities. The Company is leveraging its proprietary
technology to create a unique platform for future drug discoveries. The
Company believes that its oxidized lipid technologies and PA modulating
enzymes, when coupled with high throughput screens and combinatorial diversity
libraries, may provide the Company with unique therapeutic targets for drug
development for cancer and inflammatory and immune diseases.
Expand product portfolio through the acquisition of complementary
technologies. The Company intends to pursue acquisition or in-licensing
opportunities to expand its oncology portfolio of products with agents which
complement the utility or deliverability of the Company's novel oncology
products. Additionally, the Company believes it can also leverage its enabling
oxidized lipid and phospholipid technologies to identify development
opportunities in other disease states, such as diabetes or cardiovascular
disease, where oxidized lipids may be implicated in the pathogenesis or
manifestations of disease.
COLLABORATIONS
Johnson & Johnson
In November 1996, the Company entered into a Collaboration and License
Agreement (the "Collaboration Agreement") with Ortho Biotech, Inc. and The
R.W. Johnson Pharmaceutical Research Institute (a division of Ortho
Pharmaceutical Corporation), each of which are wholly-owned subsidiaries of
Johnson & Johnson (collectively, "Johnson & Johnson"), for the joint
development and commercialization of LSF to prevent or reduce the toxic side
effects among cancer patients receiving high dose radiation and/or
chemotherapy followed by BMT. Upon execution of the Collaboration Agreement,
Johnson & Johnson paid to cti a $5.0 million license fee. In September 1997,
Johnson & Johnson exercised an option under the Collaboration Agreement to
expand its participation to include the development of LSF to include the
treatment of patients with AML undergoing high dose chemotherapy, and is
obligated to make a $1.0 million payment to cti in connection with this
milestone. The Company has recorded approximately $19.1 million in equity
payments, license fees and development cost reimbursements from Johnson &
Johnson as of June 30, 1997. Under the Collaboration Agreement, cti is
responsible for the development of LSF in the United States, and Johnson &
Johnson has committed to fund 60 percent of cti's budgeted development
expenses incurred in connection with obtaining regulatory approval for LSF in
the United States for the BMT and AML indications. Any development expenses in
excess of such currently budgeted agreed upon amounts will be funded solely by
cti unless otherwise mutually agreed. Johnson & Johnson will be responsible
for obtaining regulatory approval for LSF for markets outside of the United
States and Canada at its own expense.
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The Company and Johnson & Johnson will co-promote LSF in the United States,
and each will share equally in any resulting operating profits and losses.
Although cti and Johnson & Johnson will co-promote LSF in the United States,
Johnson & Johnson will have primary responsibility for commercializing LSF.
See "--Marketing." Johnson & Johnson has the exclusive right to develop and
market LSF, at its own expense, for markets other than the United States and
Canada, subject to specified royalty payments to cti. Johnson & Johnson will
make additional payments to, and equity investments in, cti if certain
milestones are achieved in the development and commercialization of LSF.
In addition to participating in the development of LSF for BMT and AML
indications, Johnson & Johnson also has certain options to expand the
collaboration to include the development of LSF for any other indication for
which LSF is being developed by cti. In the event that Johnson & Johnson
exercises any such option, it would be required to fund 60 percent of cti's
budgeted development expenses incurred in connection with the development of
LSF for such indication, including expenses incurred prior to the exercise of
such option, and would also be required to pay additional license fees and
milestone payments to cti. Thereafter, any development expenses in excess of
the then agreed upon budgeted amounts for any such additional indication would
be funded solely by Johnson & Johnson unless otherwise mutually agreed. If
Johnson & Johnson does not exercise such option with respect to any such
indication, cti would be free to develop LSF for such indication either on its
own or in collaboration with third parties. Johnson & Johnson also has the
option to sponsor research at cti with respect to discovering compounds
structurally related to LSF.
The Company is dependent on the future payments from Johnson & Johnson to
continue the development and commercialization of LSF as presently planned.
Johnson & Johnson may terminate the Collaboration Agreement at any time and
for any reason after November 8, 1997, subject to a six month notice period.
Johnson & Johnson would have no further obligation to fund cti's development
expenses related to LSF following such termination. However, the financial and
other obligations of Johnson & Johnson (aside from Johnson & Johnson's
obligation to make additional payments to, and equity investments in, cti if
certain development milestones are achieved within the notice period) would
continue during such six month notice period. In addition, Johnson & Johnson
has the right to terminate the Collaboration Agreement at any time based on
material safety or tolerability issues related to LSF upon 30 days notice. In
the event of a termination of the Collaboration Agreement by Johnson &
Johnson, cti would regain all development and commercialization rights.
Without Johnson & Johnson's continued collaborative support, cti would not be
able to continue the development of LSF as presently planned, which could have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Risk Factors--Reliance on
Relationship with Johnson & Johnson."
In accordance with the terms of a Stock Purchase Agreement entered into
between the Company and Johnson & Johnson Development Corporation ("JJDC"), a
wholly-owned subsidiary of Johnson & Johnson, JJDC made a $5.0 million equity
investment in cti upon execution of the Collaboration Agreement. Concurrent
with the closing of the Company's initial public offering in March 1997, JJDC
made an additional $3.0 million equity investment in the Company. It is
currently anticipated that JJDC will make an equity investment of
approximately $2.0 million in this Offering. Pursuant to the Stock Purchase
Agreement, JJDC must make additional payments to, and equity investments in,
cti if certain milestones are achieved in the development and
commercialization of LSF.
BioChem Pharma
In March 1995, the Company entered into a collaboration agreement with
BioChem Pharma for the development and commercialization of LSF and CT-2584 in
Canada. Under this collaboration agreement, BioChem Pharma will be responsible
for obtaining regulatory approval for LSF and CT-2584 in Canada. Although
BioChem Pharma will have no obligation to conduct any research and development
activities, it will have the right to have cti perform clinical trials in
Canada at BioChem Pharma's expense. BioChem Pharma will have the exclusive
right to commercialize LSF and CT-2584 in Canada, subject to the payment of
royalties to cti. The Company will also receive payments under the
collaboration agreement if certain milestones are
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<PAGE>
achieved. BioChem Pharma may terminate this agreement with respect to any
product at any time for any reason upon 30 days' notice. In connection with
the collaboration agreement, BioChem Pharma made an equity investment in the
Company of $2.5 million.
PATENTS AND PROPRIETARY RIGHTS
The Company has dedicated significant resources to protect its intellectual
property. In the United States, the Company has rights in 18 issued patents
and 63 allowed or pending patent applications, including divisional patent
applications and continuations-in-part, covering a variety of new chemical
entities, pharmaceutical compositions, synthetic processes, methods of use,
discovery research tools and diagnostics. Seven of the issued patents in which
the Company has rights cover the pharmaceutical composition, commercial
manufacturing process and oncology and anti-inflammatory methods of use for
LSF, and six of the Company's allowed or pending patent applications cover
other methods of use for LSF. One issued patent covers the chemical compounds
and pharmaceutical compositions of CT-2584 and CT-3578. The Company intends to
file additional patent applications, when appropriate, with respect to
improvements in its core technology and to specific products and processes
that it develops. Generally it is the Company's policy to file foreign
counterparts in countries with significant pharmaceutical markets and a patent
granting and enforcement infrastructure. The Company has filed 60 foreign
national patent applications in 16 countries and the European Patent Office,
including 20 counterparts of certain of its issued patents and allowed or
pending U.S. patent applications for LSF and 14 counterparts of certain of its
issued patents and allowed or pending U.S. patent applications for CT-2584 and
CT-3578. There can be no assurance that any patents will issue from any
present or future applications or, if patents do issue, that such patents will
be issued on a timely basis or that claims allowed on issued patents will be
sufficient to protect the Company's technology. In addition, there can be no
assurance that the patents issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company. With respect to
such issued U.S. patents or any patents that may issue in the future, there
can be no assurance that they will effectively protect the technology
involved, foreclose the development of competitive products by others or
otherwise be commercially valuable.
The commercial success of the Company will also depend in part on the
Company's neither infringing patents or proprietary rights of third parties
nor breaching any technology licenses which relate to the Company's
technologies and potential products. In general, the development of
therapeutic products is intensely competitive and many pharmaceutical
companies, biotechnology companies, universities and research institutions
have filed and will continue to file patent applications and receive patents
in this field. If patents are issued to other entities that contain
competitive or conflicting claims with respect to the technology and compounds
pursued by cti and such claims are ultimately determined to be valid, no
assurance can be given that cti would be able to obtain licenses to these
patents at a reasonable cost or develop or obtain alternative technology or
compounds.
The Company is aware of a patent belonging to third parties that could be
interpreted to compromise the Company's freedom to sell LSF in the United
States for certain non-oncology applications. The Company believes, upon
advice of its patent counsel, that any such interpretation is relevant only in
connection with the Company's use of LSF in preventing lung injury following
traumatic injury (such as ALI and ARDS) or sepsis; and, irrespective of such
interpretation, that the Company's planned manufacture, sale or use of LSF as
described in this Prospectus does not infringe any valid claim of such third
party patent. If such third party patent rights were interpreted to limit the
use of LSF, the Company may be required to obtain a license from such parties.
There can be no assurance that any such license would be available to the
Company upon reasonably acceptable terms, if at all. The Company could also
face significant costs associated with any litigation relating to such patent.
See "Risk Factors--Ability to Protect Intellectual Property."
The Company has sought and intends to aggressively seek patent protection in
the United States, Europe and Japan to protect any products that it may
develop. The Company also intends to seek patent protection or rely upon trade
secrets to protect certain of its enabling technologies that will be used in
discovering and evaluating new drugs which could become marketable products.
However, there can be no assurance that such
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<PAGE>
steps will effectively protect the technology involved. To protect any such
trade secrets and other proprietary information, cti relies on confidentiality
and material transfer agreements with its corporate partners, employees,
consultants, outside scientific collaborators and sponsored researchers and
other advisors. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for breach or that the
Company's trade secrets will not otherwise become known or independently
discovered by competitors. The Company also has its employees, members of its
Scientific Advisory Board and Clinical Advisory Board, and its consultants
enter into agreements requiring disclosure to cti of ideas, developments,
discoveries or inventions conceived during employment or during consulting and
assignment to cti of proprietary rights to such matters related to the
business and technology of cti. The extent to which efforts, including
interference proceedings, by others will result in patents and the effect on
cti of the issuance of such patents is unknown. There has been significant
litigation in the pharmaceutical and biotechnology industry regarding patents
and other proprietary rights, and although the Company is not currently
engaged in litigation regarding intellectual property matters, from time to
time the Company sends and receives communications to and from third parties
regarding such matters. In order to enforce any patents issued to the Company
or determine the scope, validity or priority of other parties' proprietary
rights, the Company may have to engage in litigation or interference or other
administrative proceedings, which would result in substantial cost to, and
diversion of efforts by, the Company. There can be no assurance that the
Company's issued or licensed patents would be held valid. An adverse outcome
in any litigation or interference or other administrative proceeding could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease or modify its use of such technology, any of which could have a material
adverse effect on the Company.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information or otherwise obtain access to
cti's know-how or that others will not be issued patents which may prevent the
sale of Company products or require licensing and the payment of significant
fees or royalties by cti for the pursuit of its business. Trade secrets and
other unpatented proprietary information of cti may be difficult to protect,
notwithstanding confidentiality agreements with cti's employees and
consultants. See "Risk Factors--Ability to Protect Intellectual Property."
MANUFACTURING
The Company currently does not have the internal facilities to manufacture
products under current Good Manufacturing Practices ("GMP") prescribed by the
FDA. The Company seeks to develop such capacity through manufacturing
relationships. The Company has qualified and selected manufacturers which it
believes comply with GMPs and other regulatory standards, and LSF is currently
being manufactured by third party vendors on a fee for service basis. In
January 1997 the Company entered into a supply agreement with ChiRex, Ltd.
("ChiRex"), a British manufacturer of pharmaceutical intermediates and active
ingredients, for the manufacture and supply of LSF and corresponding
intermediate compounds. Under the terms of the agreement, ChiRex will
manufacture and supply LSF bulk drug and a key intermediate compound in
sufficient quantities to meet the Company's requirements for ongoing and
future clinical trials and commercial requirements during product launch and
commercialization. ChiRex is obligated to comply with all regulatory
requirements and policies concerning GMPs for all phases of production. The
agreement will expire on December 31, 2001, but may be terminated by cti upon
12 months written notice prior to such date.
The Company believes it has developed a process for manufacturing LSF in its
own laboratories and those of external manufacturers that would enable its
manufacture in commercial quantities. Under the terms of the Collaboration
Agreement with Johnson & Johnson, the Company will be responsible for the
manufacture of LSF for development and commercialization purposes until
November 8, 1999. Thereafter, Johnson & Johnson will assume responsibility for
the manufacture of LSF. However, Johnson & Johnson may elect to assume
responsibility for the manufacture of LSF at any time prior to such date. The
Company currently uses ChiRex for the manufacture of LSF bulk drug and uses
three suppliers for clinical trial quantities of the finished drug product.
Following commercial launch of LSF, the Company expects that it will continue
to use ChiRex to manufacture LSF bulk drug and expects that OMJ
Pharmaceuticals, Inc., an affiliate of Johnson & Johnson, will be the
Company's primary supplier for the finished drug product pursuant to the
Collaboration Agreement.
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The Company has established a quality control and quality assurance program,
including a set of standard operating procedures and specifications, designed
to ensure that the Company's products are manufactured in accordance with GMPs
and other applicable domestic and foreign regulations. However, the Company is
and expects to continue to be dependent upon Johnson & Johnson and contract
manufacturers such as ChiRex to comply with such procedures and regulations.
There can be no assurance that Johnson & Johnson or these manufacturers will
meet the Company's requirements for quality, quantity or timeliness. LSF has
never been manufactured on a commercial scale, and no assurance can be given
that the Company, together with Johnson & Johnson or such other third party
contract manufacturers, will be able to make the transition to commercial
production.
If the Company develops other products with commercial potential outside of
the Johnson & Johnson collaboration, cti will need to develop additional
manufacturing resources, and may seek to enter into additional collaborative
arrangements with other parties which have established manufacturing
capabilities or may elect to have a third party such as ChiRex manufacture its
products on a contract basis. The Company has recently entered into another
such agreement with a third party vendor to furnish CT-2584 bulk drug
substance for future clinical studies. If cti is unable to enter into
collaborative relationships or to obtain or retain third party manufacturing
on commercially acceptable terms, it may be delayed in its ability to
commercialize its products or may not be able to commercialize its products as
planned. The Company will be dependent upon such collaborators or third
parties to supply it in a timely manner with products manufactured in
compliance with GMPs or similar standards imposed by foreign regulators.
Collaborators and contract manufacturers may violate GMPs, and the FDA has
intensified its oversight of drug manufacturers. There can be no assurance
that the FDA would not take action against a collaborator or a contract
manufacturer who violates current GMPs. Such actions may include requiring
such collaborator or contract manufacturer to cease manufacturing activities.
See "Risk Factors--Reliance on Third Party Manufacturers; Manufacture of
Products in Commercial Quantities."
MARKETING
The Company intends to develop its own sales and marketing infrastructure in
the United States to commercialize its portfolio of oncology products,
including the oncology products that the Company plans to co-promote with
Johnson & Johnson pursuant to the Collaboration Agreement and any other
oncology products that the Company may commercialize, either on its own or, to
the extent the Company enters into any commercialization arrangements, with
collaborators. With respect to the commercialization of its oncology products
outside the United States, and with respect to the worldwide commercialization
of its portfolio of products for inflammatory and immune disease, the
Company's strategy is to pursue commercialization arrangements with
collaborators, including Johnson & Johnson.
The Company has no experience in marketing, sales or distribution. The
Company believes, however, that the United States oncology market is
accessible by a limited marketing staff due to the concentrated market of
prescribing physicians. Approximately 5,000 oncologists control the vast
majority of prescriptions for cancer therapeutics. Under the Collaboration
Agreement, Johnson & Johnson will have primary responsibility for
commercializing LSF. To assist in commercializing LSF for the BMT and AML
indications, cti will employ medical affairs and marketing personnel who will
work with Johnson & Johnson's sales force to provide various medical and
marketing support functions. In connection with the launch and
commercialization of LSF for all other indications, cti will be permitted to
provide its own field sales force to co-promote LSF under the direction and
control of Johnson & Johnson. See "--Collaborations."
If the Company develops additional products with commercial potential
outside of the Johnson & Johnson collaboration, cti may need to develop
marketing and additional sales resources, and may seek to enter into
collaborative arrangements with third parties which have established marketing
and sales capabilities or may choose to pursue the commercialization of such
products on its own. There can be no assurance that the Company, Johnson &
Johnson or, to the extent the Company enters into any commercialization
arrangements with any other third parties, such other third parties, will
establish adequate sales and distribution capabilities or
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<PAGE>
be successful in gaining market acceptance for products. There can be no
assurance that cti will enter into any such alliances or that the terms of any
such alliances will be favorable to cti. See "Risk Factors--Absence of Sales
and Marketing Organization."
COMPETITION
Competition in the pharmaceutical and biotechnology industries is intense.
The Company faces competition from a variety of sources, both direct and
indirect. The Company believes there may be several pharmaceutical or
biotechnology companies that focus on cell membrane lipids in regulating
cellular processes. Many other companies compete indirectly with cti for the
same therapeutic indications but with different approaches by focusing, for
example, on signal transduction, cell receptor technology, transcription
factors and gene therapies. The Company also competes with other large
pharmaceutical companies that produce and market synthetic compounds and with
other specialized biotechnology firms in the United States, Japan, Europe and
elsewhere. Many of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than the
Company and may be better equipped to develop, manufacture and market
products. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
established biotechnology companies. Many of these competitors have
significant products that have been approved or are in development and operate
large, well funded research and development programs.
The Company expects to encounter significant competition for the principal
pharmaceutical products it plans to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. Accordingly, the relative speed with which the Company and Johnson
& Johnson or any future collaborators can develop products, complete
preclinical testing and clinical trials and approval processes, and supply
commercial quantities of the products to the market are expected to be
important competitive factors. A number of biotechnology and pharmaceutical
companies are developing new products for the treatment of the same diseases
being targeted by cti. In some instances, such products have already entered
late-stage clinical trials or received FDA approval.
Significant levels of research in biotechnology, medicinal chemistry and
pharmacology occur in academic institutions, governmental agencies and other
public and private research institutions. These entities have become
increasingly active in seeking patent protection and licensing revenues for
their research results. They also compete with cti in recruiting and retaining
skilled scientific talent.
The Company believes that its ability to compete successfully will be based
on its ability to create and maintain scientifically advanced technology,
develop proprietary products, attract and retain scientific personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market its products either alone or
through outside parties. Many of cti's competitors have substantially greater
financial, marketing and human resources than cti. The Company will continue
to seek licenses with respect to technology related to its field of interest
and may face competition with respect to such efforts. There can be no
assurance that the Company's competitors will not develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than the Company. See "Risk Factors--No Assurance of
Successful Product Development; Uncertainties Related to Clinical Trials," "--
Substantial Competition" and "--Ability to Protect Intellectual Property."
GOVERNMENT REGULATION
Drug Approval Process
Regulation by governmental authorities in the United States and other
countries is a significant factor in the development, production and marketing
of cti's proposed drug products. All of cti's products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
new drugs are subject to rigorous preclinical and clinical testing and other
approval procedures in the United States by the FDA and
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similar health authorities in foreign countries. Various federal statutes and
regulations also govern or influence the testing, manufacturing, quality
control, safety, labeling, storage, record-keeping and marketing of such
products. The process of obtaining these approvals and the subsequent
compliance with appropriate federal and foreign statutes and regulations
require the expenditure of substantial resources. Any failure by cti or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approval could adversely affect the marketing of any product that cti may hope
to develop and its ability to receive revenues therefrom. The Company has
neither applied for nor received regulatory approval to market any products.
The steps required before a new drug may be marketed in the United States
include (i) preclinical laboratory, in vivo and formulation studies, (ii) the
submission to the FDA of an Investigational New Drug application ("IND"),
which must become effective before human clinical trials may commence, (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the proposed drug in its intended indication, (iv) the submission
of, for non-biologic drugs, an NDA to the FDA, and (v) the FDA approval of the
NDA.
In order to clinically test, produce and market products for diagnostic or
therapeutic use, a company must comply with safety and efficacy requirements
established by the FDA and comparable agencies in foreign countries. Before
beginning human clinical testing of a potential new drug, a company must file
an IND, which must become effective before clinical trials may begin, and
receive clearance from the FDA. The IND is a summary of the preclinical
studies which were carried out to characterize the drug, including toxicity
and safety studies, as well as an in-depth discussion of the human clinical
studies which have been conducted and those which are being proposed. Approval
of a local institutional review board ("IRB") and informed consent of trial
subjects is also required.
Human clinical trials are typically conducted in three sequential phases
which may overlap. Phase I involves the initial introduction of the drug into
healthy human subjects or patients where the product is tested for safety,
dosage tolerance, absorption, metabolism, distribution and excretion. Phase II
involves studies in a limited patient population to (i) identify possible
adverse effects and safety risks, (ii) determine the efficacy of the product
for specific, targeted indications, and (iii) determine dosage tolerance and
optimal dosage. When Phase II evaluation demonstrates that the product may be
effective and has an acceptable safety profile, Phase III trials are
undertaken to further evaluate dosage and clinical efficacy and to further
test for safety in an expanded patient population at multiple clinical study
sites. A pivotal Phase III trial is an adequate and well-controlled study
which provides a primary basis for determining whether there is "substantial
evidence" to support the claims of safety and effectiveness for new drugs and
forms a critical component of an NDA. Usually two well-controlled clinical
studies are required for approval of a new drug. The regulatory authority may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk, that the
study is not being conducted in compliance with applicable regulatory
requirements, or for other reasons. See "Risk Factors--No Assurance of
Successful Product Development; Uncertainties Related to Clinical Trials."
The results of product development, preclinical studies and clinical studies
are submitted to the FDA as part of an NDA for approval of the marketing and
commercial shipment of the product. Other information is also required in the
NDA, including manufacturing and labeling information. The FDA may deny
approval of an NDA if applicable regulatory criteria are not satisfied, or may
require additional data. Even if such data is submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval.
Once issued, a product approval may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur after the product reaches the
market. In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized, and it
has the authority to prevent or limit further marketing of a product based on
the results of these post-marketing programs. Any subsequent changes to the
product, labeling or manufacturing may require additional FDA approval.
Satisfaction of FDA requirements, or similar requirements by foreign
regulatory agencies, typically takes several years and the time needed to
satisfy them may vary substantially, based upon the type, complexity and
novelty of the drug product. The effect of government regulation may be to
delay or to prevent marketing of potential products for a considerable period
of time and to impose costly procedures upon the Company's
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activities. There can be no assurance that the FDA or any other regulatory
agency will grant approval for any products being developed by the Company on
a timely basis, or at all. Success in preclinical or early stage clinical
trials does not assure success in later stage clinical trials. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. If
regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses for which a product may be marketed.
Further, even if regulatory approval is obtained, later discovery of
previously unknown problems with a product may result in restrictions on the
product, including withdrawal of the product from the market. Delay in
obtaining or failure to obtain regulatory approvals would have a material
adverse affect on the Company's business. Marketing the Company's products
abroad will require similar regulatory approvals and is subject to similar
risks. In addition, the Company is unable to predict the extent of adverse
government regulations that might arise from future United States or foreign
governmental action. See "Risk Factors--No Assurance of FDA Approval;
Comprehensive Government Regulation."
The FDA has implemented accelerated review and approval procedures for
certain pharmaceutical agents that have been studied for their safety and
effectiveness in treating serious life-threatening or severely debilitating
diseases, and that provide a meaningful therapeutic benefit to patients over
existing treatments. Products intended to remove a serious or life-threatening
toxicity associated with cancer treatment may potentially qualify for review
under these accelerated procedures. The Company believes that LSF may qualify
for this accelerated review and approval process and has designed its pivotal
Phase III BMT trial with the objective of securing accelerated approval. The
FDA staff has indicated that priority review status may be appropriate for the
Company's planned NDA for LSF for BMT indications. However, significant
uncertainty exists as to the extent to which accelerated review and approval
will be granted. The FDA retains considerable discretion in determining
eligibility for accelerated review and approval. Accordingly, the FDA could
employ such discretion to deny eligibility of LSF as a candidate for
accelerated review or require additional clinical trials or other information
before approving LSF. In addition, the approval of a product under the
accelerated approval procedures is subject to various conditions, including
the requirement to verify clinical benefit in postmarketing studies and the
authority on the part of the FDA to withdraw approval under streamlined
procedures if such studies do not verify clinical benefit or under various
other circumstances. The Company cannot predict the ultimate impact, if any,
of the accelerated approval process on the timing or likelihood of FDA
approval of LSF or any of its other potential products.
Facilities and manufacturing procedures used for the manufacture of products
for clinical use or for sale must be operated in conformity with current GMP
regulations, the FDA regulations governing the production of pharmaceutical
products. The Company intends to operate its facilities or to arrange for the
manufacture of products at facilities which are operated, as required, in
accordance with GMPs where necessary; however, no assurance can be provided
that such manufacture will successfully comply with GMPs. In addition, the FDA
also regulates promotion, marketing and distribution of prescription drug
products, particularly those subject to accelerated approval; and inspects
drug manufacturers to evaluate compliance with regulatory requirements. Among
other things, the FDA evaluates truthfulness and accuracy of materials
submitted to it, or otherwise prepared by a drug manufacturer and may take
legal or regulatory action against companies or their products if such
materials contain any untrue statement of a material fact.
Before the Company's products can be marketed outside of the United States,
they are subject to regulatory approval similar to that required in the United
States, although the requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary widely from country to
country. No action can be taken to market any product in a country until an
appropriate application has been approved by the regulatory authorities in
that country. The current approval process varies from country to country, and
the time spent in gaining approval varies from that required for FDA approval.
In certain countries, the sales price of a product must also be approved. The
pricing review period often begins after market approval is granted. No
assurance can be given that, even if a product is approved by a regulatory
authority, satisfactory prices will be approved for such product.
No assurance can be provided that the Company's INDs or NDAs will be
successfully reviewed by the FDA, or that accelerated approval will apply or
that similar applications will be successfully reviewed by foreign
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regulatory authorities. Further, the FDA and foreign authorities may at any
time take legal or regulatory action against a product or the Company if it
concludes that cti has not complied with applicable laws and regulations or
that earlier evaluations of a product's safety or effectiveness may not have
been adequate or appropriate. Such action may include, but is not limited to,
restrictions on manufacture and shipment of products, seizure of products,
injunctions and civil and criminal penalties. The FDA's policies may change
and additional government regulations may be promulgated which could prevent
or delay regulatory approval of the Company's potential products. Moreover,
increased attention to the containment of health care costs in the United
States and in foreign markets could result in new government regulations which
could have a material adverse effect on the Company's business. The Company is
unable to predict the likelihood of adverse governmental regulation which
might arise from future legislative or administrative action, either in the
United States or abroad.
Third Party Reimbursement and Health Care Reform
The commercial success of the Company's products under development will be
substantially dependent upon the availability of government or private third-
party reimbursement for the use of such products. There can be no assurance
that Medicare, Medicaid, health maintenance organizations and other third-
party payors will authorize or otherwise budget such reimbursement. Such
governmental and third party payors are increasingly challenging the prices
charged for medical products and services. If the Company succeeds in bringing
one or more products to market, there can be no assurance that such products
will be viewed as cost-effective or that reimbursement will be available to
consumers or will be sufficient to allow the Company's products to be marketed
on a competitive basis. Furthermore, federal and state regulations govern or
influence the reimbursement to health care providers of fees and capital
equipment costs in connection with medical treatment of certain patients. In
response to concerns about the rising costs of advanced medical technologies,
the current administration of the federal government has publicly stated its
desire to reform health care, including the possibility of price controls and
revised reimbursement policies. There can be no assurance that actions taken
by the administration, if any, with regard to health care reform will not have
a material adverse effect on the Company. If any actions are taken by the
administration, such actions could adversely affect the prospects for future
sales of the Company's products. Further, to the extent that these or other
proposals or reforms have a material adverse effect on the Company's ability
to secure funding for its development or on the business, financial condition
and profitability of other companies that are prospective collaborators for
certain of the Company's product candidates, the Company's ability to develop
or commercialize its product candidates may be adversely affected. See "Risk
Factors--Uncertainty of Pharmaceutical Pricing and Reimbursement."
Given recent government initiatives directed at lowering the total cost of
health care throughout the United States, it is likely that the United States
Congress and state legislatures will continue to focus on health care reform
and the cost of prescription pharmaceuticals and on the reform of the Medicare
and Medicaid systems. The Company cannot predict the likelihood of passage of
federal and state legislation related to health care reform or lowering
pharmaceutical costs. In certain foreign markets pricing of prescription
pharmaceuticals is already subject to government control. Continued
significant changes in the nation's health care system could have a material
adverse effect on the Company's business.
Environmental Regulation
In connection with its research and development activities and its
manufacturing materials and products, the Company is subject to federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal
of certain materials, biological specimens, and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any significant action to
correct any noncompliance, there can be no assurance that the Company will not
be required to incur significant costs to comply with environmental and health
and safety regulations in the future. The Company's research and development
involves the controlled use of hazardous materials, including but not limited
to certain hazardous chemicals and radioactive materials. Although the Company
believes that its safety procedures for handling and
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disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company. See "Risk Factors--Use of Hazardous
Materials."
FACILITIES
The Company leases approximately 66,000 square feet of space at 201 Elliott
Avenue West in Seattle, Washington for its executive office, laboratory and
administrative operations. The lease expires January 31, 2003, with two
consecutive five-year renewal options at the then prevailing market rent.
Although the Company's existing and planned facilities are believed adequate
to meet its present requirements, the Company currently expects that it will
require additional office and laboratory space. Despite a decrease in local
vacancy rates for commercial space, the Company currently anticipates that
additional space will be available to it, when needed, on commercially
reasonable terms. See "--Manufacturing."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
HUMAN RESOURCES
As of September 30, 1997 cti employed 160 individuals (including 46 holding
doctoral or other advanced degrees). In recruiting additional staff members,
cti expects to receive continued input from its consultants and members of its
Scientific Advisory Board and Clinical Advisory Board.
The Company's policy is to have each employee and consultant enter into an
agreement which contains provisions prohibiting the disclosure of confidential
information to anyone outside cti and requires disclosure to cti of ideas,
developments, discoveries or inventions conceived during employment and
assignment to cti of proprietary rights to such matters related to the
business and technology of cti. The extent to which this policy will
effectively protect cti's proprietary technology and trade secrets is unknown.
See "--Patents and Proprietary Rights."
The Company has assembled a Scientific Advisory Board ("SAB") composed of
leaders in the fields of immunology, cell and molecular biology, and synthetic
and medicinal chemistry, and a Clinical Advisory Board ("CAB") composed of
leaders in the fields of hematology, oncology, immunology, cell and molecular
biology, critical care and medicinal chemistry. The SAB assists cti in
identifying scientific and product development opportunities, reviewing with
management the progress of cti's specific projects, and recruiting and
evaluating cti's scientific staff. The CAB assists cti in determining clinical
regulatory strategy, interpreting clinical trial data and identifying optimal
indications for cti's products. Although cti expects to receive guidance from
the members of its SAB and CAB, all of such members are employed on a full-
time basis by others and, accordingly, are not likely to devote more than a
small portion of their time to cti. See "Management--Scientific Advisory
Board" and "Management--Clinical Advisory Board."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
directors and executive officers of cti as of September 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Max E. Link, Ph.D.(1).......... 57 Chairman of the Board of Directors
James A. Bianco, M.D.(1)....... 41 President, Chief Executive Officer, and
Director
Jack W. Singer, M.D............ 54 Executive Vice President, Research Program
Chairman, and Director
Louis A. Bianco................ 44 Executive Vice President, Finance and
Administration
Maurice J. Schwarz, Ph.D. ..... 58 Executive Vice President, Product
Development
Robert A. Lewis, M.D........... 52 Executive Vice President, Chief Scientific
Officer
Susan O. Moore................. 48 Executive Vice President, Human Resource
Development
Jack M. Anthony................ 51 Executive Vice President, Marketing and
Business Development
Dalton W. Weekley.............. 55 Managing Director, Project Planning and
Support
Jack L. Bowman(2).............. 65 Director
Jeremy L. Curnock Cook(1)(2)... 48 Director
Wilfred E. Jaeger, M.D.(2)(3).. 41 Director
Terrence M. Morris(2)(3)....... 50 Director
Mary O'Neil Mundinger, D.P.H... 60 Director
Phillip M. Nudelman,
Ph.D.(1)(3)................... 61 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Dr. Link joined the Board of Directors in July 1995 as its Vice Chairman and
has served as Chairman of the Board of Directors since January 1996. In
addition, Dr. Link has held a number of executive positions with
pharmaceutical and healthcare companies. Most recently, he served as Chief
Executive Officer of Corange, Limited ("Corange"), from May 1993 until June
1994. Prior to joining Corange, Dr. Link served in a number of positions
within Sandoz Pharma Ltd., including Chief Executive Officer from 1987 until
April 1992, and Chairman from April 1992 until May 1993. Dr. Link currently
serves on the boards of directors of Alexion Pharmaceutical, Inc., Human
Genome Sciences, Inc., Procept, Inc. and Protein Design Labs, Inc. and Sulzer
Medica Ltd. Dr. Link received his Ph.D. in Economics from the University of
St. Gallen.
Dr. Bianco is the principal founder of cti and has been cti's President and
Chief Executive Officer since February 1992 and a Director of cti since the
Company's inception in September 1991. Prior to joining cti, Dr. Bianco was an
Assistant Professor of Medicine at the University of Washington, Seattle, and
an Assistant Member in the clinical research division of the Fred Hutchinson
Cancer Research Center ("FHCRC"), the world's largest bone marrow
transplantation center. From 1990 to 1992, Dr. Bianco was the director of the
BMT Program at the Veterans Administration Medical Center in Seattle. Dr.
Bianco received his B.S. degree in Biology and Physics from New York
University and his M.D. from Mount Sinai School of Medicine.
Dr. Singer is a founder and Director of cti and currently serves as cti's
Executive Vice President, Research Program Chairman. Dr. Singer has been a
Director of cti since the Company's inception in September 1991. From April
1992 to July 1995, Dr. Singer was cti's Executive Vice President, Research and
Development. Prior to joining cti, Dr. Singer was Professor of Medicine at the
University of Washington and full Member of the FHCRC. From 1975 to 1992, was
the Chief of Medical Oncology at the Veterans Administration Medical Center in
Seattle. In addition, from 1978 to 1992, he served as director for the
National Transplant Board for the
44
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Veterans Administration. Dr. Singer has authored approximately 220 scientific
publications in the areas of cell biology, hematopoiesis and BMT. Prior to
joining cti, he headed the Growth Factor Research Program at the FHCRC. Dr.
Singer received his B.A. degree in Mathematics from Columbia College and his
M.D. from State University of New York, Downstate Medical College. His
clinical training was performed at the University of Chicago and at the
University of Washington.
Mr. Bianco is a founder of cti and has been cti's Executive Vice President,
Finance and Administration since February 1, 1992, and a Director of cti from
the Company's inception in September 1991 to April 1992 and from April 1993 to
April 1995. From January 1989 through January 1992, Mr. Bianco was a Vice
President at Deutsche Bank Capital Corporation in charge of risk management.
Mr. Bianco is a Certified Public Accountant and received his M.B.A. from New
York University.
Dr. Schwarz has been cti's Executive Vice President, Product Development
since May 1994. Dr. Schwarz held a variety of product development positions at
Ciba-Geigy for 26 years prior to joining cti, most recently as Vice President
of Pharmaceutical and Analytical Development and Chairman of the Development
Operations Board at Ciba-Geigy Pharmaceuticals Division. Dr. Schwarz received
his B.A. and Ph.D. degrees in Chemistry from the University of Oregon.
Dr. Lewis has been cti's Executive Vice President, Chief Scientific Officer
since April 1996. From September 1994 to May 1995, Dr. Lewis was Senior Vice
President and Director, Preclinical Research and Development at Syntex-Roche
("Syntex"). From February 1992 to September 1994, he was President, Discovery
Research at Syntex. From February 1986 to February 1992, he held various
Senior and Executive Vice Presidential offices at Syntex. While at Syntex, he
held associate professorships at Stanford University and at the University of
California, San Francisco, where he also held an adjunct professorship from
1992 to 1994. Prior to joining Syntex, Dr. Lewis was an Associate Professor of
Medicine at Harvard Medical School where he authored 150 publications on mast
cell biology and oxidized lipids. Dr. Lewis received his M.D. from the
University of Rochester and B.S. degree in Chemistry from Yale University.
Ms. Moore has been cti's Executive Vice President, Human Resource
Development since July 1995. From March 1993 to July 1995, Ms. Moore was cti's
Vice President of Human Resources. Prior to joining cti in March 1993,
Ms. Moore was self-employed as a compensation consultant. From 1991 to
December 1992, Ms. Moore was the Director of Human Resources of ICOS
Corporation, a biotechnology company.
Mr. Anthony has been cti's Executive Vice President, Marketing and Business
Development since January 1997. From April 1996 to January 1997, Mr. Anthony
was cti's Vice President of Marketing and Business Development. Prior to
joining cti, Mr. Anthony was Vice President of Marketing and Business
Development at Inhale Therapeutic Systems, a drug delivery company, from
October 1994 to April 1996. From August 1989 to October 1994, he was Vice
President of Marketing and Business Development of Applied Immune Sciences, a
cell and gene therapy concern. From 1973 to 1989, Mr. Anthony held various
executive management positions at Baxter Healthcare Corporation, most recently
as Vice President, Blood Therapy Group.
Mr. Weekley has been cti's Managing Director, Project Planning and Support
since July 1995. From April 1994 to July 1995, Mr. Weekley was cti's Director
of Planning Support Services. Prior to joining cti, he was an Executive
Director/Senior Consultant of Milestone Computing, Inc., a management
consulting firm.
Mr. Bowman has been a Director of cti since April 1995. From 1987 until
January 1994, Mr. Bowman was a Company Group Chairman at Johnson & Johnson,
having primary responsibility for a group of companies in the diagnostic,
blood glucose monitoring and pharmaceutical businesses. From 1980 to 1987, Mr.
Bowman held various positions at American Cyanamid Company, most recently as
Executive Vice President. Mr. Bowman was a member of the Board of Trustees of
The Johns Hopkins University and serves on the board of directors of NeoRx
Corporation, CytRx Corporation, PharmaGenics, Inc. and Cellegy
Pharmaceuticals, Inc. and Targeted Genetics Corp.
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Mr. Curnock Cook has been a Director of cti since March 1995. Mr. Curnock
Cook has been a director of the Bioscience Unit of Rothschild Asset Management
Limited since 1987. He is a director of several British companies, including
The International Biotechnology Trust, plc, Biocompatibles International, plc,
and Cantab Pharmaceuticals plc. He also serves on the boards of directors of
Creative Biomolecules, Inc., Targeted Genetics, Corp., Sugen Inc. and Ribozyme
Pharmaceuticals, Inc. in the United States and Inflazyme Pharmaceuticals Inc.
in Canada.
Dr. Jaeger has been a Director of cti since September 1992. Dr. Jaeger is a
founding general partner of Three Arch Partners, a venture capital firm which
focuses on health care investments. Prior to joining Three Arch Partners in
1993, he was a partner at Schroder Venture Advisers (presently named Collinson
Howe Venture Partners) and The Phoenix Partners. Dr. Jaeger is also a director
of Intensiva Healthcare Corporation and several privately held companies. Dr.
Jaeger received his M.D. from the University of British Columbia in Vancouver,
B.C., Canada, in 1981. He practiced medicine for six years before earning an
M.B.A. from Stanford University.
Mr. Morris has been a Director of cti since July 1995. He is the Chief
Executive Officer of T. Morris & Company (d/b/a Morningside Ventures), which
advises Kummell Investments Limited, an international investment concern based
in Hong Kong, on its private venture capital portfolio. Mr. Morris has served
as Chief Executive Officer of Morningside Ventures since 1991. His previous
positions include product line manager at Baxter Healthcare Corporation and
strategy consultant with the Boston Consulting Group. Mr. Morris is a director
of several privately held companies.
Dr. Mundinger has been a Director of cti since April 1997. Since 1986, she
has been a Dean and Professor at the School of Nursing, and an Associate Dean
on the Faculty of Medicine at Columbia University. Dr. Mundinger is a
Commissioner on the Commonwealth Fund Commission on Women's Health and also
serves on the Board on Health Care Services, Institute of Medicine of the
National Academy of Science, the Walt Disney Imagineering "Wonders of Medical
Life" Medical Advisory Board and the Health Policy Advisory Committee. Dr.
Mundinger also serves on the editorial board of National Health Publishing
Company, Inc. Dr. Mundinger is a cum laude graduate of the University of
Michigan and received her Doctorate of Public Health from Columbia's School of
Public Health.
Dr. Nudelman has been a Director of cti since March 1994. Since 1990 Dr.
Nudelman has been the President and Chief Executive Officer of Group Health
Cooperative of Puget Sound, a health maintenance organization. Dr. Nudelman is
a member of the American Hospital Association House of Delegates, Regional
Policy Board, and chairs the Governing Counsel for Health Care Systems. Dr.
Nudelman serves on the boards of directors of Advanced Technology
Laboratories, Inc., SpaceLabs Medical, Inc., Cytran Ltd. and Intensiva
Healthcare Corporation. Dr. Nudelman received his B.S. degree in Microbiology,
Zoology and Pharmacy from the University of Washington, and holds an M.B.A.
and a Ph.D. in Health Systems Management from Pacific Western University.
The Board of Directors of cti is divided into three approximately equal
classes of Directors serving staggered three-year terms and until their
successors are elected and qualified. As a result, approximately one-third of
the total number of Directors will be elected every year. The current terms of
Dr. Nudelman and Messrs. Bowman and Curnock Cook expire in 1998; the current
terms of Drs. Link and Jaeger and Mr. Morris expire in 1999; and the current
terms of Drs. Bianco, Singer and Mundinger expire in 2000. Executive Officers
of cti serve at the discretion of the Board of Directors. Under cti's Bylaws,
the number of Directors constituting the entire Board of Directors may be
decreased or increased by majority action of either the Board of Directors or
the shareholders, but no decrease in the number of Directors may have the
effect of shortening the term of any incumbent Director. Currently, the Board
of Directors has fixed the number of Directors at nine. James A. Bianco and
Louis A. Bianco are brothers.
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<PAGE>
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board and plans to make arrangements
from time to time with other scientists to work with cti's management and the
Scientific Advisory Board. The Scientific Advisory Board is chaired by Dr.
Michael R. Hanley. Scientific Advisory Board members are expected to meet as a
board with management and key scientific employees of cti on a semi-annual
basis and in smaller groups or individually from time to time on an informal
basis. The Scientific Advisory Board members assist cti in identifying
scientific and product development opportunities, reviewing with management
the progress of cti's specific projects, and recruiting and evaluating cti's
scientific staff. Members of cti's Scientific Advisory Board are leaders in
the fields of immunology, cell and molecular biology, and synthetic and
medicinal chemistry.
Current Members of cti's Scientific Advisory Board include:
Michael R. Hanley, Ph.D. is the Chairman of cti's Scientific Advisory Board.
He is a Professor, Department of Biological Chemistry, at the University of
California, Davis School of Medicine. He is a noted authority in cell
communication processes and proto-oncogenes, as well as an expert in
phosopholipid signaling mechanisms in the central nervous system focusing on
regulation of neurotransmitter receptors. Dr. Hanley has authored over
80 manuscripts and has served as an editorial member for several journals,
including Molecular and Cellular Neurobiology and Nature.
Irwin M. Arias, M.D. is a Professor and Chairman of the Department of
Physiology at Tufts University School of Medicine. He is a noted authority in
the physiology of multidrug resistance proteins. He is the recipient of
numerous awards and honors.
Lewis Cantley, Ph.D. is a noted authority in cellular biochemical signaling
pathways that employ phosphatidyl inositol and its metabolites and is the
discoverer of one of the most critical enzymes in those pathways, the PI3
Kinase. He is currently Professor of Cell Biology at Harvard Medical School
and Chief of the Division of Signal Transduction in the Department of
Medicine, Beth Israel Hospital, Boston and is the author of over 180
publications.
Edward A. Dennis, Ph.D. is the Vice Chair of Medical Biochemistry at the
University of California, San Diego. He is a noted authority on
phospholipases, cell signaling and phospholipid metabolism. Dr. Dennis serves
on the Scientific Advisory Board and Management Committee of, and chairs the
Management Executive Board of, the Keystone Symposia. He sits on the Editorial
Board of the Journal of Cellular Biochemistry and on the Publications
Committee of the American Society for Biochemistry and Molecular Biology. He
has authored over 185 manuscripts.
Edwin Krebs, M.D. is a Professor Emeritus, Department of Pharmacology and
Biochemistry, at the University of Washington in Seattle and a Senior
Investigator Emeritus at the Howard Hughes Medical Institute. He is a
recognized authority on the mechanisms of action of second messengers,
including protein kinases and phosphorylation reactions. He is the recipient
of numerous awards and honors and has authored 297 manuscripts. In 1992, Dr.
Krebs was awarded the Nobel Prize in Physiology of Medicine for his work on
second messenger pathways.
L. Jackson Roberts, II, M.D. is an internationally-recognized authority on
the oxidative metabolism of polyunsaturated fatty acids. He is known for
having identified PGD2 as the major mast cell lipid mediator and, more
recently, for having originated the field of studying non-enzymatically-
generated prostanoids, including the isprostanes and neuroprostanes. He is
currently Professor of Pharmacology and Medicine at Vanderbilt University and
is the author of over 170 publications.
The Company has entered into consulting agreements with each member of the
Scientific Advisory Board. These agreements generally have a three-year term
and may be terminated by either party upon 30 days' written notice. These
agreements generally restrict the consultant from competing with cti during
the term of the agreement. These agreements contain provisions prohibiting the
disclosure of confidential information to anyone
47
<PAGE>
outside of cti and require disclosure to cti of ideas, developments,
discoveries or inventions conceived during consulting and assignment to cti of
proprietary rights to such matters related to the business and technology of
cti. Each consultant is required to serve on cti's Scientific Advisory Board
and provide such other consulting services as cti may reasonably request. Each
Scientific Advisory Board member is paid an annual fee and is granted an
option to purchase Common Stock.
CLINICAL ADVISORY BOARD
The Company has a Clinical Advisory Board which meets with cti's management
and the Scientific Advisory Board not less than three times per year and in
smaller groups or individually from time to time on an informal basis. The
Clinical Advisory Board members assist cti in determining its clinical
regulatory strategy, interpreting clinical trial data and identifying optimal
indications for its products. Members of cti's Clinical Advisory Board are
leaders in the fields of hematology, oncology, immunology, cell and molecular
biology, critical care and medicinal chemistry.
Current members of cti's Clinical Advisory Board include:
E. Donnall Thomas, M.D. is the Chairman of cti's Clinical Advisory Board. He
is the former Associate Director of Clinical Research and presently a
Professor Emeritus at the FHCRC. Dr. Thomas was a founding member of the
FHCRC. His research has spanned a wide array of fields from radiation biology
to developmental immunology, and from cancer causing genes to gene transfer
therapies. For his pioneering work in BMT, Dr. Thomas was awarded the Nobel
Prize for Medicine in 1990. Among the other honors awarded to Dr. Thomas in
recognition of his medical research are the American Cancer Society Award for
Distinguished Service in Basic Research and the Kettering Prize of the General
Motors Cancer Research Foundation. He is a member of the U.S. National Academy
of Sciences.
Karen H. Antman, M.D. is the Chief of the Division of Medical Oncology,
College of Physicians & Surgeons of Columbia University. Dr. Antman is an
expert in emerging treatment strategies for solid tumors, notably breast
cancer and sarcomas. From 1994 to 1995 she served as President of the American
Society of Clinical Oncology. Since 1993 Dr. Antman has served on the Sarcoma
Committee of the Southwest Oncology Group, and has been its chairperson since
1995. From 1993 to 1994 she was program committee chair of the American
Association for Cancer Research. She is on the editorial board of several
prestigious journals, including Associate Editor of The New England Journal of
Medicine. She has authored over 100 manuscripts and textbooks.
Frederick Appelbaum, M.D. is the Director of Clinical Research and Senior
Vice President of the FHCRC. He is a recognized authority in the treatment of
patients with leukemia and lymphoma. He serves on several editorial boards and
national committees, including the FDA Advisory Committee on Biologics; serves
as Chairman of the Southwest Oncology Group Leukemia Committee; and serves on
the Board of Directors of the American Society for Blood and Marrow
Transplantation. He has authored more than 450 manuscripts.
H. Franklin Bunn, M.D. is the Director of the Hematology Division of the
Brigham and Women's Hospital and Professor of Medicine at Harvard Medical
School. His research interest focuses on blood cell production and regulation.
He is the recipient of numerous awards and honors and is Chairman of the
Advisory Committee of the American Society of Hematology.
O. Michael Colvin, M.D. is the Director of the Duke Comprehensive Cancer
Center at Duke University Medical Center. Dr. Colvin is an expert in
therapeutic drug modeling and rational drug design. His work led to the
discovery of several chemotherapeutic agents. He was previously Chief of the
Division of Pharmacology and Experimental Therapeutics at The Johns Hopkins
Oncology Center. He has authored over 100 manuscripts.
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Milo Gibaldi, Ph.D. is the Gibaldi Endowed Professor of Pharmaceutics of the
School of Pharmacy at the University of Washington, with past faculty
appointments at Columbia University and the State University of New York at
Buffalo. His expertise in drug metabolism has led to consultantships with such
pharmaceutical firms as Hoffman-LaRoche, Ciba-Geigy and Glaxo. Dr. Gibaldi has
also served on FDA's Panel on Generic Drugs. His research has focused on
gastrointestinal absorption of drugs and the development of stable
formulations for therapeutic compounds.
William P. Peters, M.D., Ph.D. is a Director of the Meyer L. Prentis
Comprehensive Cancer Center of Metropolitan Detroit and the President and
Chief Executive Officer of the Karmanos Cancer Institute. He is a recognized
leader in the use of dose-intensive chemotherapy regimens with peripheral
blood stem cell support as a cost-effective approach to the treatment of
cancer. He has published extensively and is the recipient of many honors and
awards, among them the American Cancer Society Clinical Fellowship Award and
the R. Wayne Rundles Award for Excellence in Cancer Research.
Thomas A. Raffin, M.D. is the Chief of the Division of Pulmonary and
Critical Care Medicine of the Stanford University Medical Center. He is a
recognized authority on mechanisms of ALI, Multi-Organ Failure and Systemic
Inflammatory Response Syndrome among critically ill patients. He serves on
numerous editorial boards and societies, including the Editorial Board of
Chest and Critical Care Medicine, the American Thoracic Society and the
Society of Critical Care Medicine. He has authored more than 175 manuscripts
and 60 chapters.
Merle A. Sande, M.D. is a Professor and the Chairman of the Department of
Medicine at the University of Utah, School of Internal Medicine. He is a noted
authority in infectious disease and serves on the editorial boards of several
journals, including Journal of Infectious Disease and Infection and Immunity.
He is a member of the Infectious Disease Society of America.
Thomas E. Starzl, M.D., Ph.D. is the Director of the Transplantation
Institute of the University of Pittsburgh. He is a noted expert in the field
of immunology and solid organ transplantation. He is the recipient of numerous
awards and was founding President of several prestigious societies, including
the American Society of Transplant Surgeons. He has authored approximately
1,400 manuscripts and more than 160 book chapters.
The Company has entered into consulting agreements with each member of the
Clinical Advisory Board. These agreements generally have a three-year term and
may be terminated by either party upon 30 days' written notice. These
agreements generally restrict the consultant from competing with cti during
the term of the agreement. These agreements contain provisions prohibiting the
disclosure of confidential information to anyone outside of cti and require
disclosure to cti of ideas, developments, discoveries or inventions conceived
during consulting and assignment to cti of proprietary rights to such matters
related to the business and technology of cti. Each consultant is required to
serve on cti's Clinical Advisory Board and provide such other consulting
services as cti may reasonably request. Each Clinical Advisory Board Member is
paid an annual fee and is granted an option to purchase Common Stock.
49
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock, at September 30, 1997, by (i) all shareholders
known by the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock, (ii) each of the Company's Directors, the
Company's chief executive officer and the three other most highly compensated
executive officers who were serving as executive officers at September 30,
1997 and (iii) all Directors and executive officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP(1)
-----------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ------------------------------------ --------------------- -------- --------
<S> <C> <C> <C>
LGT Capital........................... 1,766,700 13.52% 11.73%
50 California Street, 27th Floor
San Francisco, CA 94104
The International Biotechnology Trust 1,358,156 10.40 9.02
plc(2)...............................
c/o Rothschild Asset Management
Limited
Five Arrows House
St. Swithin's Lane
London, England EC4N 8NR
Kummell Investments Limited(3)........ 1,287,456 9.86 8.55
922 Europort
Gibraltar
Biotechnology Investment Group, 948,801 7.26 6.29
L.L.C.(4).............................
Collinson Howe Venture Partners, Inc.
Edward Blech Trust
Jeffrey J. Collinson
Schroder Ventures Limited Partnership
Schroder Ventures U.S. Trust
Schroders Incorporated
c/o Collinson Howe Venture Partners
1055 Washington Boulevard
Stamford, CT 06901
Johnson & Johnson Development 743,262 5.69 5.79
Corporation(5).......................
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
The Phoenix Partners(6)............... 724,592 5.55 4.81
1000 Second Avenue, Suite 3600
Seattle, WA 98104
James A. Bianco, M.D.**(7)............ 387,804 2.94 2.56
Jack L. Bowman**(8)................... 24,763 * *
Jeremy L. Curnock Cook**(9)........... 1,379,109 10.54 9.14
Wilfred E. Jaeger, M.D.**(10)......... 22,667 * *
Max E. Link, Ph.D.**.................. 40,952 * *
Terrence M. Morris**(11).............. 20,953 * *
Mary O'Neil Mundinger, D.P.H.**(12)... 2,858 * *
Phillip M. Nudelman, Ph.D.**(13)...... 24,191 * *
Jack W. Singer, M.D.**(14)............ 225,470 1.72 1.49
Louis A. Bianco(15)................... 153,326 1.17 1.01
Robert A. Lewis, M.D.(16)............. 10,001 * *
Maurice J. Schwarz, Ph.D.(17)......... 31,476 * *
All Directors and executive officers
as a group (15 persons)(18).......... 2,380,128 17.68 15.39
</TABLE>
- --------
* Less than 1%
** Denotes Director of the Company
50
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. This
table is based upon information supplied by officers, directors and
principal shareholders and Schedules 13D and 13G filed with the
Commission. Shares of Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible
within 60 days of September 30, 1997, are deemed outstanding for
computing the percentage of the person holding such option or warrant but
are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of
Common Stock beneficially owned.
(2) Consists of 1,358,156 shares of Common Stock beneficially owned by The
International Biotechnology Trust plc, a company formed under the laws of
England ("IBT") and managed by Rothschild Asset Management Limited
("Rothschild"). Rothschild has or shares voting and investment power with
respect to the shares held by IBT and may be deemed to be the beneficial
owner of such shares. Mr. Curnock Cook is a director of IBT and
Rothschild, and may be deemed to be the beneficial owner of any shares
beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
Rothschild is advisor to Biotechnology Investment Limited ("BIL") and to
Rothschild Asset Management (C.I.) Limited, which is the manager of BIL.
See footnote (9) below.
(3) Mr. Morris is the Chief Executive Officer of Morningside Ventures, which
advises Kummell Investments Limited ("Kummell") on its private venture
capital portfolio. Mr. Morris does not have or share voting or investment
power with respect to the shares held by Kummell. See footnote (11)
below.
(4) Biotechnology Investment Group, L.L.C., a Delaware limited liability
company ("BIG") is a limited liability company which was created to
acquire, hold, protect, manage and dispose of equity, debt and derivative
securities of biotechnology and other companies. 771,429 of the shares of
Common Stock held by BIG were acquired in January 1995 from The Edward
Blech Trust ("EBT"). The sole beneficiary of EBT is the minor child of
David Blech, a founder, former director and shareholder of the Company.
The present members of BIG are (i) the managing member, Collinson Howe
Venture Partners ("CHVP"), an investment management firm of which Jeffrey
J. Collinson is President, sole director and majority shareholder, (ii)
EBT, and (iii) Wilmington Trust Company ("WTC"), as voting trustee under
a voting trust agreement (the "Voting Trust Agreement") among WTC, BIG
and BIO Holdings L.L.C. ("Holdings"). The managing member of BIG is CHVP.
The members of BIG share voting and investment power with respect to all
shares held of record by BIG. 771,429 shares held of record by BIG have
been pledged as collateral to Citibank, N.A. ("Citibank") to secure
indebtedness owed to such bank. Each of Citibank and Holdings has the
right pursuant to the Voting Trust Agreement to direct certain actions of
WTC as a member of BIG. WTC, as the member holding a majority interest in
Holdings, has the right to direct the actions of Holdings under the
Voting Trust Agreement. Citibank, pursuant to a separate voting trust
agreement among WTC, David Blech and Holdings, has the right to direct
the actions of WTC as a member of Holdings with respect to the rights of
Holdings under the Voting Trust Agreement. By virtue of their status as
members of BIG, each of CHVP and EBT may be deemed to be the beneficial
owner of all shares held of record by BIG. By virtue of his status as the
majority owner and controlling person of CHVP, Jeffrey J. Collinson may
also be deemed the beneficial owner of all shares held of record by BIG.
Each of CHVP, EBT and Mr. Collinson disclaims beneficial ownership of
shares held by BIG except to the extent of such person's proportionate
interest therein. CHVP is a venture capital investment management firm
which is the managing member of BIG, and is the investment advisor to
Schroder Ventures Limited Partnership ("SVLP"), Schroder Ventures U.S.
Trust ("SVUST") and Schroders Incorporated ("SI"). As such, CHVP has or
shares voting and investment power with respect to the shares held by
BIG, SVLP, SVUST and SI and may be deemed to be the beneficial owner of
such shares. The shares listed above consist of (i) 815,755 shares of
Common Stock held by BIG, 66,991 shares of Common Stock held by SVLP,
16,748 shares of Common Stock held by SVUST and 36,449 shares of Common
Stock held by SI, and (ii) an additional 8,230, 2,057 and 2,571 shares of
Common Stock issuable upon exercise of options beneficially owned by
SVLP, SVUST and SI, respectively, pursuant to an agreement with Dr.
Jaeger. See footnotes (5) and (10) below.
(5) Percentage of shares beneficially owned after the Offering includes an
estimated 129,555 shares of Common Stock currently anticipated to be
purchased by JJDC in this Offering. See "JJDC Investment."
(6) Consists of 190,133 shares of Common Stock held by The Phoenix Partners
II Limited Partnership Liquidating Trust ("PPII"), 234,459 shares of
Common Stock held by The Phoenix Partners III Limited Partnership
("PPIII"), and 300,000 shares of Common Stock held by The Phoenix
Partners IV Limited Partnership ("PPIV"). Stuart C. Johnston and David B.
Johnston are the Managing General Partner and Non-Managing General
Partner, respectively, of Phoenix Management Partners II ("PMPII"), which
is the General Partner of PPII, the Managing General Partner and Non-
Managing General Partner, respectively, of Phoenix Management Partners
III ("PMPIII"), which is the General Partner of PPIII, and the Managing
Member and Non-Managing Member, respectively, of Phoenix Management IV
LLC ("PMIV"), which is the General Partner of PPIV. As such, Mr. Stuart
C. Johnston and Mr. David B. Johnson each have voting and investment
power with respect to the shares held by PPII, PPIII and PPIV, and may be
deemed to be
51
<PAGE>
the beneficial owner of such shares. Mr. Stuart Johnston and Mr. David B.
Johnston disclaim beneficial ownership of shares held by PPII, PPIII and
PPIV, except to the extent of their proportionate partnership interest
therein. PPII and PMPII disclaim beneficial ownership of the shares held by
PPIII and PPIV; PPIII and PMPIII disclaim beneficial ownership of the
shares held by PPII and PPIV; and PPIV and PMIV disclaim beneficial
ownership of the shares held by PPII and PPIII.
(7) Includes 114,146 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 109,526 shares issuable upon exercise of options
not yet vested. 52,382 of such options vest in equal installments on
December 5, 1997 and 1998, and 57,144 of such options vest in equal
installments on November 19, 1998 and 1999.
(8) Consists of 24,763 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 1,905 shares issuable upon exercise of options not
yet vested. Such options vest on May 22, 1998.
(9) Includes 1,358,156 shares of Common Stock beneficially owned by IBT. IBT
is managed by Rothschild and Rothschild has or shares voting and
investment power with respect to the shares held by IBT and may be deemed
to be the beneficial owner of such shares. Mr. Curnock Cook is a director
of IBT and Rothschild and may be deemed to be the beneficial owner of any
shares beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
Also includes an immediately exercisable option to purchase 20,953 shares
of Common Stock. Mr. Curnock Cook is a shareholder, but is not an officer
or director, of BIL. See footnote (2) above.
(10) Consists of 22,667 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 12,858 shares issuable upon exercise of options
beneficially owned by affiliates of CHVP pursuant to an agreement with
Dr. Jaeger. Dr. Jaeger, a director of the Company, is a former partner at
CHVP. Dr. Jaeger disclaims beneficial ownership of shares of Common Stock
beneficially owned by affiliates of CHVP. See footnote (4) above.
(11) Consists of an immediately exercisable option to purchase 20,953 shares
of Common Stock. Mr. Morris is the Chief Executive Officer of Morningside
Ventures, which advises Kummell on its private venture capital portfolio.
Mr. Morris does not have or share voting or investment power with respect
to the shares held by Kummell. See footnote (3) above.
(12) Consists of an immediately exercisable option to purchase 2,858 shares of
Common Stock.
(13) Consists of 24,191 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 1,905 shares issuable upon exercise of options not
yet vested. Such options vest on May 22, 1998.
(14) Includes 25,721 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 23,810 shares issuable upon exercise of options
not yet vested. 4,762 of such options vest in equal installments on
December 5, 1997 and 1998, and 19,048 of such options vest in equal
installments on November 7, 1998 and 1999.
(15) Includes 50,816 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 25,715 shares issuable upon exercise of options
not yet vested. 11,429 of such options vest in equal installments on
December 5, 1997 and 1998, and 14,286 of such options vest in equal
installments on November 7, 1998 and 1999.
(16) Consists of an immediately exercisable option to purchase 10,001 shares
of Common Stock. Does not include 57,144 shares issuable upon exercise of
options not yet vested. 28,585 of such options vest on April 1, 1998,
14,273 of such options vest on April 1, 1999, and 14,286 of such options
vest in equal installments on November 7, 1998, and 1999.
(17) Includes 30,476 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of September 30,
1997. Does not include 26,668 shares issuable upon exercise of options
not yet vested. 7,620 of such options vest in equal installments on
December 5, 1997 and 1998, and 19,048 of such options vest in equal
installments on November 7, 1998 and 1999.
(18) Includes an aggregate of 398,753 shares of Common Stock issuable upon
exercise of options that are currently exercisable or exercisable within
60 days of September 30, 1997. See footnotes (8) through (17).
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
NationsBanc Montgomery Securities, Inc. and Raymond James & Associates, Inc.
are acting as representatives (the "Representatives"), have agreed to purchase
from the Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
UBS Securities LLC.................................................
NationsBanc Montgomery Securities, Inc.............................
Raymond James & Associates, Inc. ..................................
---------
Total............................................................ 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if
any Underwriter defaults in its obligation to purchase shares, and the
aggregate obligations of the Underwriters so defaulting do not exceed 10% of
the shares offered hereby, the remaining Underwriters, or some of them, must
assume such obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering
price set forth on the cover of this Prospectus, and to certain dealers at
such price less a concession not in excess of $. per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $. per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.
It is currently anticipated that Johnson & Johnson Development Corporation
("JJDC"), an affiliate of one of the Company's collaborative partners and an
existing shareholder, will purchase from the Underwriters shares of Common
Stock having an aggregate purchase price of approximately $2.0 million (the
"JJDC Investment") at the per share Price to Public set forth on the cover of
this Prospectus. At an assumed offering price of $15.44 per share, JJDC will
purchase an aggregate of 129,555 shares of Common Stock. The JJDC Investment
will be registered in this Offering and covered by the Underwriting Agreement.
The Underwriters will not receive underwriting discounts or commissions on the
JJDC Investment. See "JJDC Investment" and "Business--Collaborations."
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
total number of shares of Common stock offered hereby. The Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters to
the extent the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute
to payments the Underwriters may be required to make in respect thereof.
53
<PAGE>
The officers, directors and certain other shareholders of the Company, who
will beneficially own in the aggregate approximately 4,410,846 shares of
Common Stock after the Offering, have agreed that, except as noted below, they
will not, without the prior written consent of UBS Securities LLC, during the
period ending 90 days after the date of this Prospectus, (i) sell, offer,
contract to sell, make any short sale, pledge, 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 any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of 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. The Company has agreed
that it will not, without the prior written consent of UBS Securities LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 90-day period following the
date of this Prospectus, except that the Company may issue stock upon the
exercise of options and warrants granted prior to the date hereof, and may
issue additional stock and grant additional options, under its stock option
and stock purchase plans in effect on the date hereof.
In connection with the offering of the Common Stock and in compliance with
applicable law and industry practice, the Underwriters may over-allot or
effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail
in the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the Offering. A penalty bid means an
arrangement that permits UBS Securities LLC, as managing underwriter, to
reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock originally sold by the syndicate member
are purchased in syndicate covering transactions. Such transactions may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. The Underwriters are not required to engage in any of these
activities. Any such activities, if commenced, may be discontinued at any
time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Davis Wright Tremaine LLP, Seattle, Washington.
Certain legal matters related to the sale of the shares of Common Stock
offered hereby will be passed upon for the Company by Brobeck, Phleger &
Harrison LLP, San Francisco, California. Certain legal matters with respect to
information contained in this Prospectus under the captions "Risk Factors--
Ability to Protect Intellectual Property" and "Business--Patents and
Proprietary Right" will be passed upon by Foley & Lardner, Washington, D.C.,
patent counsel to the Company. Venture Law Group, A Professional Corporation,
Menlo Park, California, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the shares of Common Stock
offered hereby. Michael J. Kennedy, a partner of Brobeck, Phleger & Harrison
LLP, is Secretary of the Company.
EXPERTS
The consolidated financial statements of Cell Therapeutics, Inc. appearing
in cti's Annual Report (Form 10-K) for the year ended December 31, 1996, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
54
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). This Registration
Statement, including exhibits thereto, and such reports, proxy statements and
other information filed by the Company with the Commission can be inspected
without charge and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its Regional Offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http://www.sec.gov. Reports and other information
concerning the Company also may be inspected at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock being
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock, reference is hereby made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated by reference in this Prospectus:
(1) the Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997; and
(3) the description of the Company's capital stock contained in the
Company's Registration Statement on Form 10 filed on April 29, 1996 (as
amended on June 27, 1996 and June 28, 1996), and the description of the
Company's Preferred Stock Purchase Rights contained in its Registration
Statement on Form 8-A filed on November 15, 1996.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of this Offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained in any document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified of superseded, to constitute a part of
this Prospectus. The Company will provide without charge to each person to
whom a copy of the Prospectus has been delivered, and who makes a written or
oral request, a copy of any and all of the foregoing documents incorporated by
reference in the Registration Statement (other than exhibits unless such
exhibits are specifically incorporated by reference into such documents).
Requests should be submitted in writing or by telephone to Investor Relations,
Cell Therapeutics, Inc., 201 Elliott Avenue West, Seattle, Washington 98119,
telephone (206) 282-7100.
55
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
of this Prospectus or that there has been no change in the affairs of the
Company since such date.
------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 16
JJDC Investment.......................................................... 16
Price Range of Common Stock.............................................. 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 44
Principal Shareholders................................................... 50
Underwriting............................................................. 53
Legal Matters............................................................ 54
Experts.................................................................. 54
Available Information.................................................... 55
Incorporation of Certain Documents by
Reference............................................................... 55
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 Shares
[LOGO OF CTI APPEARS HERE]
Cell Therapeutics, Inc.
Common Stock
-----------------------
PROSPECTUS
October , 1997
-----------------------
UBS Securities
NationsBanc Montgomery Securities, Inc.
Raymond James & Associates, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the SEC registration fee, the NASD filing fee and the Nasdaq
National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 9,279
NASD Filing Fee.................................................... 3,562
Nasdaq National Market Listing Fee................................. 17,500
Printing and Engraving Expenses.................................... 100,000
Legal Fees and Expenses............................................ 250,000
Accounting Fees and Expenses....................................... 20,000
Blue Sky Fees and Expenses......................................... 10,000
Miscellaneous Expenses............................................. 39,659
--------
Total............................................................ $450,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on
terms sufficiently broad to permit indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article IX of the Registrant's Restated Bylaws (Exhibit 4.8
hereto) provides for indemnification of the Registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. The
directors and officers of the Registrant also may be indemnified against
liability they may incur for serving in such capacity pursuant to a liability
insurance policy maintained by the Company for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, knowing violations of law or illegal
corporate losses or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article VI of the Registrant's Restated
Articles of Incorporation (Exhibit 4.1 hereto) contains provisions
implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to the Registrant and its shareholders.
The Registrant has entered into an indemnification agreement with each of
its executive officers and directors in which the Registrant agrees to hold
harmless and indemnify the officer or director to the fullest extent permitted
by Washington law. The Registrant agrees to indemnify the officer or director
against any and all losses, claims, damages, liabilities or expenses incurred
in connection with any actual, pending or threatened action, suit, claim or
proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, in which the officer or director is, was or
becomes involved by reason of the fact that the officer or director is or was
a director, officer, employee, trustee or agent of the Registrant or any
related company, partnership or enterprise, including service with respect to
an employee benefit plan, whether the basis of such proceeding is alleged
action (or inaction) by the officer or director in an official capacity and
any action, suit, claim or proceeding instructed by or at the direction of the
officer or director unless such action, suit, claim or proceeding is or was
authorized by the Registrant's Board of Directors. No indemnity pursuant to
the indemnification agreements shall be provided by the Registrant on account
of any suit in which a final,
II-1
<PAGE>
unappealable judgment is rendered against the officer or director for an
accounting of profits made from the purchase or sale by the officer or
director of securities of the Registrant in violation of the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended, and
amendments thereto, or for damages that have been paid directly to the officer
or director by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Registrant.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors, and by the Registrant of the Underwriters, for
certain liabilities arising under the Securities Act or otherwise.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement between UBS Securities LLC,
NationsBanc Montgomery Securities, Inc., Raymond James & Associates,
Inc., and the Registrant.
4.1(1) Registrant's Restated Articles of Incorporation.
4.2(1) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series A
Convertible Preferred Stock).
4.3(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Reducing the Number of Authorized Shares of Series A
Convertible Preferred Stock.
4.4(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series B
Convertible Preferred Stock).
4.5(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series C
Preferred Stock).
4.6(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation of Cell Therapeutics, Inc. Effecting a Reverse Stock
Split.
4.7* Registrant's Articles of Amendment to Restated Articles of
Incorporation of Undesignating Series A and Series B Preferred
Stock.
4.8(3) Registrant's Restated Bylaws.
4.9(4) Specimen Common Stock Certificate.
4.10(5) Form of Rights Agreement dated as of November 11, 1996, between the
Registrant and Harris Trust Company of California, which includes
the Form of Rights Certificate as Exhibit A, the Summary of Rights
to Purchase Preferred Stock as Exhibit B and the Form of Certificate
of Designation of the Series C Preferred Stock as Exhibit C.
5.1 Opinion of Davis Wright Tremaine LLP.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Davis Wright Tremaine LLP (included in its opinion filed
as Exhibit 5.1).
23.3 Consent of Foley & Lardner.
24.1* Powers of Attorney.
</TABLE>
- --------
* Previously filed.
(1) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form S-1 (No. 33-4154).
(2) Incorporated by reference to exhibits to Registrant's Registration
Statement on Form S-1 (No. 333-20855).
(3) Incorporated by reference to exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
(4) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 10.
(5) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 8-A.
II-2
<PAGE>
(b) Financial Statement Schedules
None.
All schedules have been omitted since they are either not required, are not
applicable, or the required information is shown in the financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, 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 Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in the form of Prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Security Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SEATTLE, STATE OF WASHINGTON, ON
OCTOBER 6, 1997.
Cell Therapeutics, Inc.
By: /s/ James A. Bianco, M.D.
----------------------------------
JAMES A. BIANCO, M.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO 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>
* Chairman of the
- ------------------------------------- Board and Director October 6, 1997
MAX E. LINK, PH.D.
/s/ James A. Bianco, M.D. President, Chief
- ------------------------------------- Executive Officer October 6, 1997
JAMES A. BIANCO, M.D. and Director
/s/ Louis A. Bianco Executive Vice
- ------------------------------------- President, Finance October 6, 1997
LOUIS A. BIANCO and Administration
(Principal
Financial Officer
and Principal
Accounting Officer)
* Director
- ------------------------------------- October 6, 1997
JACK W. SINGER, M.D.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director
- ------------------------------------- October 6, 1997
JACK L. BOWMAN
* Director
- ------------------------------------- October 6, 1997
JEREMY L. CURNOCK COOK
* Director
- ------------------------------------- October 6, 1997
WILFRED E. JAEGER, M.D.
* Director
- ------------------------------------- October 6, 1997
TERRENCE M. MORRIS
* Director
- ------------------------------------- October 6, 1997
MARY O'NEIL MUNDINGER, D.P.H.
* Director
- ------------------------------------- October 6, 1997
PHILLIP M. NUDELMAN, PH.D.
*By: /s/ James A. Bianco, M.D. Director
- ------------------------------------- October 6, 1997
JAMES A. BIANCO, M.D.
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement between UBS Securities LLC,
NationsBanc Montgomery Securities, Inc., Raymond James & Associates,
Inc., and the Registrant.
4.1(1) Registrant's Restated Articles of Incorporation.
4.2(1) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series A
Convertible Preferred Stock).
4.3(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Reducing the Number of Authorized Shares of Series A
Convertible Preferred Stock.
4.4(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series B
Convertible Preferred Stock).
4.5(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series C
Preferred Stock).
4.6(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation of Cell Therapeutics, Inc. Effecting a Reverse Stock
Split.
4.7* Registrant's Articles of Amendment to Restated Articles of
Incorporation of Undesignating Series A and Series B Preferred
Stock.
4.8(3) Registrant's Restated Bylaws.
4.9(4) Specimen Common Stock Certificate.
4.10(5) Form of Rights Agreement dated as of November 11, 1996, between the
Registrant and Harris Trust Company of California, which includes
the Form of Rights Certificate as Exhibit A, the Summary of Rights
to Purchase Preferred Stock as Exhibit B and the Form of Certificate
of Designation of the Series C Preferred Stock as Exhibit C.
5.1 Opinion of Davis Wright Tremaine LLP.
23.1 Consents of Ernst & Young LLP, independent auditors.
23.2 Consent of Davis Wright Tremaine LLP (included in its opinion filed
as Exhibit 5.1).
23.3 Consent of Foley & Lardner.
24.1 Powers of Attorney.
</TABLE>
- --------
* Previously filed.
(1) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form S-1 (No. 33-4154).
(2) Incorporated by reference to exhibits to Registrant's Registration
Statement on Form S-1 (No. 333-20855).
(3) Incorporated by reference to exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
(4) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 10.
(5) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 8-A.
<PAGE>
2,000,000 Shares
CELL THERAPEUTICS, INC.
Common Stock
(no par value)
UNDERWRITING AGREEMENT
----------------------
October __, 1997
UBS Securities LLC
NationsBanc Montgomery Securities, Inc.
Raymond James & Associates, Inc.
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Cell Therapeutics, Inc., a Washington corporation (the "Company"), proposes
to issue and sell 2,000,000 shares (the "Firm Shares") of its authorized but
unissued Common Stock, no par value per share (the "Common Stock"), to the
several underwriters listed on Schedule A to this Agreement (collectively, the
----------
"Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 300,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 3(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. Registration Statement. A registration statement on Form S-3 (File No.
333-36603) including a prospectus relating to the Shares and each amendment
thereto has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to each of you one signed copy of such
registration statement and each such amendment, together with one copy of each
exhibit filed therewith. Conformed copies of such registration statement and
amendments (but without exhibits) and of the related preliminary prospectus have
been delivered to you in such reasonable quantities as you have requested for
each of the Underwriters. If such registration statement has not become
<PAGE>
effective as of the date hereof, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the Company
with the Commission. If such registration statement has become effective as of
the date hereof, a final prospectus containing all Rule 430A Information (as
hereinafter defined) will be filed by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations on or before the second
business day after the date hereof (or such earlier time as may be required by
the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean such
registration statement (including all exhibits thereto and financial statements
included therein) at the time such registration statement becomes or became
effective and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Date (as hereinafter defined), shall also mean
such registration statement as so amended; provided, however, that such term
shall include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations and shall also mean any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations with respect to the Shares. The term "Preliminary Prospectus" shall
mean any preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Shares in the
form in which it is first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or, if no filing pursuant to Rule 424(b) of the Rules
and Regulations is required, shall mean the form of final prospectus included in
the Registration Statement at the time such registration statement becomes
effective and shall also include the form of prospectus contained within the
Offering Memorandum used in connection with the offering of the Shares in
Canada. The term "Rule 430A Information" means information with respect to the
Shares and the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the Rules and
Regulations.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
(a) The Company has not received, and has no notice of, any order of
the Commission preventing or suspending the use of any Preliminary Prospectus,
or instituted proceedings for that purpose, and each Preliminary Prospectus, at
the time of filing thereof, conformed in all material respects to the
requirements of the Act and the Rules and Regulations. When the Registration
Statement became or becomes, as the case may be, effective (the "Effective
Date") and at all times subsequent thereto up to and at the Closing Date (as
hereinafter defined), any later date on which Option Shares are to be purchased
(the "Option Closing Date") and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or supplements thereto, will contain all material
statements which are required to be stated therein by, and will comply in all
material respects with the requirements of, the Act and the Rules and
Regulations, (ii) the Registration Statement or any amendment or supplement
thereto will not include any untrue statement of a material fact
-2-
<PAGE>
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (iii) the Prospectus or any
amendment or supplement thereto will not include any 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 under which they were made,
not misleading. The foregoing representations and warranties in this section
2(a) do not apply to any statements or omissions made in reliance on and in
conformity with the information contained in the section of the Prospectus
entitled "Underwriting" (except for the sixth and eighth paragraphs thereof),
the stabilization legend on the inside front cover page of the Prospectus and
the information in the last paragraph of text on the front cover page of the
Prospectus. The Company has not distributed any offering material in connection
with the offering or sale of the Shares other than the Registration Statement,
the Preliminary Prospectus, the Prospectus or any other materials, if any,
permitted by the Act.
(b) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Washington, with
full corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement. The Company is
duly qualified to do business as a foreign corporation in good standing in each
jurisdiction where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its Subsidiary (as
hereinafter defined) taken as a whole (a "Material Adverse Effect"). The
Company has no subsidiaries (as defined in the Rules and Regulations) other than
CTI Technologies, Inc., a Nevada corporation (the "Subsidiary"). The Company
owns 100% of the outstanding common stock of the Subsidiary. Other than the
Subsidiary, the Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association or
other entity. Complete and correct copies of the articles of incorporation and
of the bylaws of the Company and the Subsidiary and all amendments thereto have
been delivered to the Representatives, and except as set forth in the exhibits
to the Registration Statement no changes therein will be made subsequent to the
date hereof and prior to the Closing Date or, if later, the Option Closing Date.
The Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as presently conducted. The
Subsidiary is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of the properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a Material Adverse Effect. All of the
outstanding shares of capital stock of the Subsidiary have been duly authorized
and validly issued, are fully paid and nonassessable and (except as otherwise
described in this Section 1(b)) are owned by the Company and are not subject to
any security interest, other encumbrance or adverse claims. No options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligation into shares of capital stock or
ownership interests in the Subsidiary are outstanding.
-3-
<PAGE>
(c) The Company has full power and authority (corporate and otherwise)
to enter into this Agreement and to perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and, assuming due execution and delivery by the Representatives, is a
valid and binding agreement on the part of the Company, enforceable against the
Company in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws or equitable principles
and except as enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. The performance
of this Agreement by the Company and the consummation by the Company of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, (i) any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, or any material lease, material
contract or other material agreement or instrument to which the Company or the
Subsidiary is a party or by which its properties are bound, (ii) the articles of
incorporation or bylaws of the Company or the Subsidiary or (iii) any applicable
law, order, rule, regulation, writ, injunction or decree of any court or
governmental agency or body to which the Company or the Subsidiary is subject.
The Company is not required to obtain or make (as the case may be) any consent,
approval, authorization, order, designation or filing by or with any court or
regulatory, administrative or other governmental agency or body as a requirement
for the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act") or under state securities or blue sky
("Blue Sky") laws or under the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") or under applicable Canadian securities
law.
(d) There is not pending or, to the Company's knowledge, threatened,
any action, suit, claim, proceeding or investigation against the Company or its
Subsidiary or any of their respective officers or any of their respective
properties, assets or rights before any court or governmental agency or body or
otherwise which might result in a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby, other than as described in
the Registration Statement. There are no statutes, rules, regulations,
agreements, contracts, leases or documents that are required to be described in
the Prospectus, or to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations that have not been accurately described in
all material respects in the Prospectus or filed as exhibits to the Registration
Statement.
(e) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and were
not issued in violation of any preemptive right, resale right, right of first
refusal or similar right. The authorized and outstanding capital stock of the
Company at the Closing will conform in all material respects to the description
thereof contained in the Registration Statement and the Prospectus (and such
description will at such date correctly state the substance of the provisions of
the instruments defining the capital stock of the Company). The Shares have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the
-4-
<PAGE>
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable and will be
sold free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest. Except as set forth in the Registration Statement, no
preemptive right, co-sale right, registration right, right of first refusal or
other similar rights of securityholders exists with respect to any of the Shares
or the issue and sale thereof other than those that have been expressly waived
prior to the date hereof. No holder of securities of the Company has the right
to cause the Company to include such holder's securities in the Registration
Statement. No further approval or authorization of any security holder, the
Board of Directors or any duly appointed committee thereof or others is required
for the issuance and sale or transfer of the Shares, except as may be required
under the Act, the Exchange Act or under state securities or Blue Sky laws.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, incorporated by
reference in the Prospectus, and except for rights of the Company to require
Johnson & Johnson Development Corporation ("JJDC") to purchase shares of Common
Stock upon the occurrence of certain events pursuant to the Stock Purchase
Agreement between the Company and JJDC filed as an exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-20855), the Company does not
have outstanding any options or warrants to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option and other plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Registration Statement accurately and fairly presents, in all
material respects, the information required to be shown with respect to such
plans, arrangements, options and rights.
(f) Ernst & Young LLP (the "Accountants") who have examined the
financial statements, together with the related notes, of the Company filed with
the Commission and incorporated by reference in the Registration Statement are
independent public accountants within the meaning of the Act and the Rules and
Regulations. The financial statements of the Company, together with the related
notes, incorporated by reference in the Registration Statement, fairly present
the financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply. All
financial statements, together with the related notes, filed with the Commission
and incorporated by reference in the Registration Statement have been prepared
in accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as may
be otherwise stated in the Registration Statement. The selected and summary
financial data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
financial statements presented therein. No other financial statements or
schedules are required by the Act or the Rules and Regulations to be included in
the Registration Statement.
(g) Except as set forth in the Prospectus (i) the Company and its
Subsidiary have good and marketable title to all material tangible properties
and assets described in the Prospectus as owned by them, free and clear of any
pledge, lien, security interest, charge, encumbrance, claim, equitable interest,
or restriction, other than liens securing equipment in favor of [Aberlyn Capital
Management Limited Partnership, Financing for Science International,
-5-
<PAGE>
Inc., and other] equipment lessors, (ii) the agreements to which the Company or
its Subsidiary is a party described in the Prospectus are valid agreements,
enforceable against the Company or its Subsidiary in accordance with their
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, and,
to the Company's knowledge, the other contracting party or parties thereto are
not in material breach or default under any of such agreements and (iii) the
Company has valid and enforceable leases for the properties described in the
Prospectus as leased by it, and such leases conform in all material respects to
the description thereof, if any, set forth in the Registration Statement. Except
as set forth in the Prospectus, the Company and its Subsidiary owns or leases
all such properties as are necessary to its operations as now conducted.
(h) The Company and its Subsidiary now hold and at the Closing Date
and any later Option Closing Date, as the case may be, will hold, all licenses,
certificates, approvals and permits, including, without limitation, all such
licenses, certificates, approvals and permits as are required for laboratory
use, pharmaceutical manufacturing, and the experimental use of animals from all
United States federal and state, foreign and other regulatory authorities,
including but not limited to the United States Food and Drug Administration (the
"FDA") and any foreign regulatory authorities performing functions similar to
those performed by the FDA, that are material to the conduct of the business of
the Company (as such business is currently conducted), except for such licenses,
certificates, approvals and permits the failure of which to hold would not have
a Material Adverse Effect, all of which are valid and in full force and effect,
and there is no proceeding pending or, to the knowledge of the Company,
threatened which may cause any such license, certificate, approval or permit to
be withdrawn, canceled, suspended or not renewed. Neither the Company nor its
Subsidiary is in violation of its articles of incorporation or bylaws, or except
for defaults or violations which would not have a Material Adverse Effect, in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which it is a party or by which it
or any of its properties are bound, or in violation of any applicable law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body, including, but not limited to, the FDA, to which the Company or
its Subsidiary is subject. All of the descriptions in the Registration
Statement and Prospectus of the legal and governmental proceedings by or before
the FDA or any foreign, state or local government body exercising comparable
authority are true, complete and accurate in all material respects.
(i) The Company and its Subsidiary have filed on a timely basis or
caused to be filed (or obtained valid, currently effective extensions for
filing) all necessary United States federal, state, local and foreign income,
franchise and other tax returns and have paid all taxes shown thereon as due.
The Company has no knowledge of any material tax deficiency which has been or
might be asserted against the Company or its Subsidiary. All material tax
liabilities are adequately provided for within the financial statements of the
Company.
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(j) The Company and its Subsidiary maintain insurance of the types and
in the amounts adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering clinical trial liability and
real and personal property owned or leased against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. No notice of cancellation or termination
has been received with respect to any such policy.
(k) No collective bargaining agreement is applicable to any employees
of the Company or its Subsidiary. There are no labor disputes between the
Company or its Subsidiary and any such employees that might reasonably be
expected to materially adversely affect the conduct of its business or any
unresolved labor union grievances or unfair labor practice or labor arbitration
proceedings pending, or to the knowledge of the Company or its Subsidiary,
threatened, relating to the business of the Company or its Subsidiary. There
are no discrimination charges (relating to sex, age, religion, race, national
origin, ethnicity, handicap or veteran status) pending before any federal or
state agency or authority against the Company or its Subsidiary.
(l) Except as described in the Prospectus, the Company and its
Subsidiary own or possess adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets, know-how, franchises, and other material intellectual property
rights and assets (collectively, "Intellectual Property") necessary to the
conduct of their businesses substantially as now conducted and as proposed to be
conducted as described in the Prospectus. The Company's and its Subsidiary's
rights to use the Intellectual Property are valid, enforceable and in good
standing. The Company has no knowledge of any facts which would preclude it from
having rights to its patent applications referenced in the Prospectus, except as
described in the Prospectus. The Company has no knowledge that it or its
Subsidiary lacks or will be unable to obtain any rights or licenses to use any
of the Intellectual Property necessary to conduct the business substantially as
now conducted or proposed to be conducted by it as described in the Prospectus,
except as described in the Prospectus or where the failure to so possess or
obtain any such rights or licenses would not have a Material Adverse Effect. The
Prospectus fairly and accurately describes the Company's rights with respect to
the Intellectual Property. Except as would not have a Material Adverse Effect,
the Company has not received any notice of infringement or of conflict with
rights or claims of others with respect to any Intellectual Property. The
Company is not aware of any asserted rights or patents of others which are
infringed upon by potential products or processes referred to in the Prospectus
in such a manner as to result in a Material Adverse Effect, except as described
in the Prospectus. The Company or its Subsidiary have duly and properly filed or
caused to be filed with the United States Patent and Trademark Office (the
"PTO") and applicable foreign and international patent authorities all patent
applications described or referred to in the Prospectus, and believes it has
complied with the PTO's duty of candor and disclosure for each of the United
States patent applications described or referred to in the Prospectus, except
where the failure to obtain any such patent would not have a Material Adverse
Effect; the Company is unaware of any facts which would preclude the grant of a
patent from each of the patent applications described or referred to in the
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Prospectus; and the Company has no knowledge of any facts which would preclude
it or its Subsidiary from having clear title to its patent applications
described or referred to in the Prospectus, except where the failure to have
clear title to any such patent application would not have a Material Adverse
Effect.
(m) The Company is conducting its business in compliance with all of
the laws, rules and regulations of the jurisdictions in which it is conducting
business, except where any such failure to be in compliance would not have a
Material Adverse Effect.
(n) The Company is not an "investment company," or a "promoter" or
"principal underwriter" for a registered investment company, as such terms are
defined in the Investment Company Act of 1940, as amended.
(o) Neither the Company nor its Subsidiary has incurred any liability
for a fee, commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by this
Agreement other than the underwriting discounts and commissions contemplated
hereby.
(p) The Company and its Subsidiary (i) are in compliance with any and
all applicable United States federal and Washington state and local
environmental laws, rules, regulations, treaties, statutes and codes promulgated
by any and all governmental authorities relating to the protection of human
health and safety, the environment or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business as currently conducted, and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where any such
noncompliance or failure to receive required permits, licenses or other
approvals would not have a Material Adverse Effect. No action, proceeding,
revocation proceeding, writ, injunction or claim is pending or threatened
relating to the Environmental Laws or to the Company's or its Subsidiary's
activities involving Hazardous Materials. "Hazardous Materials" means any
material or substance (i) that is prohibited or regulated by any environmental
law, rule, regulation, order, treaty, statute or code promulgated by any
governmental authority, or any amendment or modification thereto, or (ii) that
has been designated or regulated by any governmental authority as radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
(q) Except as disclosed in the Registration Statement, or except as
would not result in a Material Adverse Effect, (i) neither the Company nor its
Subsidiary has engaged in the generation, use, manufacture, transportation or
storage of any Hazardous Materials on any of the Company's or its Subsidiary
properties or former properties, except where such use, manufacture,
transportation or storage is in compliance with Environmental Laws, (ii) no
Hazardous Materials have been treated or disposed of by the Company or its
Subsidiary on any of the Company's or its Subsidiary's properties or on
properties formerly owned or leased by the Company or its Subsidiary during the
time of such ownership or lease, except in compliance with Environmental Laws
and (iii) no reportable spills, discharges, releases, deposits, emplacements,
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leaks or disposal of any Hazardous Materials have occurred on or under or have
emanated from any of the Company's or its Subsidiary's properties or former
properties.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets and
reasonable and appropriate action is taken with respect to any differences.
(s) Neither the Company nor its Subsidiary has at any time during the
last five years (i) made any unlawful contribution to any candidate for foreign
office, or failed to disclose fully any contribution in violation of law, or
(ii) made any payment to any foreign, United States federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States. To the knowledge of the Company and its Subsidiary, no
employee, officer or director of the Company or its Subsidiary, has been
debarred under section 306(a) or 306(b) of the Federal Food, Drug and Cosmetic
Act or has, within the last five years, been convicted of (x) a criminal offense
relating to the development or approval process of any drug product, or (y) a
felony involving bribery, payment of illegal gratuities, fraud, perjury, false
statements, racketeering, blackmail, extortion, falsification or destruction of
records, or interference with, obstruction of an investigation into, or
prosecution of, any criminal offense or a conspiracy to commit, aid or abet such
felony.
(t) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The Shares are quoted on The Nasdaq Stock Market, Inc. National
Market System ("Nasdaq National Market") under the symbol "CTIC" The Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the Nasdaq National Market is contemplating
terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its officers,
directors or affiliates has taken, and at the Closing Date and at any later
Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Shares.
(v) Neither the Company nor its Subsidiary does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075 of the Florida Statutes and the Company agrees to
comply with such Section if prior to the completion of the distribution of the
Shares it commences doing such business.
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(w) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been (i)
any material adverse change, or any development which, in the Company's
reasonable judgment, is likely to cause a material adverse change, in the
business, properties or assets described or referred to in the Registration
Statement, or the results of operations, condition (financial or otherwise),
business or operations of the Company and its Subsidiary taken as a whole, (ii)
any transaction which is material to the Company or its Subsidiary, except
transactions described or referred to in the Prospectus and transactions in the
ordinary course of business, (iii) any obligation, direct or contingent, which
is material to the Company and its Subsidiary taken as a whole, incurred by the
Company or its Subsidiary, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock or outstanding indebtedness of
the Company or its Subsidiary, other than as contemplated by the Prospectus and
shares of Common Stock that may be issued upon the exercise of outstanding stock
options and warrants, (v) any material change by the Company in its accounting
methods, principles or practices, (vi) any revaluation by the Company of any
material amount of its assets, (vii) any sale of a material amount of property
of the Company, (viii) any discharge or satisfaction by the Company of any
material lien, security interest, charge or other encumbrance or any payment by
the Company of any material obligation or liability (fixed or contingent), other
than in the ordinary course of business, (ix) any material investment by the
Company of a capital nature, whether by purchase of stock or securities,
contributions to capital, property transfers or otherwise, in any other
partnership, corporation or other entity, other than the Subsidiary, (x) any
waiver or release by the Company of any rights of material value, including,
without limitation, any rights in any Intellectual Property of material value,
or (xi) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company.
3. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
the Firm Shares to the several Underwriters, and each of the Underwriters agrees
to purchase from the Company the respective aggregate number of Firm Shares set
forth opposite its name on Schedule A, plus such additional number of Firm
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Shares which such Underwriter may become obligated to purchase pursuant to
Section 3(b) hereof. The price at which such Firm Shares shall be sold by the
Company and purchased by the several Underwriters shall be $[______] per share.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified on Schedule A.
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(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 10 hereof) to purchase and pay
for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the nondefaulting Underwriters shall have the right within twenty-
four (24) hours after such default to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the Shares which such defaulting Underwriter or
Underwriters agreed to purchase. If the
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<PAGE>
nondefaulting Underwriters so fail to make such arrangements with respect to all
such Shares and portion, the number of Shares which each nondefaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis (as adjusted by you in such manner
as you deem advisable to avoid fractional shares) to absorb the remaining shares
and portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the nondefaulting Underwriters shall not be obligated to
purchase the Shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase if the aggregate number of such Shares exceeds 10% of the
total number of Shares which all Underwriters agreed to purchase hereunder. If
the total number of Shares which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right, within twenty-four (24)
hours next succeeding the 24-hour period referred to above, to make arrangements
with other underwriters or purchasers reasonably satisfactory to you for
purchase of such Shares and portion on the terms herein set forth. In any such
case, either you or the Company shall have the right to postpone the Closing
Date determined as provided in Section 5 hereof for not more than seven business
days after the date originally fixed as the Closing Date pursuant to said
Section 5 in order that any necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be made. If the aggregate
number of Shares which the defaulting Underwriter or Underwriters agreed to
purchase exceeds 10% of the total number of Shares which all Underwriters agreed
to purchase hereunder, and if neither the nondefaulting Underwriters nor the
Company shall make arrangements within the 24-hour periods stated above for the
purchase of all the Shares which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company to any
nondefaulting Underwriter and without any liability on the part of any
nondefaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase all or any
portion of the Option Shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Shares, and payment therefor,
shall be made as provided in Section 5 hereof. Each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, the exact number of shares to be
adjusted by you in such manner as you deem advisable to avoid fractional shares.
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4. Offering by Underwriters.
(a) The terms of the offering of the Shares in the United States by the
Underwriters shall be as set forth in the Prospectus. The Underwriters may from
time to time change the public offering price after the closing of the offering
and increase or decrease the concessions and discounts to dealers as they may
determine.
(b) You, on behalf of the Underwriters, represent and warrant that (i)
the information set forth in the last paragraph of text on the front cover page
of the Prospectus, the stabilization legend on the inside front cover page of
the Prospectus and the section of the Prospectus entitled "Underwriting" (except
for paragraphs four and seven thereof) in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Shares (insofar as
such information relates to the Underwriters) constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, any Preliminary Prospectus, and the Prospectus, and that the
statements made therein are correct and do not omit to state any material fact
required to be stated therein or necessary to make the statements made therein
in light of the circumstances under which they were made not misleading, and
(ii) the Underwriters have not distributed and will not distribute prior to the
Closing Date or on any Option Closing Date, as the case may be, any of offering
material in connection with the offering and sale of the shares other than the
Preliminary Prospectus, the Prospectus, the Registration Statement, and other
materials permitted by the Act.
5. Delivery of and Payment for the Shares.
(a) Delivery of certificates for the Firm Shares and the Option Shares
(if the option granted pursuant to Section 3(c) hereof shall have been exercised
not later than 1:00 p.m., New York time, on the date at least two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Brobeck, Phleger & Harrison LLP, Spear Street Tower, One Market, San
Francisco, CA 94105 at 10:00 a.m., New York time; on the fourth business day
after the date of this Agreement, or at such time on such other day, not later
than seven full business days after such fourth business day, as shall be agreed
upon in writing by the Company and you (the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof shall be
exercised after 1:00 p.m., New York time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of this
Agreement, delivery of certificates for the Option Shares, and payment therefor,
shall be made at the office of Brobeck, Phleger & Harrison LLP, Spear Street
Tower, One Market, San Francisco, CA 94105 at 10:00 a.m., New York time, on the
third business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be made to
the Company or its order, by either a same day funds check or Federal Funds
(same day funds) wire transfer. Such payment shall be made upon delivery of
certificates for the Shares to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the
Shares to be delivered to you shall be registered in such name or names and
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shall be in such denominations as you may request at least three business days
before the Closing Date, in the case of Firm Shares, and at least two business
days prior to the Option Closing Date, in the case of the Option Shares. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at a location in New York, New York, designated by the
Underwriters not less than one full business day prior to the Closing Date or,
in the case of the Option Shares, by 3:00 p.m., New York time, on the business
day preceding the Option Closing Date.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Option Closing Date. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
6. Further Agreements of the Company. The Company covenants and agrees as
follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; it
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration Statement or any subsequent amendment to the Registration
Statement has become effective or any supplement to the Prospectus has been
filed. If the Company omitted information from the Registration Statement at
the time it was originally declared effective in reliance upon Rule 430A(a), the
Company will provide evidence satisfactory to you that the Prospectus contains
such information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission. If for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed. The
Company will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information. Promptly upon your request, it will prepare and file
with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in the reasonable opinion of counsel to the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters. The Company
will promptly prepare and file with the Commission, and promptly notify you of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect
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would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In case any
Underwriter is required to deliver a prospectus within the nine-month period
referred to in Section 10(a)(3) of the Act in connection with the sale of the
Shares, the Company will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act. The Company will file no
amendment or supplement to the Registration Statement or Prospectus that shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing or
which is not in compliance with the Act and Rules and Regulations or the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any such stop order or to obtain its withdrawal at the earliest possible moment
if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation, or to execute a general consent to service
of process in any jurisdiction, or to make any undertaking with respect to the
conduct of its business. In each jurisdiction in which the Shares shall have
been qualified, the Company will make and file such statements, reports and
other documents in each year as are or may be reasonably required by the laws of
such jurisdictions so as to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Shares, or as
otherwise may be required by law.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the 45th day following the
end of the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement (which will
be in reasonable detail but need not be audited) complying with the provisions
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and
covering a twelve-month period beginning after the effective date of the
Registration Statement, and will advise you in writing when such statement has
been made available.
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(f) During a period of five years after the date hereof, the Company
will furnish to each Representative and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report or
definitive proxy statement of the Company filed with the Commission under the
Exchange Act or mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as the Representatives may reasonably
request.
(g) Prior to or simultaneously with the execution and delivery of this
Agreement, the Company will obtain "lock-up" agreements, in substantially the
form of Annex B hereto, from each beneficial owner of the Company's Common Stock
listed on Schedule B to this Agreement.
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(h) The Company shall not, during the 90 days following the effective
date of the Registration Statement, except with the prior written consent of UBS
Securities LLC, file a registration statement covering any of its shares of
capital stock. The Company may file one or more registration statements covering
shares of its Common Stock pursuant to registration rights agreements between
the Company and certain of its shareholders, which agreements are filed as
exhibits to the Registration Statement.
(i) The Company shall not, during the 90 days following the effective
date of the Registration Statement, except with the prior written consent of UBS
Securities LLC, issue, sell, offer or agree to sell, grant, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
options, rights or warrants with respect to shares of Common Stock, or any
securities convertible into or exchangeable for Common Stock, other than (i) the
sale of Shares hereunder, (ii) the grant of options or the issuance of shares of
Common Stock under the Company's stock option plans or stock purchase plan, as
the case may be and (iii) the issuance of shares of Common Stock upon exercise
of the currently outstanding options or warrants described in the Registration
Statement.
(j) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) The Company will maintain a Transfer Agent and, if necessary under
the jurisdiction of incorporation of the Company, a Registrar (which may be the
same entity as the Transfer Agent) for its Common Stock.
(l) The Company will use its best efforts to maintain listing of its
shares of Common Stock on the Nasdaq National Market.
(m) The Company will in the future conduct its affairs in such a
manner so as to ensure that the Company was not and will not be an "investment
company" within the
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meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(n) If at any time during the 180-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth above
consult with you in good faith regarding the necessity of disseminating a press
release or other public statement responding to or commenting on such rumor,
publication or event and, if the Company in its reasonable judgment determines
that such a press release or other public statement is appropriate, the
substance of any press release or other public statement.
7. Expenses. The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto
(including any wrap-around thereto in connection with the offering of the Shares
in Canada); the reproduction of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Blue Sky Memoranda and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any;
the cost of all stock certificates representing the Shares and Transfer Agents'
and Registrars' fees; the fees and disbursements of corporate, patent and
regulatory counsel for the Company; all fees and other charges of the Company's
independent public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements to any of the foregoing (including any wrap-around thereto prepared
by the Underwriters in connection with the offering of the Shares in Canada);
NASD filing fees and expenses incident to securing any required review and the
cost of qualifying the Shares under the laws of such jurisdictions within the
United States as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); listing application fees of the Nasdaq National
Market; fees related to the filing of reports in Canada; and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
(b) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, the Company will, in
addition to paying the expenses described in clause (a) above, reimburse the
several Underwriters for all out-of-pocket expenses (including reasonable fees
and disbursements of Underwriters' Counsel) incurred by the Underwriters in
reviewing the Registration Statement and the Prospectus (including any wrap-
around thereto prepared by the
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Underwriters in connection with the offering of the Shares in Canada) and in
otherwise investigating, preparing to market or marketing the Shares. The
Company will in no event be liable to any of the several Underwriters for any
loss of anticipated profits from the sale by them of the Shares.
8. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares, as provided herein,
shall be subject to the accuracy, as of the date hereof and the Closing Date and
any later Option Closing Date, as the case may be, of the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 a.m., New York time, on the date following the date of this
Agreement, or such later time or date as shall be consented to in writing by
you. If the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this subsection.
(c) You shall have received, at no cost to you, on the Closing Date
and on any later Option Closing Date, as the case may be, the opinions of (i)
Brobeck, Phelger & Harrison LLP, corporate counsel to the Company in
substantially the forms attached hereto on Appendix A, (ii) Stephen
Faciszewski, Manager, Legal Affairs of the Company, (iii) Davis Wright Tremaine
LLP, local Washington corporate counsel to the Company and (iv) Foley & Lardner,
patent counsel to the Company in substantially the forms attached hereto on
Appendix A, dated the Closing Date or such later Option Closing Date, addressed
to the Underwriters and with reproduced copies of signed counterparts thereof
for each of the Representatives.
(d) You shall have received from Venture Law Group, A Professional
Corporation, Underwriters' Counsel, an opinion or opinions, dated the Closing
Date or on any later Option Closing Date, as the case may be, in form and
substance reasonably satisfactory to you, with respect to the sufficiency of all
corporate proceedings undertaken by the Company and other legal matters relating
to this Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
it may have reasonably requested for the purpose of enabling it to pass upon
such matters.
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(e) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a letter from the Accountants addressed
to the Company and the Underwriters, dated the Closing Date or such later Option
Closing Date, as the case may be, confirming that it is an independent certified
public accountant with respect to the Company within the meaning of the Act and
the Rules and Regulations thereunder and based upon the procedures described in
its letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
three days prior to the Closing Date or any such later Option Closing Date, as
the case may be, (i) confirming that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later Option
Closing Date, as the case may be; and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
that are necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not disclose
any change, or any development involving a prospective change, in or affecting
the business or properties of the Company which, in your reasonable judgment,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus.
(f) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a certificate of the President, the
Executive Vice President, Finance and Administration and the Executive Vice
President, Research Program Chairman of the Company, dated the Closing Date or
such later date, to the effect that as of such date (and you shall be satisfied
that as of such date):
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or any
later Option Closing Date, as the case may be; and the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later Option
Closing Date, as the case may be;
(ii) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
or preventing or suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the best
of their knowledge, threatened under the Act;
(iii) they have carefully reviewed the Registration Statement
and the Prospectus; and, when the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus and any amendments or supplements
thereto contained all statements and information required to be included therein
or necessary to make the statements therein not misleading; and when the
Registration Statement became effective, and at all times subsequent thereto up
to the delivery of such certificate, none of the Registration Statement or the
Prospectus or any amendment or supplement thereto included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and, since
the effective date of the Registration Statement, there has occurred no
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event required to be set forth in an amended or supplemented Prospectus that has
not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been (A) any material adverse change in the properties or assets described
or referred to in the Registration Statement and the Prospectus or in the
condition (financial or otherwise), operations, business or prospects of the
Company and its Subsidiary, (B) any transaction which is material to the Company
and its Subsidiary, except transactions entered into in the ordinary course of
business, (C) any obligation, direct or contingent, incurred by the Company or
its Subsidiary, which is material to the Company and its Subsidiary taken as a
whole, (D) any change in the capital stock or outstanding indebtedness of the
Company or its Subsidiary which is material to the Company and its Subsidiary
taken as a whole, other than as contemplated by the Prospectus, or (E) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company.
(g) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
(h) The Firm Shares and the Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. Indemnification and Contribution.
(a) Subject to the provisions of paragraph (d) below, the Company
agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration statement)
or any post-effective amendment thereto (including any 462(b) registration
statement), or the omission or alleged omission to state therein a material fact
required to be
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stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company contained in
this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission is contained in the
section of the Prospectus entitled "Underwriting" (except for the sixth and
eighth paragraphs thereof), the stabilization legend on the inside front cover
page of the Prospectus or the last paragraph of text on the cover page of the
Prospectus, and (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (a) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of any payment
for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its executive officers, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that in the cases of clauses (i)
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and (ii) above, such statement or omission is contained in the Section of the
Prospectus entitled "Underwriting" (except for the sixth and eighth paragraphs
thereof), the stabilization legend on the inside front cover page of the
Prospectus or the last paragraph of text on the cover page of the Prospectus.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 9 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give the Notice if the party to whom
such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled, at its or their own
expense to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. It is understood that the indemnifying parties
shall not, in respect of the legal defenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (A) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all of the Underwriters and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act,
and (B) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act. If, within a
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reasonable time after receipt of the Notice, an indemnifying party gives a
Notice of Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 9 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding, except that (A) the indemnifying party or
parties shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding. The indemnifying party or parties shall not be liable for
any settlement of any proceeding effected without its or their written consent,
provided such consent has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 9 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party 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 each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, 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, shall be deemed to
be in the same respective proportions as the total net proceeds from the
offering of the Shares received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault 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 each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which
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is the subject of this paragraph (d). Notwithstanding the provisions of this
paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this paragraph (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 9).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 9 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
10. Termination. This Agreement may be terminated by you at any time on or
prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have
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sustained a loss by strike, fire, flood, accident or other calamity of such
character as to have a Material Adverse Effect regardless of whether or not such
loss shall have been insured, or (iv) if there shall have been a material
adverse change in the general political or economic conditions or financial
markets in the United States as in the reasonable judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
reasonable judgment of the Representatives, adversely affects the marketability
of the Shares, or (vi) if since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have
occurred any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company or the business affairs, management, or business prospects of the
Company, whether or not arising in the ordinary course of business, or (vii) if
any foreign, federal or state statute, regulation, rule or order of any court or
other governmental authority shall have been enacted, published, decreed or
otherwise promulgated which in the reasonable judgment of the Representatives
materially and adversely affects or will materially and adversely affect the
business or operations of the Company, or trading in the Common Stock shall have
been suspended, or (viii) there shall have occurred a material adverse decline
in the value of securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market or (ix) action shall be
taken by any foreign, federal, state or local government or agency in respect of
its monetary or fiscal affairs which, in the reasonable judgment of the
Representatives, has a material adverse effect on the securities markets in the
United States. If this Agreement shall be terminated in accordance with this
Section 10, there shall be no liability of the Company to the Underwriters and
no liability of the Underwriters to the Company; provided, however, that in the
event of any such termination the Company agrees to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in Section 7 hereof.
If you elect to terminate this Agreement as provided in this Section 10, the
Company shall be notified promptly by you by telephone, telecopy or telegram,
confirmed by letter.
11. Reimbursement of Certain Expenses.
(a) In addition to their other obligations under Section 9 of this
Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them
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and (ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
(b) In addition to their other obligations under Section 9 of this
Agreement, the Underwriters hereby agree to reimburse on a quarterly basis the
Company for all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 9 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 9, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Shares from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by facsimile and, if to the Underwriters, shall
be mailed, sent by facsimile or delivered to UBS Securities LLC, 299 Park
Avenue, New York, New York 10171, Attention: Mr. Richard Messina, with a copy
to Mark B. Weeks, Venture Law Group, A Professional Corporation, 2800 Sand Hill
Road, Menlo Park, California 94025; and if to the Company, shall be mailed, sent
by facsimile or delivered to it at its office, 201 Elliott Avenue West, Suite
400, Seattle, Washington 98119, Attention: Dr. James A. Bianco, with a copy to
Michael J. Kennedy, Brobeck, Phleger & Harrison LLP, Spear Street Tower, One
Market, San Francisco, California 94105. All notices given by telegraph shall
be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of Section 6 hereof shall be of no further force and
effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
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You will act as Representatives of the several Underwriters in all dealings
with the Company under this Agreement, and any action under or in respect of
this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
CELL THERAPEUTICS, INC.
By
---------------------------------------
Dr. James A. Bianco,
President and Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
UBS SECURITIES LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES
By: UBS SECURITIES LLC
By
-------------------------------
Name
-----------------------------
Title
----------------------------
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
----------
-27-
<PAGE>
SCHEDULE A
----------
UNDERWRITERS
------------
<TABLE>
<CAPTION>
Number of Shares
Underwriters to be Purchased
------------ ---------------------
<S> <C>
UBS Securities LLC......................................................
NationsBanc Montgomery Securities, Inc..................................
Raymond James & Associates, Inc.........................................
--------
Total
</TABLE>
<PAGE>
SCHEDULE B
----------
LOCK-UP AGREEMENTS
------------------
<PAGE>
APPENDIX A
----------
1. Opinion of Counsel to the Company. Brobeck, Phleger & Harrison LLP
---------------------------------
shall opine to the effect that:
(a) The Company has been duly organized and is validly existing as a
corporation, and is in good standing under, the laws of the State of Washington;
(b) The Company has the corporate power and authority to own or lease
all of the assets owned or leased by it and to conduct its business, in each
case as described in the Registration Statement and the Prospectus, and has all
licenses, permits, consents, orders, approvals and authorizations of any federal
or state government authority that are necessary to conduct its business as
described in the Registration Statement and the Prospectus; the Company is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions in which the ownership or leasing of its properties or the conduct
of business requires such qualification, except where the failure to so qualify
would not have a Material Adverse Effect.
(c) Other than the Subsidiary, the Company does not own or control,
directly or indirectly, any corporation, association or other entity. The
Subsidiary has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement. All of the
outstanding shares of capital stock of each of the Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable and are owned by
the Company, subject to no security interest, other encumbrance or adverse
claim; to the best of such counsel's knowledge, no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any obligation into shares of capital stock or ownership interests in
the Subsidiary are outstanding;
(d) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;
all necessary and proper corporate proceedings have been taken in order to
validly authorize such Common Stock; the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued and are
fully paid and nonassessable, and have not been issued in violation of any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right known to such counsel;
(e) The Shares to be issued by the Company pursuant to this Agreement
have been duly authorized and will be, upon issuance and delivery against
payment therefor in accordance with the terms hereof, validly issued, fully paid
and nonassessable, and, to the knowledge of such counsel, the shareholders of
the Company do not have any preemptive right, co-sale right, registration right,
right of first refusal or other similar right, which rights have not previously
been waived, in connection with the purchase or sale of any of the Shares;
A-1
<PAGE>
(f) The Company has full corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the Firm
Shares or the Option Shares, as the case may be, to be issued and sold by it
hereunder;
(g) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company;
(h) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has
been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b);
(i) The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included therein, as to
which such counsel need express no opinion), comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations and to such counsel's knowledge, there are no agreements, contracts,
leases or documents of a character required to be described in, or filed as an
exhibit to, the Registration Statement which are not described or filed as
required by the Act and the applicable Rules and Regulations;
(j) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock", to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, and the
form of certificate evidencing the Common Stock complies with the applicable
provisions of Washington law;
(k) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the Washington
corporation law and the description of the articles of incorporation and bylaws
are accurate and fairly and correctly present the information required to be
presented by the Act or the Rules and Regulations in all material respects; and
such counsel does not know of any statutes, rules or regulations required to be
described in the Registration Statement or the Prospectus that are not described
or referred to therein as required;
(l) The statements under the captions ["Business -- Collaborations,"
"Risk Factors -- Shares Eligible for Future Sale; Registration Rights; Possible
Adverse Effect on Future Market Price," "Management Employment Agreements,"
"Management -- Stock Option Plans," "Management -- Employee Stock Purchase
Plan," "Management -- Compensation Committee Interlocks and Insider
Participation," "Certain Transactions," and "Description of Capital Stock" in
the Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law, are accurate summaries and fairly and
correctly present, in
A-2
<PAGE>
all material respects, the information called for with respect to such documents
and matters; provided that such counsel shall be entitled to rely on
representations of the Company with respect to certain factual matters contained
in such statements, and provided further that such counsel shall state that
nothing has come to the attention of such counsel which leads them to believe
that such representations are not true and correct in all material respects;
(m) The execution, delivery and performance of this Agreement and the
consummation of the transactions therein contemplated do not and will not (i)
conflict with or result in a breach of any of the terms or provisions of or,
constitute a default under, the certificate of incorporation or bylaws of the
Company, any agreement or document filed as an exhibit to the Registration
Statement, or any statute, rule or regulation applicable to the Company (except
that no opinion need to be expressed with respect to compliance with federal and
state securities laws) or (ii) to the knowledge of such counsel, result in the
creation or imposition of any lien or encumbrance upon any of the assets of the
Company pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default or
result in the acceleration of any obligation under, any indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement, other evidence
of indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which its property is bound or (iii) to the knowledge
of such counsel, conflict with or result in a violation or breach of, or
constitute a default under, any applicable license, authorization, approval,
permit, judgment, franchise, order, writ or decree of any court or governmental
agency or body;
(n) No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under state securities or Blue Sky laws or by the bylaws
and rules of the NASD in connection with the purchase and distribution of the
Shares by the Underwriters;
(o) The Company is not in violation of its articles of incorporation
or bylaws, and to the best of such counsel's knowledge, the Company is not in
breach of or default with respect to any provision of any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
by which it or any of its properties may be bound or affected and, to the best
of such counsel's knowledge, the Company is in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes of any court or
jurisdiction to which it is subject;
(p) To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful, would
have a Material Adverse Effect or would limit, revoke, cancel, suspend, or cause
not to be renewed any existing license, certificate, registration, approval or
permit, known to such counsel, from any state, federal, or regulatory authority
that is material to the conduct of the business of the Company as presently
conducted, or that is of a character otherwise required to be disclosed in the
Registration Statement or the Prospectus under the Act or the applicable Rules
and Regulations;
A-3
<PAGE>
(q) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
(r) The Company is not an "investment company" or other entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended;
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective the Registration
Statement (except as to financial statements, financial and statistical data and
supporting schedules contained therein, as to which such counsel need express no
opinion) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or any later Option Closing Date,
as the case may be, the Registration Statement or the Prospectus (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Counsel rendering the foregoing may rely (i) as to questions of law
not involving the laws of the United States, upon opinions of local counsel, and
(ii) as to questions of fact upon representations or certificates of officers of
the Company and of governmental officials, as the case may be, in which case its
opinion is to state that it is so doing and that it has no actual knowledge of
any material misstatement or inaccuracy in such opinions, representations or
certificates, and that they believe that they and the Underwriters are justified
in relying on such opinions or certificates. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
2. Opinion of Patent Counsel. Foley & Lardner shall indicate that they
-------------------------
served as special counsel to the Company with respect to patents and proprietary
rights, and shall opine that:
(a) The statements in the Registration Statement and the Prospectus
under the captions "Risk Factors -- Ability to Protect Intellectual Property"
and "Business -- Patents and
A-4
<PAGE>
Proprietary Rights," insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate summaries and
fairly and correctly present, in all material respects, the information called
for with respect to such documents and matters; provided, however, that we have
relied on representations of the Company with respect to the factual matters
contained in such statements, that nothing has come to our attention which leads
us to believe that such representations are not true and correct in all material
respects.
(b) To the best of such counsel's knowledge and belief, there are no
legal or governmental proceedings pending relating to patent rights, trade
secrets, trademarks, service marks or other proprietary information or materials
of the Company. Also, to the best of such counsel's knowledge and belief, no
such proceedings are threatened or contemplated by governmental authorities or
others.
(c) Such counsel does not know of any contracts or other documents,
relating to the Company's patents, trade secrets, trademarks, service marks or
other proprietary information or materials, of a character required to be filed
as an exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus, that are not filed or described as
required.
(d) The Company is listed in the records of the U.S. Patent and
Trademark Office as the holder of record or exclusive license of each of the
patents listed on attached Schedule I and each of the applications listed on
attached Schedule II. To the best of such counsel's knowledge, the Company has
not received any notice of infringement or of conflict with rights or claims of
others, or is not infringing or otherwise violating any patents, trade secrets,
trademarks, service marks, or other proprietary information or materials, of
others, and to the best of such counsel's knowledge and belief, there are no
infringements by others of any of the Company's patents, trade secrets,
trademarks, service marks, or other proprietary information or materials which
in such counsel's judgment could affect materially the use thereof by the
Company. Except as described in the Prospectus, such counsel is not aware of
any patent applications of others which, if issued in the form available to such
counsel, would be infringed by the activities or proposed activities of the
Company, as described in the Prospectus. Such counsel is not aware of any valid
patents of others which are infringed by specific products or processes referred
to in the Prospectus in such a manner as to materially and adversely affect the
Company.
(e) Such counsel has no knowledge of any facts which would preclude
the Company from having valid license rights or clear title to the patents
referenced in the Prospectus. Such counsel has no knowledge that the Company
lacks or will be unable to obtain any rights or licenses to use all patents and
other material intangible property and assets necessary to conduct the business
now conducted or proposed to be conducted by the Company as described in the
Prospectus, except as described in the Prospectus. Counsel is unaware of any
facts which form a basis for a finding of unenforceability or invalidity of any
of the Company's patents and other material intangible property and assets.
A-5
<PAGE>
(f) Subject to any disclosure to the contrary in the Prospectus, such
counsel is not aware of any material fact with respect to the patent
applications of the Company presently on file that (g) would preclude the
issuance of patents with respect to such applications or (h) would lead such
counsel to conclude that such patents, when issued, would not be valid and
enforceable in accordance with applicable regulations.
In addition, such counsel shall state that although they have not
verified the accuracy or completeness of the statements contained in the
Prospectus, nothing has come to the attention of such counsel that caused them
to believe that, at the time the Registration Statement became effective, or at
the Closing Date or any later Option Closing Date, as the case may be, the
portion of the Prospectus (i) under the caption "Risk Factors -- Ability to
Protect Intellectual Property" and (ii) under the caption "Business -- Patents
and Proprietary Rights" contained any 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.
Such counsel may advise you that, in rendering their opinion, they
have relied on certain factual representations of the Company and that they have
not independently verified the accuracy and completeness of such
representations.
A-6
<PAGE>
ANNEX B
-------
Form of Lock-up Agreement
UBS Securities LLC
NationsBanc Montgomery Securities, Inc.
Raymond James & Associates, Inc.
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, New York 10171
Ladies and Gentlemen:
The undersigned is a stockholder of Cell Therapeutics, Inc. (the "Company") and
wishes to facilitate the public offering of Common Stock of the Company pursuant
to a Registration Statement on Form S-3 (the "Registration Statement") to be
transmitted for filing with the Securities and Exchange Commission in or about
September 1997, with respect to shares (the "Shares") of Common Stock of the
Company proposed to be issued and sold by the Company, to the several
underwriters to be named in the underwriting agreement.
In consideration of the foregoing, and in order to induce you to act as
underwriters in the public offering, the undersigned hereby irrevocably agrees
that it will not, directly or indirectly, sell, offer, make any short sale,
pledge or otherwise dispose of or enter into any contract, arrangement or
commitment to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for any other rights
to purchase or acquire Common Stock, without the prior written consent of UBS
Securities LLC for a period of 90 days from the effective date of the
Registration Statement.
Notwithstanding the foregoing, if the undersigned is an individual, he or she
may transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for the Company's Common Stock either during his or
her lifetime or on death by will or intestacy to his or her immediate family or
to a trust the beneficiaries of which are exclusively the undersigned and/or a
member or members of his or her immediate family; provided, however, that prior
to any such transfer each transferee shall execute an agreement, satisfactory to
UBS Securities LLC pursuant to which each transferee shall agree to receive and
hold such shares of Common Stock, or securities exercisable or convertible into
or exchangeable for the Company's Common Stock, subject to the provisions
hereof, and there shall be no further transfer except in accordance with the
provisions hereof. For the purposes of this paragraph, "immediate family" shall
mean spouse, lineal descendant, father, mother, brother or sister of the
transferor.
The undersigned hereby waives any rights of the undersigned to sell shares of
Common Stock or any other security issued by the Company pursuant to the
Registration Statement, and acknowledges and agrees that for a period of 90 days
from the effective date of the Registration
<PAGE>
Statement it has no right to require the Company to register under the
Securities Act of 1933, as amended, such Common Stock or other securities issued
by the Company and beneficially owned by the undersigned.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of Common Stock or other securities of the Company held by
the undersigned except in compliance with this agreement.
Dated: October __, 1997
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Printed Name and Title
THE COMPANY REQUESTS THAT THIS AGREEMENT BE COMPLETED AND DELIVERED BY FACSIMILE
TRANSMISSION (IF POSSIBLE) TO TAMARA L. TOMPKINS, ESQ. (FACSIMILE NUMBER (415)
442-1010), AS SOON AS POSSIBLE. IN ADDITION, PLEASE RETURN THE ORIGINAL TO
TAMARA L TOMPKINS, ESQ. AT BROBECK PHLEGER & HARRISON LLP, SPEAR STREET TOWER,
ONE MARKET SAN FRANCISCO, CALIFORNIA 94105.
<PAGE>
[LETTERHEAD FOR DAVIS WRIGHT TREMAINE LLP]
LAW OFFICES
October 3, 1997
Underwritten
------------
Cell Therapeutics, Inc.
201 Elliott Avenue West
Suite 400
Seattle, WA 98119
Re: Cell Therapeutics, Inc.
Registration Statement on Form S-3 (No. 333-36603)
Ladies and Gentlemen:
We have examined the above-referenced Registration Statement on Form S-3
filed by Cell Therapeutics, Inc., a Washington corporation (the "Company"), with
the Securities and Exchange Commission on September 29, 1997 (as such may
thereafter be amended or supplemented, the "Underwritten Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of up to 2,300,000 shares of Common Stock (the "Shares") of
the Company. We understand that the Shares are to be sold to the underwriters of
the offering for resale to the public as described in the Registration
Statement.
As special local Washington counsel for the Company and in connection
with the opinions expressed below, we have examined copies of (a) the
Registration Statement and (b) the originals, or copies identified to our
satisfaction, of such corporate records of the Company, certificates of public
officials, officers of the Company and other persons, and such other documents,
agreements and instruments as we have deemed necessary as a basis for the
opinions hereinafter expressed. In our examinations, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the originals of all documents submitted to
us as copies. In expressing the opinions set forth below, we have also relied on
certain certificates of officers of the Company and certificates of public
officials.
Our opinions expressed below are limited to the laws of the State of
Washington, if any.
Based on such examination and subject to the foregoing, we are of the
opinion that, upon completion of the proceedings being taken or contemplated to
be taken prior to the issuance of the Shares, and the proceedings being taken in
order to permit the offering described in the Registration Statement to be
carried out in accordance with applicable state securities laws, the Shares,
when issued and sold in the manner described in the Registration Statement and
in
<PAGE>
Cell Therapeutics, Inc.
October 3, 1997
Page 2
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
Davis Wright Tremaine LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" in Amendment No. 2 to the Registration Statement
(Form S-3 No. 333-36603) and related Prospectus of Cell Therapeutics, Inc. for
the registration of 2,300,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 24, 1997,
except for paragraphs 2 through 4 of Note 12, as to which the date is March
26, 1997, with respect to the consolidated financial statements of Cell
Therapeutics, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Seattle, Washington
October 3, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF FOLEY & LARDNER
We consent to the reference to our firm as set forth at Page 54 under the
caption "Legal Matters" in the Registration Statement (Form S-3) and related
Prospectus of Cell Therapeutics, Inc. for the registration of 2,300,000 shares
its Common Stock.
/s/ Stephen A. Bent
By: Stephen A. Bent
Partner Foley & Lardner
Washington, D.C.
October 6, 1997
