<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1997
REGISTRATION NO. 333-18815
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHAMAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 94-3095806
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
</TABLE>
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 952-7070
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
------------------------
LISA A. CONTE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SHAMAN PHARMACEUTICALS, INC.
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 952-7070
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
J. STEPHAN DOLEZALEK, ESQ. J. CASEY MCGLYNN, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON, SONSINI, GOODRICH & ROSATI
TWO EMBARCADERO PLACE PROFESSIONAL CORPORATION
2200 GENG ROAD 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301 PALO ALTO, CALIFORNIA 94304
(415) 424-0160 (415) 493-9300
</TABLE>
------------------------
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 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 Rule462(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>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value per share......... 2,000,000 shares $6.125 $12,250,000 $3,713
</TABLE>
(1) The price of $6.125 per share, which was the average of the high and low bid
prices of the Common Stock reported by The Nasdaq Stock Market on December
18, 1996, is set forth solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933, as amended.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<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 such State.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 2, 1997
PROSPECTUS
2,000,000 SHARES
SHAMAN PHARMACEUTICALS, INC.
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Shaman Pharmaceuticals, Inc. ("Shaman" or the "Company"). The Company's Common
Stock is quoted on the Nasdaq National Market under the Symbol SHMN. On December
19, 1996, the last reported sale price for the Common Stock was $6.00 per share.
See "Price Range of Common Stock."
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
-------------
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>
<CAPTION>
PRICE TO PLACEMENT PROCEEDS TO
PUBLIC FEES (1) COMPANY (2)(3)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
(1) The shares are being offered by the Company principally to selected
institutional investors. Hambrecht & Quist LLC (the "Placement Agent") has
been retained to act, on a best efforts basis, as agent for the Company in
connection with the arrangement of this transaction. The Company has agreed,
among other things, (i) to pay the Placement Agent a fee in connection with
the arrangement of this financing and (ii) to indemnify the Placement Agent
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Plan of Distribution."
(2) Prior to the closing date of this best efforts, all or nothing offering, all
investor funds will promptly be placed in escrow with First Trust of
California as escrow agent (the "Escrow Agent") for funds collected in
connection with the offering, in an escrow account established for the
benefit of the investors. Upon receipt of notice from the Escrow Agent that
investors have deposited the requisite funds in the escrow account, the
Company will deposit with the Depository Trust Company the shares to be
credited to the accounts of the investors and will collect the investor
funds from the Escrow Agent. In the event that investor funds are not
received in the full amount necessary to satisfy the requirements of the
offering, all funds deposited with the Escrow Agent will promptly be
returned to the investors. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $280,000.
--------------
HAMBRECHT & QUIST
, 1996
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE PLACEMENT AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 4
Use of Proceeds............................................................................................ 12
Price Range of Common Stock................................................................................ 12
Dividends.................................................................................................. 13
Capitalization............................................................................................. 14
Dilution................................................................................................... 15
Selected Financial Data.................................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 20
Management................................................................................................. 34
Principal Stockholders..................................................................................... 38
Plan of Distribution....................................................................................... 40
Legal Matters.............................................................................................. 41
Experts.................................................................................................... 41
Available Information...................................................................................... 41
</TABLE>
--------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-21022) with the Commission are hereby incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the year ended December 31,
1995; (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996, as amended, and September 30, 1996, as amended;
(3) the Company's Proxy Statement for its Annual Meeting of Stockholders held on
May 23, 1996; and (4) the description of the Company's Common Stock contained in
its Registration Statement on Form 8-A, as amended, filed with the Commission on
December 18, 1992, including any amendments or reports filed for the purpose of
updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities remaining unsold, shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
reports and documents. Any statement contained in a document incorporated by
reference herein shall be deemed modified or superseded for purposes of this
Prospectus to the extent that a statement contained or incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to Shaman
2
<PAGE>
Pharmaceuticals, Inc., 213 East Grand Avenue, South San Francisco, California
94080-4812, telephone (415) 952-7070, facsimile (415) 873-8367, Attn: Vice
President, Corporate Communications.
Shaman Pharmaceuticals-TM-, the Company's stylized logo and Provir-TM- are
trademarks of the Company, and Virend-Registered Trademark- is a registered U.S.
trademark of the Company.
IN CONNECTION WITH THIS OFFERING, THE PLACEMENT AGENT MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE "PLAN OF DISTRIBUTION."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE HEREIN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH ELSEWHERE IN
THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company believes that by focusing on drugs extracted from plants with a long
history of medicinal use, its drug discovery efforts will be quicker and more
likely to lead to safe and effective pharmaceuticals. Shaman has human clinical
trials under way for its three lead product candidates: Provir, Virend and
nikkomycin Z. Shaman has completed Phase II trials showing preliminary efficacy
for Provir for the treatment of watery diarrhea and Virend for the treatment of
recurrent genital herpes. An additional dose-optimizing Phase II trial for
Provir and an additional trial using Virend in combination with oral acyclovir
will commence in the first quarter of 1997. Provir is an oral drug which acts as
a specific inhibitor of fluid loss via an antisecretory mechanism, and Virend is
a topical agent which acts by an antiviral mechanism of action; both products
incorporate the same active drug substance, SP-303. In addition, nikkomycin Z,
an orally-active, in-licensed product for the treatment of endemic mycoses and
other systemic fungal infections, is currently in Phase I trials in the U.K.,
and the Company expects to file an IND in the United States with respect thereto
in 1997. Shaman's research and preclinical development is principally focused on
the identification and optimization of compounds to treat Type II (adult onset)
diabetes, an effort that has led to the identification of 10 chemically
distinct, orally-active compounds which have demonstrated glucose lowering
effects in preclinical testing. Significant funding, as well as milestone
payments for this program, are provided through collaborations with Lipha,
Lyonnaise Industrielle Pharmaceutique s.a., a wholly-owned subsidiary of Merck
KGaA, Darmstadt, Germany ("Lipha/ Merck"), and Ono Pharmaceutical Co., Ltd.
("Ono").
Watery diarrhea is usually caused by an insult to the small intestine (as a
consequence of bacterial or viral infection) which results in fluid accumulation
in the small intestine, leading to dehydration and sometimes fatal diarrhea.
According to the International Marketing Service ("IMS"), worldwide, 26 million
prescriptions are written annually for watery diarrhea. Moreover, approximately
67 million over-the-counter units are sold annually worldwide. Current treatment
for watery diarrhea consists of antibiotics, which can take up to two to five
days to have a therapeutic effect and can result in the creation or propagation
of antibiotic-resistant strains of bacteria, or antimotility agents, which
inhibit the natural muscular contractions of the intestinal tract, allowing the
invading agent to remain in the intestine for a prolonged period. No current
primary treatment for infectious diarrhea addresses dehydration or can reverse
water accumulation. Based on preclinical mechanistic studies, Provir appears to
treat watery diarrhea by inhibiting chloride ion secretion and thus preventing
the electrolyte imbalance that causes excess water accumulation into the lumen
of the small intestine resulting in diarrhea.
Genital herpes, for which there is currently no cure, is caused by the
herpes simplex virus which infects the ganglions of the nerve cells and results
in painful lesions that can last for four to 15 days. After an initial outbreak
of lesions, the virus typically remains dormant but may resurface when the
immune system becomes stressed or compromised. Genital herpes afflicts over 30
million people in the United States alone, with up to 500,000 new cases
diagnosed each year. Current treatment for recurrent genital herpes consists of
nucleoside analogs, including oral formulations of acyclovir and famciclovir,
which generally provide effective treatment of herpes lesions by interfering
with viral replication. Virend reduces the duration of herpes lesion outbreaks
by preventing the herpesvirus from crossing the cell membrane and becoming
absorbed into healthy tissue.
Endemic mycoses are caused by coccidioidomycosis (valley fever),
histoplasmosis and blastomycoses ("cocci," "histo" and "blasto") found in the
soil of certain regions of the United States. When the soil is disturbed (such
as during crop planting or harvesting), the fungi become airborne and may be
inhaled into the lungs. Once
4
<PAGE>
infected, otherwise healthy individuals will experience mild flu-like symptoms
but may never be diagnosed with the disease. In more severe cases, the fungus
spreads systemically and results in disseminated fungal infections. Currently,
two classes of drugs are commonly prescribed for the treatment of endemic
mycoses: azoles, which are fungistatic (inhibit the growth of the fungus, but do
not kill it) and polyenes (including amphotericin B), which are fungicidal (kill
the fungus), but often cannot be tolerated in high enough doses to kill the
fungi. Nikkomycin Z treats endemic mycoses by interfering with the synthesis of
chitin, a key element of the cell wall of these fungi, a process which
ultimately destroys the fungi. Based on synergistic activity with azoles, in
1997 the Company plans to supply nikkomycin Z to Pfizer Corporation ("Pfizer")
to conduct a combination nikkomycin Z plus fluconazole human clinical study in
azole-resistant esophageal candidiasis patients.
Type II diabetes (also known as adult onset diabetes) is a chronic disease
in which the tissues of the body are resistant to the actions of insulin and the
pancreas cannot secrete enough insulin to overcome this resistance. This disease
is the result of multiple causes, many of which are undefined at the molecular
level. In the United States alone, approximately 625,000 new cases of diabetes
are diagnosed each year, and it is estimated that there will be over 18 million
cases by the year 2002 (over five percent of the population). To date, the
Company has identified 10 proprietary, orally-active, chemically distinct
compounds to be evaluated for the treatment of Type II diabetes.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
discussion of risk factors on pages 4 to 10 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
of investing in the Common Stock include the following factors: "Early Stage of
Development; Technological Uncertainty," "History of Operating Losses; Products
Still in Development; Future Profitability Uncertain," "No Assurance of
Successful Product Development," "Future Capital Needs; Uncertainty of
Additional Financing," "Uncertainties Associated with Clinical Trials,"
"Dependence on Collaborative Relationships," "Rapid Technological Change and
Substantial Competition," "Government Regulation; No Assurance of Regulatory
Approvals," "Dependence on Sources of Supply," "Limited Manufacturing and
Marketing Experience and Capacity," "Uncertainty Regarding Patents and
Proprietary Rights," "Uncertainty of Product Pricing, Reimbursement and Related
Matters," "Possible Volatility of Stock Price," "Environmental Regulation,"
"Anti-Takeover Provisions," "Product Liability Exposure; Limited Insurance
Coverage," "Limitation of Liability and Indemnification," "Shares Eligible for
Future Sale," "Dilution" and "Dependence on Key Personnel."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.... 2,000,000 shares
Common Stock to be outstanding after
the offering......................... 15,906,634 shares (1)
Use of proceeds........................ For research and development, including preclinical
and clinical testing and related regulatory
activities, and for general corporate purposes.
Nasdaq National Market symbol.......... SHMN
</TABLE>
- ------------------------
(1) Based on shares outstanding as of November 30, 1996. Excludes (i) 2,115,188
shares of Common Stock issuable upon the exercise of options outstanding
under the Company's stock option plan at a weighted average exercise price
of $5.48 per share; (ii) 641,705 shares of Common Stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of
$9.40 per share; and (iii) 400,000 shares of Common Stock issuable upon the
conversion of Series A Preferred Stock.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborative agreements... $ -- $ 425 $ 2,050 $ 1,360 $ 2,210 $ 1,710 $ 1,531
Operating expenses (1):
Research and development.............. 4,397 5,449 13,646 18,643 17,635 12,570 14,225
General and administrative............ 519 1,016 2,659 3,545 3,705 2,760 2,635
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses............ 4,916 6,465 16,305 22,188 21,340 15,330 16,860
Loss from operations.................... (4,916) (6,040) (14,255) (20,828) (19,130) (13,620) (15,329)
Interest income......................... 73 224 1,543 2,045 1,695 1,304 834
Interest expense........................ (271) (156) (315) (698) (569) (419) (472)
--------- --------- --------- --------- --------- --------- ---------
Net loss................................ $ (5,114) $ (5,972) $ (13,027) $ (19,481) $ (18,004) $ (12,735) $ (14,967)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share (2).................. $ (1.32) $ (0.85) $ (1.30) $ (1.50) $ (1.37) $ (0.97) $ (1.12)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in calculation of net loss
per share (2)......................... 3,884 7,060 10,036 12,986 13,161 13,134 13,381
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
AS ADJUSTED
ACTUAL (3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................... $ 20,405 $ 31,405
Working capital..................................................................... 13,609 24,609
Total assets........................................................................ 26,653 37,653
Long-term obligations, excluding current installments............................... 3,157 3,157
Accumulated deficit................................................................. (78,799) (78,799)
Stockholders' equity................................................................ 15,664 26,664
</TABLE>
- ------------------------
(1) Certain expenses have been reclassified to conform to 1996 presentation.
(2) Net loss per share is based on the weighted average number of common shares
outstanding in 1993, 1994, 1995 and for the nine months ended September 30,
1996. Pro forma net loss per share in 1991 and 1992 is computed as above,
and also gives effect to the conversion of the preferred stock into Common
Stock as if converted at the original date of issuance.
(3) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at the assumed public offering price of $6.00 per share and the
application of the net proceeds therefrom of approximately $11,000,000. See
"Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN
THIS PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. IN
ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AS WELL AS
THOSE CAUTIONARY STATEMENTS AND OTHER FACTORS SET FORTH ELSEWHERE HEREIN.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Shaman has not yet completed the development of any products. The Company's
products will require significant additional clinical testing and investment
prior to commercialization. Products for therapeutic use in human healthcare
must be evaluated in extensive human clinical trials to determine their safety
and efficacy as part of a lengthy process to obtain government approval. The
Company's Provir, Virend and nikkomycin Z products, are each in clinical
development. Positive results for any of these products in a clinical trial do
not necessarily assure that positive results will be obtained in future clinical
trials or that government approval to commercialize the products will be
obtained. Clinical trials may be terminated at any time for many reasons,
including toxicity or adverse event reporting. The Company's diabetes compounds
have not entered clinical trials. There can be no assurance that any of the
Company's products will be successfully developed, enter into human clinical
trials, prove to be safe and efficacious in clinical trials, meet applicable
regulatory standards, obtain required regulatory approvals, be capable of being
produced in commercial quantities at reasonable costs or be successfully
marketed or that the Company will not encounter problems in clinical trials that
will cause the Company to delay or suspend product development. Failure of any
of the Company's products to be commercialized could have a material adverse
effect on the Company's business, financial condition and results of operations.
HISTORY OF OPERATING LOSSES; PRODUCTS STILL IN DEVELOPMENT; FUTURE PROFITABILITY
UNCERTAIN
Shaman was incorporated in 1989 and has experienced significant operating
losses in each of its fiscal years since operations began. As of September 30,
1996, the Company's accumulated deficit was approximately $78.8 million. The
Company has not generated any product revenues and expects to incur substantial
operating losses over the next several years. All of Shaman's products and
compounds are in research and development, which require substantial
expenditures of funds. In order to generate revenues or profits, the Company,
alone or with others, must successfully develop, test, obtain regulatory
approval for and market its potential products. No assurance can be given that
Shaman's product development efforts will be successful, that required
regulatory approvals will be obtained, or that the products, if developed and
introduced, will be successfully marketed or will achieve market acceptance.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company's research and development programs are at various stages of
development, ranging from the research stage to clinical trials. Substantial
additional research and development will be necessary in order for the Company
to move its diabetes product candidates into clinical testing, and there can be
no assurance that any of the Company's research and development efforts on these
or other potential products, including Provir, Virend and nikkomycin Z, will
lead to development of products that are shown to be safe and effective in
clinical trials. In addition, there can be no assurance that any such products
will meet applicable regulatory standards, be capable of being produced in
commercial quantities at acceptable costs, be eligible for third party
reimbursement from governmental or private insurers, be successfully marketed or
achieve market acceptance. Further, the Company's products may prove to have
undesirable or unintended side effects that may prevent or limit their
commercial use. The Company may find, at any stage of this complex product
development process, that products that appeared promising in preclinical
studies or Phase I and Phase II clinical trials do not demonstrate
7
<PAGE>
efficacy in larger-scale, Phase III clinical trials and do not receive
regulatory approvals. Accordingly, any product development program undertaken by
the Company may be curtailed, redirected or eliminated at any time. In addition,
there can be no assurance that the Company's testing and development schedules
will be met. Any failure to meet such schedules could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's clinical trials may be delayed by many factors, including slower
than anticipated patient enrollment, difficulty in finding a sufficient number
of patients fitting the appropriate trial profile or in the acquisition of
sufficient supplies of clinical trial materials or adverse events occurring
during the clinical trials. Completion of testing, studies and trials may take
several years, and the length of time varies substantially with the type,
complexity, novelty and intended use of the product. In addition, data obtained
from preclinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. Delays
or rejections may be encountered based upon many factors, including changes in
regulatory policy during the period of product development and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Government Regulation."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funds to conduct the
development and testing of its potential products and to manufacture and market
any products that may be developed. The Company's future capital requirements
will depend on numerous factors, including the progress of its research and
development programs, the progress of preclinical and clinical testing, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing collaborative and licensing relationships, the ability of the
Company to establish additional collaborative relationships for the manufacture
and marketing of its potential products, and the purchase of additional capital
equipment. The Company will need to raise substantial additional capital to fund
its operations. The Company intends to seek such additional funding through
public or private financings, collaborative arrangements or from other sources.
If additional funds are raised by issuing equity securities, significant
dilution to existing stockholders may result. There can be no assurance that
additional financing will be available on acceptable terms or at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its research, discovery or development
programs, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
Shaman has conducted, and plans to continue to conduct, extensive and costly
clinical trials to assess the safety and efficacy of its potential products. The
rate of completion of the Company's clinical trials is dependent upon, among
other factors, the rate of completion and approval of trial protocols, the
availability of funds for trials and the rate of patient enrollment. Patient
enrollment is a function of many factors, including the nature of the Company's
clinical trial protocols, existence of competing protocols, size of patient
population, proximity of patients to clinical sites and eligibility criteria for
the study. Delays in patient enrollment will result in increased costs and
delays, which could have a material adverse effect on the Company's ability to
timely complete clinical trials. The Company cannot assure that patients
enrolled in its clinical trials will respond to the Company's product
candidates. Setbacks are to be expected in conducting human clinical trials.
Failure to comply with the U.S. Food and Drug Administration ("FDA") regulations
applicable to such testing can result in delay, suspension or cancellation of
such testing, and/or refusal by the FDA to accept the results of such testing.
One of the Company's clinical trials for nikkomycin Z is being conducted in the
United Kingdom not pursuant to an IND filed with the FDA. Accordingly, the data
collected from such trial may not be accepted by the FDA, and for this or other
reasons, the Company may need to conduct additional Phase I trials pursuant to
an IND filed with the FDA. In addition, the FDA or the Company may suspend
clinical trials at any time if either of them concludes that any patients
participating in any such trial are being exposed to unacceptable health risks.
Further, there can be no assurance that human clinical testing will demonstrate
that any current or future product candidate is safe or effective or that data
derived from any such study will be suitable for submission to the FDA or other
8
<PAGE>
regulatory authorities. Failure of the Company's clinical trials to demonstrate
safety or efficacy in humans could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company's research and development efforts in its diabetes program and,
to a lesser extent, in its other programs, is dependent upon its arrangements
with Lipha/Merck and Ono and the compliance of such partners with the terms and
conditions of such collaborative agreements including, without limitation,
providing funding for research and development efforts and the achievement of
milestones and assisting the Company in its research and development efforts.
These partners may develop products that may compete with those of the Company.
The amount and timing of resources they allocate to these programs is not within
the Company's control. There can be no assurance that these partners will
perform their obligations as expected or that any meaningful revenues will
ultimately be derived from such agreements. The Company's agreement with Ono may
be terminated in the event Ono determines further development of compounds is
not warranted, provided certain other conditions are met, and the Lipha/Merck
agreement may be terminated in September 1998 if no compound discovered under
the collaboration has entered human clinical trials. Termination of either
agreement is subject to certain surviving obligations. If one or more such
partners elected to terminate their relationships with the Company, or if the
Company or its partners fail to achieve targeted milestones, it could have a
material adverse effect on the Company's ability to fund such programs, or to
develop any products on a collaborative basis with such partners. See
"Business--Collaborative Relationships and License Agreements."
RAPID TECHNOLOGICAL CHANGE AND SUBSTANTIAL COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition from pharmaceutical and
biotechnology companies and universities is intense. Many of these entities have
significantly greater research and development capabilities, as well as
substantial marketing, manufacturing, financial and managerial resources, and
represent significant competition for the Company. There can be no assurance
that developments by others will not render the Company's products or
technologies noncompetitive or that the Company will be able to keep pace with
technological developments. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products. Some of these products may have an entirely different
approach or means of accomplishing the desired therapeutic effect than products
developed by the Company. These competing products may be more effective and
less costly than the products developed by the Company. In addition, other forms
of medical treatment may offer competition to the Company's products. The
development of competing compounds could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Competition."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
All new drugs, including the Company's products under development, are
subject to extensive and rigorous regulation by the federal government,
principally the FDA, and comparable agencies in state and local jurisdictions
and in foreign countries. These authorities impose substantial requirements upon
the preclinical and clinical testing, manufacturing and marketing of
pharmaceutical products. The steps required before a drug may be approved for
marketing in the United States generally include (i) preclinical laboratory and
animal tests, (ii) the submission to the FDA of an Investigational New Drug
Application ("IND") for human clinical testing, (iii) adequate and well
controlled human clinical trials to establish the safety and efficacy of the
drug, (iv) submission to the FDA of a New Drug Application ("NDA") and (v)
satisfactory completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is made to assess compliance with Good
Manufacturing Practices ("GMP"). Lengthy and detailed preclinical and clinical
testing, validation of manufacturing and quality control processes, and other
costly and time-consuming procedures are required. Satisfaction of these
requirements typically takes several years and the time needed to satisfy them
may vary substantially, based on the type, complexity and novelty of the
pharmaceutical 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 activities. There can be no
assurance that the FDA or any other
9
<PAGE>
regulatory agency will grant approval for any products 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. Any delay or failure in obtaining
regulatory approvals would have a material adverse effect on the Company's
business, financial condition and results of operation.
Among the conditions for FDA approval of a pharmaceutical product is the
requirement that the manufacturer's (either the Company's own or a third-party
manufacturer) quality control and manufacturing procedures conform to current
Good Manufacturing Practices ("GMP"), which must be followed at all times. The
FDA strictly enforces GMP requirements through periodic unannounced inspections.
There can be no assurance that the FDA will determine that the facilities and
manufacturing procedures of the Company or any third-party manufacturer of the
Company's planned products will conform to GMP requirements. Additionally, the
Company or its third-party manufacturer must pass a preapproval inspection of
its manufacturing facilities by the FDA before obtaining marketing approval.
Failure to comply with applicable regulatory requirements may result in
penalties such as restrictions on a product's marketing or withdrawal of a
product from the market.
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
healthcare costs in the United States 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. See "Business--Government Regulation."
DEPENDENCE ON SOURCES OF SUPPLY
The Company currently imports all of the plant materials from which its
products are derived from countries in South and Latin America, Africa and
Southeast Asia. To the extent that its products cannot be economically
synthesized or otherwise produced, the Company will continue to be dependent
upon a supply of raw plant material. The Company does not have formal agreements
in place with all of its suppliers. In addition, a continued source of plant
supply is subject to the risks inherent in international trade. These risks
include unexpected changes in regulatory requirements, exchange rates, tariffs
and barriers, difficulties in coordinating and managing foreign operations,
political instability and potentially adverse tax consequences. Interruptions in
supply or material increases in the cost of supply could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, tropical rain forests, and certain irreplaceable plant resources
therein, are currently threatened with destruction. In the event portions of the
rain forests are destroyed which contain the source material from which Shaman's
current or future products are derived, such destruction could have a material
adverse effect on the Company's business, financial condition and results of
operations.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE AND CAPACITY
The Company currently produces products only in quantities necessary for
clinical trials and does not have the staff or facilities necessary to
manufacture products in commercial quantities. As a result, the Company must
rely on collaborative partners or third-party manufacturing facilities, which
may not be available on commercially acceptable terms adequate for Shaman's
long-term needs. If the Company should encounter delays or difficulties in
establishing relationships with qualified manufacturers to produce, package and
distribute its finished products, clinical trials, regulatory filings, market
introduction and subsequent sales of such products could be adversely affected.
Contract manufacturers must adhere to GMP regulations strictly enforced by
the FDA on an ongoing basis through its facilities inspection program. Contract
manufacturing facilities must pass a pre-approval plant
10
<PAGE>
inspection before the FDA will approve an NDA. Certain material manufacturing
changes that occur after approval are also subject to FDA review and clearance
or approval. There can be no assurance that the FDA or other regulatory agencies
will approve the process or the facilities by which any of the Company's
products may be manufactured. The Company's dependence on third parties for the
manufacture of products may adversely affect the Company's ability to develop
and deliver products on a timely and competitive basis. Should the Company be
required to manufacture products itself, the Company will be subject to the
regulatory requirements described above, to similar risks regarding delays or
difficulties encountered in manufacturing any such products and will require
substantial additional capital. There can be no assurance that the Company will
be able to manufacture any such products successfully or in a cost-effective
manner.
The Company currently has no marketing or sales staff. To the extent that
the Company does not or is unable to enter into co-promotion agreements or to
arrange for third party distribution of its products, significant additional
resources will be required to develop a marketing and sales force. There can be
no assurance that the Company will be able to enter into collaborative
agreements or establish a marketing and sales force.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its ability to obtain and
maintain patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. Moreover, competitors may have filed patent
applications, may have been issued patents or may obtain additional patents and
proprietary rights relating to products or processes competitive with those of
the Company. There can be no assurance that the Company's patent applications
will be approved, that the Company will develop additional proprietary products
that are patentable, that any issued patents will provide the Company with
adequate protection for its inventions or will not be challenged by others, or
that the patents of others will not impair the ability of the Company to
commercialize its products. The patent position of firms in the pharmaceutical
industry generally is highly uncertain, involves complex legal and factual
questions, and has recently been the subject of much litigation. No consistent
policy has emerged from the U.S. Patent and Trademark Office or the courts
regarding the breadth of claims allowed or the degree of protection afforded
under pharmaceutical patents. There can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products
or design around any patents of the Company.
A number of pharmaceutical companies and research and academic institutions
have developed technologies, filed patent applications or received patents on
various technologies that may be related to the Company's business. Some of
these technologies, applications or patents may conflict with the Company's
technologies or patent applications. The European Patent Office, the French
Patent Office, the German Patent Office and the Australian Patent Office, have
each granted a patent containing broad claims to proanthocyanidin polymer
compositions (and methods of use of such compositions), which are similar to the
Company's specific proanthocyanidin polymer composition, to Leon Cariel and the
Institut des Substances Vegetales. The effective filing date of these patents is
prior to the effective filing date of the Company's foreign pending patent
application in Europe. Certain of the foreign patents have been granted in
jurisdictions where examination is not rigorous. The Company has instituted an
Opposition in the European Patent Office against granted European Patent No.
472531 owned by Leon Cariel and Institut des Substances Vegetales. Based on
opinions of foreign counsel, the Company believes that the granted claims are
invalid and intends to vigorously prosecute the Opposition. There can be no
assurance that the Company will be successful in having the granted European
patent revoked or the claims sufficiently narrowed so as not to potentially
cover the Company's proanthocyanidin polymer composition and methods of use.
There can be no assurance that Leon Cariel and the Institut des Substances
Vegetales will not assert claims relating to this patent against the Company.
There can be no assurance that the Company would be able to obtain a license to
this patent at all, or at reasonable cost, or be able to develop or obtain
alternative technology to use in Europe or elsewhere. The earlier effective
filing date of this patent could limit the scope of the patents, if any, that
the Company may be able to obtain or result in the denial of the Company's
patent applications in Europe or elsewhere. In the United States, the Patent and
Trademark Office has very recently declared an Interference between the
Company's issued patent covering its specific proanthocyanidin polymer
composition and a U.S. application corresponding to the granted European patent
of Leon Cariel and
11
<PAGE>
the Institut des Substances Vegetales by Daniel Jean and Leon Cariel. The
declaration of the Interference indicates that, at present, the U.S. Patent and
Trademark Office believes the Company's patent and the pending third party
patent application claim the same subject matter. The Interference will seek to
determine who is the first inventor of such subject matter under the U.S. patent
laws. Based on the opinion of U.S. counsel, the Company believes that the Daniel
Jean and Leon Cariel application is not entitled to claims directed to the
Company's specific proanthocyanidin polymer composition. There can be no
assurance, however, that the Company will prevail. Additionally, at this very
early stage of the Interference proceeding, the Company has not had an
opportunity to review the claims and file history of the Daniel Jean and Leon
Cariel patent application which, under U.S. patent law, are kept confidential.
In view of the analysis conducted in connection with the corresponding European
patent, the Company believes that the U.S. patent application of Daniel Jean and
Leon Cariel is not entitled to claims covering the subject matter of the
Company's patent. In addition, if patents that cover the Company's activities
have been or are issued to other companies, there can be no assurance that the
Company would be able to obtain licenses to these patents at a reasonable cost,
or at all, or be able to develop or obtain alternative technology. If the
Company does not obtain such licenses, it could encounter delays or be precluded
from introducing products to the market. Litigation may be necessary to defend
against or assert claims of infringement, to enforce patents issued to the
Company or to protect trade secrets or know-how owned by the Company. Additional
interference proceedings may be declared or necessary to determine issues of
invention; such litigation and/or interference proceedings could result in
substantial cost to and diversion of effort by, and may have a material adverse
effect on, the Company. In addition, there can be no assurance that these
efforts by the Company will be successful.
The Company's competitive position is also dependent upon unpatented trade
secrets. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. To the extent that the Company or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes also may arise as to the rights in related or resulting
know-how and inventions. See "Business--Patents and Proprietary Rights."
UNCERTAINTY OF PRODUCT PRICING, REIMBURSEMENT AND RELATED MATTERS
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third party payors to contain or reduce
the costs of healthcare through various means. For example, in certain foreign
markets, the pricing or profitability of healthcare products is subject to
government control. In the United States, there have been, and the Company
expects there will continue to be, a number of federal and state proposals to
implement similar government control. While the Company cannot predict whether
any such legislative or regulatory proposals or reforms will be adopted, the
announcement of such proposals or reforms could have a material adverse effect
on the Company's ability to raise capital or form collaborations, and the
adoption of such proposals or reforms could have a material adverse effect on
the Company's business, financial condition or results of operations.
In addition, in both the United States and elsewhere, sales of healthcare
products are dependent in part on the availability of reimbursement from third
party payors, such as government and private insurance plans. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products, 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 the market, there can be no assurance that reimbursement from
third party payors will be available or will be sufficient to allow the Company
to sell its products on a competitive or profitable basis.
POSSIBLE VOLATILITY OF STOCK PRICE
From time to time, the stock market has experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of the Company's Common
Stock, like the stock prices of many publicly traded biotechnology and smaller
pharmaceutical companies, has been and may continue to be highly volatile.
Announcements of technological innovations,
12
<PAGE>
regulatory matters or new commercial products by the Company or its competitors,
developments or disputes concerning patent or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by the Company or its competitors, regulatory developments in both
the United States and foreign countries, public concern as to the safety of
pharmaceutical products, and economic and other external factors, as well as
period-to-period fluctuations in financial results, may have a significant
impact on the market price of Shaman's Common Stock. See "Price Range of Common
Stock."
ENVIRONMENTAL REGULATION
In connection with its research and development activities and manufacturing
of clinical trial materials, 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 and wastes. Although the Company believes that it has complied
with these laws and regulations in all material respects and has not been
required to take any 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 activities involve the controlled use of
hazardous materials, chemicals, viruses 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 such liability
could exceed the resources of the Company.
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER AND BYLAWS PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. The Company's Board
of Directors has the authority to issue up to 1,000,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of 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 a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock.
Certain provisions of Delaware law applicable to the Company could also delay or
make more difficult a merger, tender offer or proxy contest involving the
Company, including Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless certain conditions
are met. See "Description of Capital Stock--Preferred Stock," "--Certain
Provisions of the Certificate of Incorporation and Bylaws" and "--Certain
Provisions of Delaware Law."
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE
The Company's business exposes it to potential product liability risks which
are inherent in the development, testing, manufacture, marketing and sale of
pharmaceutical products. Product liability insurance for the pharmaceutical
industry generally is expensive. There can be no assurance that the Company's
present product liability insurance coverage is adequate. Such existing coverage
will not be adequate as the Company further develops its products, and no
assurance can be given that adequate insurance coverage against all potential
claims will be available in sufficient amounts or at a reasonable cost.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provide that the Company shall indemnify its officers and directors and may
indemnify its
13
<PAGE>
employees and other agents to the fullest extent permitted by law. The Company
has entered into indemnification agreements with its officers and directors
containing provisions which are in some respects broader than the specific
indemnification provisions contained in Delaware Law. The indemnification
agreements may require the Company, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance, if available on
reasonable terms. Section 145 of the Delaware Law provides that a corporation
may indemnify a director, officer, employee or agent made or threatened to be
made a party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred in connection with
such action if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Delaware Law does not permit a corporation to eliminate a
director's duty of care, and the provisions of the Company's Certificate of
Incorporation have no effect on the availability of equitable remedies, such as
injunction or rescission, for a director's breach of the duty of care.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing stockholders could adversely affect the
prevailing market price of the Company's Common Stock. Certain directors,
officers and stockholders of the Company have agreed that, for a period of 90
days after the effective date of the Registration Statement, they will not,
without the prior written consent of Hambrecht & Quist, LLC, offer for sale,
sell, distribute or otherwise dispose of any shares of Common Stock.
DILUTION
The public offering price will exceed the Company's net tangible book value
per share immediately after the offering. New investors will experience an
immediate dilution in net tangible book value as of September 30, 1996 of
approximately $4.52 per share. See "Dilution." Additional dilution may occur
upon the exercise of outstanding options and warrants. Investors may also suffer
additional dilution if the Company exercises its right to put additional shares
of its Common Stock to one certain investor, pursuant to its agreements with
such investor. See "Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The Company's ability to maintain its competitive position depends in part
upon the continued contributions of its key senior management. The Company's
future performance also depends on its ability to attract and retain qualified
management and scientific personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to continue to
attract, assimilate or retain other highly qualified technical and management
personnel in the future. The loss of key personnel or the failure to recruit
additional personnel or to develop needed expertise could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered hereby are estimated to be approximately $11 million,
after deducting the placement fee and expenses of the offering.
Through December 31, 1997, the Company anticipates that the proceeds of this
offering, together with the Company's current working capital, committed funding
from corporate collaborations and rights to sell Common Stock at specified
intervals, will be used as follows: (i) approximately $12 million for clinical
testing and related regulatory activities for Provir, Virend and nikkomycin Z,
(ii) approximately $11 million for diabetes research and compound development
and (iii) for general corporate purposes. Pending application of the proceeds as
described above, the Company plans to invest the net proceeds of the offering
primarily in U.S. government securities and other short-term, investment grade,
interest-bearing securities.
The amounts and timing of the Company's expenditures may vary significantly
depending upon numerous factors, including the progress of Shaman's research and
development programs, the results of clinical studies, the timing of regulatory
approvals, the status of competitive products and the availability of
alternative financing, including agreements with other companies relating to the
development and marketing of the Company's products. Based on its current
operating plan, the Company anticipates that its existing capital resources and
committed funding, along with the proceeds of this offering and the interest
thereon, will be adequate to satisfy its capital needs into the second quarter
of 1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market
("Nasdaq") under the symbol "SHMN." Prior to its initial public offering on
January 26, 1993, there was no public market for the Company's Common Stock. The
following table sets forth the high and low closing sale prices for the Common
Stock as reported by Nasdaq for the periods indicated. These prices do not
include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
First Quarter......................................................................... $ 12.75 $ 9.75
Second Quarter........................................................................ 10.00 6.50
Third Quarter......................................................................... 8.25 6.38
Fourth Quarter........................................................................ 7.13 3.13
1995
First Quarter......................................................................... 4.25 3.19
Second Quarter........................................................................ 6.19 3.25
Third Quarter......................................................................... 7.00 4.63
Fourth Quarter........................................................................ 7.88 5.00
1996
First Quarter......................................................................... 7.32 5.13
Second Quarter........................................................................ 9.00 6.13
Third Quarter......................................................................... 8.63 5.75
Fourth Quarter (through December 20, 1996)............................................ 7.38 5.38
</TABLE>
On December 20, 1996, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $6.0625 per share. As of such date,
there were approximately 720 stockholders of record for the Company's Common
Stock.
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<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock
and does not intend to pay any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the growth and development
of its business. Any future determination to pay cash dividends will be at the
discretion of the Company's Board of Directors and will depend upon the earnings
of the Company, its financial condition, capital requirements and such other
factors as the Company's Board of Directors may deem relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1996 and (ii) on an as adjusted basis to give effect to the
receipt by the Company of the net proceeds from the sale of the 2,000,000 shares
of Common Stock offered hereby at an assumed public offering price of $6.00 per
share (after deducting estimated offering expenses, including placement agent
fees):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations, excluding current installments... $ 3,157 $ 3,157
Stockholders' equity:
Preferred Stock, $0.001 par value per share, 1,000,000 shares authorized;
400,000 shares Series A Preferred Stock designated, issued and
outstanding................................................................ -- --
Common Stock, $0.001 par value per share, 25,000,000 shares authorized,
13,788,238 shares issued and outstanding, actual; 15,788,238 shares issued
and outstanding, as adjusted (1)........................................... 14 16
Additional paid-in capital................................................... 94,531 105,529
Deferred compensation........................................................ (29) (29)
Unrealized losses on marketable securities................................... (53) (53)
Accumulated deficit.......................................................... (78,799) (78,799)
--------- -----------
Total stockholders' equity..................................................... 15,664 26,664
--------- -----------
Total capitalization........................................................... $ 18,821 $ 29,821
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes, as of September 30, 1996, (i) 2,110,198 shares of Common Stock
issuable upon the exercise of options outstanding under the Company's stock
option plan; (ii) 641,705 shares of Common Stock issuable upon exercise of
outstanding warrants; and (iii) 400,000 shares of Common Stock issuable upon
the conversion of Series A Preferred Stock. To the extent outstanding
options or warrants are exercised, there may be further dilution to new
investors.
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<PAGE>
DILUTION
At September 30, 1996, the net tangible book value of the Company's Common
Stock was approximately $12,405,000, or $0.90 per share. "Net tangible book
value per share" is equal to the Company's total tangible assets less its total
liabilities and less the $3,259,000 liquidation preference of the Preferred
Stock, divided by the total number of outstanding shares of Common Stock.
After giving effect to the sale of the Common Stock offered hereby at an
assumed public offering price of $6.00 per share and the receipt of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of September 30, 1996 would have been approximately $23,405,000, or
$1.48 per share. This represents an immediate increase in net tangible book
value of $0.58 per share of Common Stock held by the existing stockholders of
the Company and an immediate dilution of $4.52 per share to new investors. The
following table illustrates the dilution to new investors as of September 30,
1996:
<TABLE>
<S> <C> <C>
Public offering price per share (1)................................... $ 6.00
Net tangible book value per share before offering................... $ 0.90
Increase per share attributable to new investors.................... 0.58
---------
Pro forma net tangible book value per share after offering............ 1.48
---------
Dilution per share to new investors................................... $ 4.52
---------
---------
</TABLE>
- ------------------------
(1) Before deduction of placement agent fees and estimated offering expenses
associated with the offering to be paid by the Company.
The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock. At November 30, 1996, options to purchase 2,115,188
shares of Common Stock at a weighted average exercise price of $5.48 per share
were outstanding, which are subject to vesting requirements under the Company's
stock option plan. Warrants to purchase 641,705 shares of Common Stock at a
weighted average exercise price of approximately $9.40 were also outstanding at
November 30, 1996. To the extent that certain of these options or warrants are
exercised, there could be further dilution to the new investors.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1995, and with respect to the Company's balance sheets at December
31, 1994 and 1995, are derived from the financial statements of the Company that
have been audited by Ernst & Young LLP, independent auditors, which are
incorporated herein by reference and are qualified by reference to such
Financial Statements and Notes thereto. The selected financial data set forth
below with respect to the statements of operations for the years ended December
31, 1991 and 1992, and with respect to the balance sheet data at December 31,
1991, 1992 and 1993 are derived from audited financial statements not
incorporated by reference herein. The balance sheet data as of September 30,
1996 and the statements of operations data for the nine months ended September
30, 1995 and 1996 are derived from unaudited financial statements incorporated
by reference herein. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of its financial position and results of
operations for these periods. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The data presented below
should be read in conjunction with the financial statements, related notes and
other financial information incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborative
agreements..................... $ -- $ 425 $ 2,050 $ 1,360 $ 2,210 $ 1,710 $ 1,531
Operating expenses (1):
Research and development....... 4,397 5,449 13,646 18,643 17,635 12,570 14,225
General and administrative..... 519 1,016 2,659 3,545 3,705 2,760 2,635
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses......... 4,916 6,465 16,305 22,188 21,340 15,330 16,860
Loss from operations............. (4,916) (6,040) (14,255) (20,828) (19,130) (13,620) (15,329)
Interest income.................. 73 224 1,543 2,045 1,695 1,304 834
Interest expense................. (271) (156) (315) (698) (569) (419) (472)
--------- --------- --------- --------- --------- --------- ---------
Net loss......................... $ (5,114) $ (5,972) $ (13,027) $ (19,481) $ (18,004) $ (12,735) $ (14,967)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share (2)........... $ (1.32) $ (0.85) $ (1.30) $ (1.50) $ (1.37) $ (0.97) $ (1.12)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in calculation of net
loss per share (2)............. 3,884 7,060 10,036 12,986 13,161 13,134 13,381
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, ----------------------
----------------------------------------------------- ADJUSTED
1991 1992 1993 1994 1995 ACTUAL (3)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments................. $ 6,534 $ 14,258 $ 57,333 $ 39,843 $ 26,665 $ 20,405 $ 31,405
Working capital............... 5,636 13,025 36,711 33,422 22,850 13,609 24,609
Total assets.................. 8,221 15,964 67,229 49,673 33,810 26,653 37,653
Long-term obligations,
excluding current
installments................ 686 473 3,261 3,932 4,930 3,157 3,157
Accumulated deficit........... (7,348) (13,320) (26,348) (45,828) (63,832) (78,799) (78,799)
Stockholders' equity.......... 6,356 13,747 60,436 41,300 24,205 15,664 26,664
</TABLE>
- ------------------------
(1) Certain expenses have been reclassified to conform to 1996 presentation.
19
<PAGE>
(2) Net loss per share is based on the weighted average number of common shares
outstanding in 1993, 1994, 1995 and for the nine months ended September 30,
1996. Pro forma net loss per share in 1991 and 1992 is computed as above,
and also gives effect to the conversion of the preferred stock into Common
Stock as if converted at the original date of issuance. The Company has not
paid dividends since inception.
(3) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at the assumed public offering price of $6 per share and the
application of the net proceeds therefrom of approximately $11,000,000. See
"Use of Proceeds" and "Capitalization."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK
FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS."
The following discussion should be read in conjunction with the financial
statements and notes thereto incorporated herein by reference.
OVERVIEW
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company has three compounds in clinical development: Provir, an oral product for
the treatment of secretory diarrhea; Virend, a topical antiviral for the
treatment of herpes; and nikkomycin Z, an oral antifungal for the treatment of
endemic mycoses. Shaman has collaborations for the development of diabetes drugs
with Lipha, Lyonnaise Industrielle Pharmaceutique s.a., a wholly owned
subsidiary of Merck KGaA, Darmstadt, Germany ("Lipha/Merck"), and with Ono
Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.
The Company began operations in March 1990. To date, Shaman has not sold any
products and does not anticipate receiving product revenue in the near future.
The Company's accumulated deficit at September 30, 1996, was approximately $78.8
million. Shaman expects to continue to incur substantial losses over the next
several years, due primarily to the expense of preclinical studies, clinical
trials and its on-going research program. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations could be
substantial. Shaman has financed its research, development and administrative
activities through various private placements of its equity securities, an
initial public offering of Common Stock in January 1993, a secondary offering in
December 1993, collaborative agreements with pharmaceutical companies and, to a
lesser extent, through equipment and leasehold improvement financings.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The Company recorded revenues of $1.5 million and $1.7 million for the nine
month periods ended September 30, 1996 and 1995, respectively. Collaborative
revenues in 1995 resulted solely from the Company's relationship with Ono and
included a one-time access fee associated with the commencement of that
agreement. Revenues for the nine months ended September 30, 1996 resulted from
the Company's continued research funding from Ono as well as revenue from the
recently announced collaboration with Lipha/Merck.
For the nine months ended September 30, 1996, research and development
expenses were $14.2 million, representing an increase of approximately $1.7
million over the same period in 1995. The year-to-date increase is primarily
attributable to the Company's additional research and development activities
with respect to nikkomycin Z and further development of the compounds identified
in its diabetes research effort. Research and development expenses are likely to
increase in upcoming quarters as products enter clinical trials and the Company
continues research and development activities for various product candidates.
General and administrative expenses were $2.6 million and $2.8 million for
the nine month periods ended September 30, 1996 and 1995, respectively. Current
general and administrative expenses are in line with the Company's plan. The
Company's expanded research and clinical activities are not expected to require
commensurate increases in general and administrative support.
Interest income was $834,000 and $1.3 million for the nine months ended
September 30, 1996 and 1995, respectively. Interest income decreased for the
period ended September 30, 1996, compared with the period ended September 30,
1995, due to lower average cash and investment balances as the Company continues
to
21
<PAGE>
fund its operations. The increase in interest expense for the nine-month period
ended September 30, 1996 over the same period in 1995 resulted from higher
average debt balances in 1996, the impact of which was partially offset by a
lower average interest rate on Company debt during 1996.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Company had revenues of $2.2 million, $1.4 million and $2.1 million for
1995, 1994 and 1993, respectively. Revenues for 1995 represent a one-time access
fee plus ongoing funding for research activities performed under the
collaborative agreement with Ono. Revenues for 1994 and 1993 were attributable
to an antifungal joint research and development agreement with Eli Lilly and
Company ("Lilly"). The agreement, signed in October 1992, had a four-year term,
subject to renewal after two years. Lilly committed to fund the Company's
research efforts with respect to certain antifungal agents at agreed upon levels
through October 1994. In October 1994, Lilly decided not to renew the
collaboration. Shaman incurred no costs upon termination of the agreement and
retains worldwide rights to the compounds that were subject to the alliance. The
Company expects that revenues from collaborative agreements will fluctuate in
the future as development of its various compounds proceeds and new products are
partnered for development and commercialization.
The Company incurred research and development expenses of approximately
$17.6 million, $18.6 million and $13.6 million for 1995, 1994 and 1993,
respectively. These expenses include salaries for scientific personnel, clinical
development costs, laboratory supplies, patent protection and consulting fees,
travel, plant collections, facilities expenses and other expenditures relating
to research and product development. Research and development expenses decreased
$1.0 million in 1995 compared with 1994, and increased $5.0 million in 1994
compared with 1993. The decrease in 1995 was due primarily to the Company's
restructuring late in 1994, its specific focus on diabetes as its primary basic
research program, and its reduced efforts in infectious disease research. The
increase in 1994 compared with 1993 was due principally to additional research
and development personnel, plant collections, screening of raw plant materials,
patent costs, expanded preclinical studies and clinical trial activities.
Research and development expenses in the future are expected to increase as
products enter clinical trials and the Company continues research and
development activities for various product candidates.
General and administrative expenses were approximately $3.7 million, $3.5
million and $2.7 million in 1995, 1994 and 1993, respectively. These expenses
include administrative salaries, consulting, legal, travel and other operating
expenses. General and administrative expenses increased approximately $160,000
in 1995 compared with 1994, and approximately $886,000 in 1994 compared with
1993. These increases were incurred to develop the Company's corporate
partnering opportunities and to enhance information systems and other support
functions in response to the Company's expanding research and development
activities. Going forward, the Company's expanded research and clinical
activities are not expected to require commensurate increases in general and
administrative support.
Interest income was $1.7 million, $2.0 million and $1.5 million for 1995,
1994 and 1993, respectively. Interest income fluctuations were consistent with
changes in average cash and investment balances which reflected the proceeds of
two public offerings in 1993 from which the Company substantially funded its
operations in 1993, 1994 and 1995. The balances of cash, cash equivalents and
investments were $26.7, $39.8 and $57.3 million at December 31, 1995, 1994 and
1993, respectively.
Interest expense was $569,000, $698,000 and $315,000 in the years ended
December 31, 1995, 1994 and 1993, respectively. Interest expense increased in
1994 as the Company entered into capital leases and equipment loans to fund $1.8
million of equipment acquisitions. Interest expense decreased in 1995 as various
leases terminated during the year, and the Company did not close its term debt
until the fourth quarter. The Company's general policy is to finance capital
equipment and tenant improvements on a long-term basis, and interest expense in
the future will be dependent on the Company's capacity to finance its future
equipment needs.
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $59.5 million. The federal net operating loss
carryforwards will expire at various dates beginning in 2004 through 2010, if
not sooner utilized. Utilization of the net operating losses and credits is
subject to a substantial annual
22
<PAGE>
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes ("Statement 109").
Under Statement 109, the liability method is used for accounting for income
taxes. There was no effect of adoption as the Company has incurred losses since
inception, and no benefit has been recorded for operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's cash, cash equivalents and
investments totaled approximately $20.4 million, compared with $26.7 million at
December 31, 1995. The net decrease is attributable to sales and maturities in
the Company's investment portfolio to fund operations, partially offset by funds
received from the Lipha/Merck collaboration in September 1996, a private
placement of preferred stock in July 1996, and Ono's annual research funding.
In September 1996, the Company entered into a five-year collaborative
agreement with Lipha/Merck with a five-year funding obligation to develop
antidiabetic drugs jointly. In exchange for development and marketing rights in
all countries except Japan, South Korea and Taiwan (which are covered under an
earlier agreement between Shaman and Ono), Lipha/Merck will provide up to $9
million in research payments and up to $10.5 million (including a $1.5 million
up-front payment) in equity investments priced at a 20% premium to a multi-day
volume weighted average price of the Company's Common Stock at the time of
purchase. Complete research funding under the collaboration is dependent upon
the initiation of human clinical trials of at least one compound by September
23, 1998. The agreement also provides for additional preclinical and clinical
milestone payments to the Company in excess of $10 million per compound for each
antihyperglycemic drug developed and commercialized. To date, Shaman has
identified 10 proprietary, orally active compounds which show preclinical
activity as treatments for Type II diabetes. Lipha/Merck will bear all
pre-clinical, clinical, regulatory and other development expenses associated
with the compounds selected under the agreement. In addition, as products are
commercialized, Shaman will receive royalties on all product sales outside the
United States and up to 50% of the profits (if the Company exercises its
co-promotion rights) or royalties on all product sales in the United States.
Certain of the milestone payments will be credited against future royalty
payments, if any, due to the Company from sales of products developed pursuant
to the agreement.
In July 1996, in a private placement pursuant to Regulation S under the
Securities Act of 1933, as amended, the Company received gross proceeds of $3.3
million for 400,000 shares of Series A Convertible Preferred Stock and a
six-year warrant to purchase 550,000 shares of the Company's Common Stock at a
price of $10.184 per share. The Preferred Stock does not carry a dividend
obligation and will convert into Common Stock no later than July 23, 1999 at a
price per share between $6.00 and $8.147, depending on the market value of the
Company's Common Stock during the period prior to conversion. In addition to the
sale of Preferred Stock and warrant, the Company has the right, from time to
time during the period beginning January 1997 and ending July 2000, to sell up
to 1,200,000 additional shares of Common Stock to the investor at a formula
price of 100% or 101% of a multi-day average of the Common Stock price at the
time of sale. The investor has the option to increase the total shares purchased
by up to an aggregate of 527,500 shares at the same price per share as at the
date of purchase.
The Company expects to incur substantial additional costs relating to the
continued preclinical and clinical testing of its products, regulatory
activities and research and development programs. The Company anticipates that
its cash, cash equivalents and investment balances of approximately $20.4
million at September 30, 1996, the collaborative revenues committed by
Lipha/Merck and Ono, Lipha/Merck's commitment to purchase additional equity,
Shaman's additional rights to sell Common Stock through its private placement
and the net proceeds from this offering will be adequate to fund operations into
the second quarter of 1998. Milestone payments which may be received by the
Company from Ono and Lipha/Merck would extend the Company's capacity to finance
its operations beyond that time. However, there can be no assurance that
additional funding, if needed, will be available on terms attractive to the
Company, or at all.
23
<PAGE>
BUSINESS
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company believes that by focusing on drugs extracted from plants with a long
history of medicinal use, its drug discovery efforts will be quicker and more
likely to lead to safe and effective pharmaceuticals. Shaman has human clinical
trials under way for its three lead product candidates: Provir, Virend and
nikkomycin Z. Shaman has completed Phase II trials showing preliminary efficacy
for Provir for the treatment of watery diarrhea and Virend for the treatment of
recurrent genital herpes. An additional dose-optimizing Phase II trial for
Provir and an additional trial using Virend in combination with oral acyclovir,
will commence in the first quarter of 1997. Provir is an oral drug which acts as
a specific inhibitor of fluid loss via an antisecretory mechanism, and Virend is
a topical agent which acts by an antiviral mechanism of action; both products
incorporate the same active drug substance, SP-303. In addition, nikkomycin Z,
an orally-active, in-licensed product for the treatment of endemic mycoses and
other systemic fungal infections, is currently in Phase I trials in the U.K. and
the Company expects to file an IND in the United States with respect thereto in
1997. Shaman's research and preclinical development is principally focused on
the identification and optimization of compounds to treat Type II (adult onset)
diabetes, an effort that has led to the identification of 10 chemically
distinct, orally-active compounds which have demonstrated glucose lowering
effects in preclinical testing. Significant funding, as well as milestone
payments for this program, are provided through collaborations with Lipha,
Lyonnaise Industrielle Pharmaceutique s.a., a wholly-owned subsidiary of Merck
KGaA, Darmstadt, Germany ("Lipha/ Merck"), and Ono Pharmaceutical Co., Ltd.
("Ono").
Watery diarrhea is usually caused by an insult to the small intestine (as a
consequence of bacterial or viral infection) which results in fluid accumulation
in the small intestine, leading to dehydration and sometimes fatal diarrhea.
According to the International Marketing Service ("IMS"), worldwide, 26 million
prescriptions are written annually for watery diarrhea. Moreover, approximately
67 million over-the-counter units are sold annually worldwide. Current treatment
for watery diarrhea consists of antibiotics, which can take up to two to five
days to have a therapeutic effect and can result in the creation or propagation
of antibiotic-resistant strains of bacteria, or antimotility agents, which
inhibit the natural muscular contractions of the intestinal tract, allowing the
invading agent to remain in the intestine for a prolonged period. No current
primary treatment for infectious diarrhea addresses dehydration or can reverse
water accumulation. Based on preclinical mechanistic studies, Provir appears to
treat watery diarrhea by inhibiting chloride ion secretion and thus preventing
the electrolyte imbalance that causes excess water accumulation into the lumen
of the small intestine resulting in diarrhea.
Genital herpes, for which there is currently no cure, is caused by the
herpes simplex virus which infects the ganglions of the nerve cells and results
in painful lesions that can last for four to 15 days. After an initial outbreak
of lesions, the virus typically remains dormant but may resurface when the
immune system becomes stressed or compromised. Genital herpes afflicts over 30
million people in the United States alone, with up to 500,000 new cases
diagnosed each year. Current treatment for recurrent genital herpes consists of
nucleoside analogs, including oral formulations of acyclovir and famciclovir
which generally provide effective treatment of herpes lesions by interfering
with viral replication. Virend reduces the duration of herpes lesion outbreaks
by preventing the herpesvirus from crossing the cell membrane and becoming
absorbed into healthy tissue.
Endemic mycoses are caused by coccidioidomycosis (valley fever),
histoplasmosis and blastomycoses ("cocci," "histo" and "blasto") found in the
soil of certain regions of the United States. When the soil is disturbed (such
as during crop planting or harvesting), the fungi become airborne and may be
inhaled into the lungs. Once infected, otherwise healthy individuals will
experience mild flu-like symptoms but may never be diagnosed with the disease.
In more severe cases, the fungus spreads systemically and results in
disseminated fungal infections. Currently, two classes of drugs are commonly
prescribed for the treatment of endemic mycoses: azoles, which are fungistatic
(inhibit the growth of the fungus, but do not kill it) and polyenes (including
amphotericin B), which are fungicidal (kill the fungus), but often cannot be
tolerated in high enough doses to kill the fungi. Nikkomycin Z treats endemic
mycoses by interfering with the synthesis of chitin, a key element of the cell
wall of these fungi, which ultimately destroys the fungi. Based on synergistic
activity with azoles, in 1997 the Company plans to supply nikkomycin Z to Pfizer
Corporation ("Pfizer") to conduct a combination nikkomycin Z plus fluconazole
human clinical study in azole-resistant esophageal candidiasis patients.
24
<PAGE>
Type II diabetes (also known as adult onset diabetes) is a chronic disease
in which the tissues of the body are resistant to the actions of insulin and the
pancreas cannot secrete enough insulin to overcome this resistance. This disease
is the result of multiple causes, many of which are undefined at the molecular
level. In the United States alone, approximately 625,000 new cases of diabetes
are diagnosed each year, and it is estimated that there will be over 18 million
cases by the year 2002 (over five percent of the population). To date, the
Company has identified 10 proprietary, orally-active, chemically distinct
compounds to be evaluated for the treatment of Type II diabetes.
BACKGROUND
Shaman builds on the knowledge and expertise of ethnobotanist and physician
teams who work with traditional healers to identify effective treatments for the
therapeutic areas targeted by the Company. These teams gather comparative data
on traditional medicinal uses of plants from geographically diverse tropical
areas and prioritize plant drug candidates based on common use among cultures,
as well as a number of other factors. These factors include a cross-check of
field-derived information against the results of literature searches as to
chemical constituents, previously discovered biological activity and other
reported medicinal uses. Shaman isolates and identifies the active compounds
from plant extracts by testing for activity in whole animal models at each step
of its purification process. The Company's natural product chemists use
chromatography, spectroscopy, nuclear magnetic resonance ("NMR") and other
proven technologies to identify and isolate compounds and structures. Because
these compounds reflect the previously untapped plant diversity of the rain
forests they have, to date, also exhibited significant diversity of chemical
structure. In addition, the Company's whole animal screening approach provides
the opportunity to discover novel methods of treatment for diseases in which the
underlying mechanism of action of a disease is not well understood.
THE SHAMAN STRATEGY
Shaman's strategy is to employ a drug discovery process focused on diseases
which:
- appear to be the result of multiple and, in many cases, unknown causes and
therefore may not be amenable to a targeted IN VITRO drug discovery
process;
- occur in the rain forests and are readily recognized and treated by
traditional healers (E.G., foot ulcers, sweet urine, poor eyesight and
fungal infections are often predictive of Type II diabetes); and
- allow the plant extract treatment to be confirmed in a whole animal model
and then purified to isolate the active compound.
Shaman believes this drug discovery process provides it with the opportunity
to:
- identify novel methods of treating diseases with therapeutic relevance;
- discover new chemical entities or new classes of compounds to treat
disease; and
- provide early confirmation of efficacy and safety.
Shaman intends to commercialize its products through out-licensing when
safety and efficacy have been demonstrated in humans. Shaman will out-license
broad applications worldwide while retaining the opportunity to directly access
markets through niche applications and/or co-promotion.
25
<PAGE>
CLINICAL AND RESEARCH PROGRAMS
Shaman has established and is continuing to build a portfolio of product
candidates. The table below describes the major therapeutic areas in which the
Company is conducting its product development and research:
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS COMMERCIAL RIGHTS
- -------------------- -------------------- ------------------------------ ------------------------------------
<S> <C> <C> <C>
Provir.............. Watery diarrhea Initial Phase II efficacy Shaman
study completed; Phase II
dosing trial to commence in Q1
1997
Provir.............. AIDS diarrhea Phase II (studying preliminary Shaman
efficacy) to commence in Q1
1997
Provir.............. Pediatric diarrhea Formulation Development Shaman
Virend.............. Genital herpes Initial Phase II completed; Shaman
combination study to commence
in Q1 1997
Nikkomycin Z........ Endemic mycoses Phase I under U.K. law; IND to Shaman
be filed in the United States
Nikkomycin Z and
azoles............. Azole-resistant Initiation pending completion Shaman
Candida of Phase I above (1)
Oral antihyper-
glycemics compounds
(in development)... Diabetes Preclinical Ono (Japan, Taiwan, South Korea)
Lipha/Merck and Shaman (co-
promotion and equal profit
sharing on U.S. sales)
Shaman receives royalties on
sales outside the United States
</TABLE>
- ------------------------
(1) Initiation of this combination clinical trial is dependent upon the
successful completion of the Phase I study of nikkomycin Z.
The Shaman-patented compound, SP-303, is the active ingredient in both
Provir and Virend. SP-303 is extracted from the latex of the Croton tree, which
grows abundantly in Latin America. This latex is used by many native cultures
throughout Latin America for a variety of medicinal purposes, including
respiratory infections and gastrointestinal problems. It is also used topically
for wound healing. Shaman's initial drug development efforts for SP-303 were
focused on respiratory syncytial virus ("RSV") while it explored other
traditional uses of the latex. In Phase II trials, the Company determined that
Provir was not effective for the treatment of RSV because it was not
systemically absorbed. Shaman's continuing exploration of other traditional uses
of the latex from the Croton tree resulted in both Virend, the topical product
in Phase II clinical testing for genital herpes, and in the isolation of a
patent-pending reformulation of SP-303 in Phase II testing for the treatment of
watery diarrhea (which benefits from the nonabsorptive characteristics of the
drug).
PROVIR
Watery diarrhea is often caused by infectious agents such as V. CHOLERAE and
E. COLI. These agents secrete toxins which adhere to the intestinal wall and
cause increased secretion of chloride ions from intestinal cells,
26
<PAGE>
resulting in fluid accumulation in the small intestine. This in turn leads to
severe and, in some cases, life-threatening diarrhea. According to the IMS, over
26 million prescriptions are written annually for watery diarrhea. Moreover,
approximately 67 million over-the-counter product units are sold worldwide.
Current primary treatments for watery diarrhea do not address the
dehydration or fluid accumulation caused by the illness. Watery diarrhea is
typically treated with one of two treatment regimens: antibiotics or
antimotility agents. Antibiotics kill the bacteria, while antimotility agents
reduce diarrhea frequency by inhibiting peristaltic action (natural muscular
contraction of the intestinal tract). For mild to moderate cases of watery
diarrhea, the use of antibiotics is discouraged by the World Health Organization
and the Centers for Disease Control ("CDC"). The CDC continues to report their
concern on worldwide safety issues relating to adverse side effects and issues
related to emerging resistance by bacteria to antibiotics. Furthermore,
antibiotics reduce the ability to build natural immunities to disease and
increase the likelihood of reinfection.
While antimotility agents are effective in reducing the severity of watery
diarrhea, they often cause severe constipation. In addition, because of reduced
motility in the intestine, the bacteria are often not eliminated and remain in
the gut. When the treatment is stopped, the patient often experiences rebound
diarrhea. Moreover, these agents are not recommended in children and the elderly
because of the risk of prolonging the illness.
Provir has demonstrated safety in Phase I trials and preliminary evidence of
efficacy in Phase II trials for the treatment of watery diarrhea in a Phase II
trial. IN VITRO and IN VIVO preclinical studies indicate that Provir treats
watery diarrhea by inhibiting the secretion of chloride ions from intestinal
cells, specifically countering the mechanism causing diarrhea. Based on its
mechanism of action and results of initial clinical testing, the Company
believes that Provir does not affect the normal motility of the intestine and
that its nonabsorption from the intestine contributes to its safety and
specificity of site of action.
[Graphic illustrating Provir mechanism of action]
The Company has conducted Phase I clinical trials for Provir in more than
150 adults, children and infants as young as three months of age, in both single
and multiple doses. These trials demonstrated that Provir is safe and can be
easily tolerated in doses up to two grams per day for two days. The results also
indicated no significant adverse effects of the drug. In November 1996, the
Company completed a Phase II trial to determine the efficacy of Provir in the
treatment of traveler's and non-specific diarrheas. This open-label Phase II
study was conducted by Dr. Herbert DuPont, a world recognized expert in travel
medicine, of the University of Texas at Houston and Baylor College of Medicine.
It included American subjects traveling to Mexico as well as native Mexicans
suffering from diarrhea of unknown etiology.
Eighty-nine percent of the 75 patients treated with Provir responded
favorably (returned to normal bowel function) after 48 hours of treatment, with
over 60% of those patients returning to normal after just 24 hours. Moreover, of
the 71 patients available for follow up, none of the patients experienced
worsening of the diarrhea illness once resolution of the disease began. In
addition, no significant adverse reactions were reported. Of 25 patients with
traveler's diarrhea receiving one or two grams of Provir per day, effectiveness
(measured as a combination of stool frequency, stool consistency and
gastrointestinal symptoms) was demonstrated in 72% of patients over the course
of the study. Within this patient group, the mean time to last unformed
stool--the most significant indicator of therapeutic effect--was 58% less than
historical controls would indicate. Traveler's diarrhea left untreated usually
lasts five to seven days. The patients experiencing non-specific diarrhea of
unknown etiology received either a one or two gram dose per day for two days. In
the group of 15 patients
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receiving the one gram dose, all patients responded to therapy, and 87% returned
to normal stool frequency after 24 hours of treatment. In the group of 35
patients receiving the two gram dose, 34 patients responded to therapy, and 80%
returned to normal stool frequency after 24 hours of treatment. The mean time to
last unformed stool was reduced by 50% in the one gram dose group and 32% in the
two gram dose group compared to the historical control in a cure study.
Non-specific diarrhea usually lasts three to four days.
Shaman has initiated discussions with potential corporate partners for the
development and commercialization of Provir for the traveler's and non-specific
diarrhea indications. As part of setting its overall strategy for
commercialization of Provir, the Company intends to assess the market
opportunities for additional indications such as diarrhea in patients with AIDS
and pediatric diarrhea. Thirty to 60 percent of patients with AIDS in North
America and Europe suffer from diarrhea and 90% of patients with AIDS suffer
from diarrhea in developing countries. Diarrhea is a significant factor
contributing to malnutrition and mortality in AIDS patients, even when such
patients are treated with protease inhibitors. Many of these patients do not
respond to standard therapy for the treatment of their diarrheal symptoms and,
therefore, an effective alternative treatment could prove beneficial to this
patient population.
According to the Journal of Pediatrics, in the United States alone, between
21 and 37 million episodes of diarrhea occur annually in children under five
years of age. In addition, there are over one billion episodes of pediatric
diarrhea worldwide annually and four million deaths per year among children less
than five years old in developing countries. Current recommended therapies for
pediatric diarrhea are designed to replace water and electrolytes. Antimotility
agents are contraindicated in children less than two years of age and not
recommended for treatment of diarrhea in children of any age. In the vast
majority of diarrheal illnesses in the United States, particularly those in
children, the use of antimicrobials is not indicated.
VIREND
Genital herpes is caused by herpes simplex virus which affects nerve cell
ganglia and results in painful lesions that typically last from four to 15 days.
According to the CDC, genital herpes afflicts approximately 30 million people in
the United States with up to 500,000 new cases diagnosed each year.
Immunocompromised patients, such as patients with AIDS, or those undergoing
chemotherapy or transplantation, generally experience more severe herpes lesions
and outbreaks of greater duration than immunocompetent patients.
Current treatment for recurrent genital herpes consists of nucleotide
analogs, including oral formulations of acyclovir and famciclovir that generally
provide effective treatment of herpes lesions by interfering with viral
replication. In 1994, worldwide sales of the oral formulation of acyclovir were
$836 million. While acyclovir accounts for the majority of sales for the
treatment of genital herpes, other oral nucleoside analogs with mechanisms of
action similar to that of acyclovir have recently been approved for the
treatment of genital herpes.
Virend, a topical agent, has demonstrated preliminary evidence of safety and
efficacy against genital herpes in clinical studies in patients with AIDS. It is
a topical agent that inhibits attachment of herpes simplex virus to healthy
cells, thus reducing the time to complete lesion healing. Because Virend's
antiviral mechanism of action differs from that of acyclovir, this drug was
initially tested in patients resistant to acyclovir treatment.
[Graphic illustrating Virend mechanism of action]
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In September 1995, the Company completed a randomized double-blind,
placebo-controlled Phase II study involving 45 patients with AIDS. Complete
healing of lesions was achieved in 38% (9 of 24) of patients receiving Virend
versus 14% (3 of 21) of patients in the placebo-controlled group (p=0.077). In
addition, the study results indicate that Virend may be effective in reducing
the spread of herpesvirus. Of the Virend treated group, 50% tested culture
negative for herpesvirus at the end of the treatment period versus 19% of the
placebo treated group (p=0.06). Although not statistically significant, the
Company believes that these results indicate that Virend may be efficacious in
healing herpes lesions. Although the Company originally intended to conduct a
Phase III study with Virend alone in 1996, in the course of corporate partnering
discussions, the Company concluded that a study of Virend in combination with
oral acyclovir would create greater value in out-licensing the product. In the
first quarter of 1997, the Company intends to initiate a study to determine
treatment outcome of combination therapy, Virend plus oral acyclovir, compared
with a placebo gel and oral acyclovir. The study is planned to be a U.S.
multicenter, randomized double-blind, placebo-controlled trial to treat
recurrent genital herpes in patients with AIDS. Shaman believes that, because of
the differing mechanisms of action, a combination trial that tests Virend plus
acyclovir in patients with AIDS could result in more effective treatment of
herpes lesion outbreaks. Shaman intends to seek a corporate partner to enable
testing of Virend in the broader immunocompetent patient population.
NIKKOMYCIN Z
Endemic mycoses are systemic fungal infections concentrated in the
southwest, central and northeast regions of the United States. There are three
basic forms of endemic mycoses: coccidioidomycosis (valley fever),
histoplasmosis and blastomycosis ("cocci," "histo" and "blasto"). It is
estimated that approximately 240,000 persons per year in the United States show
clinical symptoms of endemic mycoses. The Company believes that the annual
market for treatment of endemic mycoses in the United States is approximately
$150 million.
Currently, two classes of drugs are commonly prescribed for the treatment
for endemic mycoses: azoles, which are fungistatic (inhibit the growth of the
fungus, but do not kill it) and polyenes (including amphotericin B), which are
fungicidal (kill the fungus), but often cannot be tolerated in high enough doses
to kill the fungi.
Nikkomycin Z was licensed in 1995 from Bayer AG. See
"Business--Collaborative Relationships and Licenses." Nikkomycin Z is an
orally-administered product designed for the treatment of endemic mycoses.
Nikkomycin Z is novel in its mechanism of action against endemic mycoses.
Preclinical studies of nikkomycin Z indicate that it is fungicidal and could
prove superior to current treatments. By inhibiting chitin synthetase, which is
found in the cell walls of most fungi, but not in mammalian cells, nikkomycin Z
inhibits cell wall synthesis, ultimately causing fungal cells to expand and
burst. The lack of chitin in mammalian cells should prevent similar damage to
normal cells in tissues affected by these fungal infections.
[Graphic illustrating nikkomycin Z mechanism of action]
Candidiasis is a fungal infection that can result in serious systemic
disease. Approximately 265,000 patients worldwide are treated annually for
systemic candidiasis. Nikkomycin Z has also been shown to be capable of
interacting in a synergistic fashion with a number of known antifungal
compounds, including fluconazole (Diflucan) and itraconazole (Sporonox), the two
largest selling antifungals in the world. Based on this synergistic activity,
the Company plans to supply nikkomycin Z to Pfizer Corporation for a combination
study that tests nikkomycin Z in combination with fluconazole in treating
azole-resistant esophageal candidiasis. The estimated annual total market of
antifungal agent sales for systemic fungal infections is approximately $2.0
billion.
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Shaman initiated Phase I human clinical trials in the U.K. in December 1996.
Following this Phase I safety trial under U.K. law, the Company plans to submit
an IND and conduct multidose Phase I and Phase II studies in the United States
in patients suffering from endemic mycoses.
DRUG DISCOVERY RESEARCH
DIABETES
Type II diabetes (also known as adult onset diabetes) is a chronic disease
in which the tissues of the body are resistant to the actions of insulin (a
hormone produced by the pancreas), and the pancreas cannot secrete enough
insulin to overcome this resistance. When this happens, the ability of insulin
to carry out its normal action on the liver, muscle and adipose tissues is lost
and the consequence is an abnormal increase in circulating blood glucose.
Because the function of insulin is different in each of these tissues, there are
many potential therapeutic targets for the treatment of Type II diabetes.
Shaman is focused on the development of oral antihyperglycemic (blood
glucose lowering) agents for the treatment of Type II diabetes. The program
involves IN VIVO screening of plants by oral administration in animal models,
followed by the fractionation of active extracts, the isolation and
identification of active compounds, and the capability to profile and prioritize
promising candidates for clinical development. In the first 24 months of this
program, the Company has identified 10 orally active compounds for which
original U.S. patent applications and a number of international patent
applications have been filed. These compounds represent new classes and,
potentially, new methods for treating Type II diabetes.
The Company currently plans to file its first IND for diabetes in 1997.
Significant funding, as well as milestone payments for this program, are
provided through collaborations with Lipha/Merck and Ono. See
"Business--Collaborative Relationships and License Agreements."
COLLABORATIVE RELATIONSHIPS AND LICENSE AGREEMENTS
In September 1996, the Company entered into a five-year collaborative
agreement with Lipha/Merck to develop Shaman's antihyperglycemic drugs jointly.
In exchange for development and marketing rights in all countries except Japan,
South Korea and Taiwan (which are covered under an earlier agreement between
Shaman and Ono), Lipha/Merck will provide up to $9 million in research payments
and up to $10.5 million (including a $1.5 million up-front payment) in equity
investments priced at a 20% premium to a multi-day volume weighted average price
of the Company's Common Stock at the time of purchase. Complete research funding
under the collaboration is dependent upon the initiation of human clinical
trials of at least one compound by September 23, 1998. The agreement also
provides for additional preclinical and clinical milestone payments to the
Company in excess of $10 million per compound for each antihyperglycemic drug
developed and commercialized. To date, Shaman has identified 10 proprietary,
orally active compounds which show preclinical activity as treatments for Type
II diabetes. Lipha/Merck will bear all pre-clinical, clinical, regulatory and
other development expenses associated with the compounds selected under the
agreement. In addition, as products are commercialized, Shaman will receive
royalties on all product sales outside the United States and up to 50% of the
profits (if the Company exercises its co-promotion rights) or royalties on all
product sales in the United States. Certain of the milestone payments will be
credited against future royalty payments, if any, due to the Company from sales
of products developed pursuant to the agreement.
In May 1995, the Company entered into a collaborative agreement with Ono
providing for, among other things, three years of funding for the research and
development of compounds for the treatment of Type II diabetes. Under the terms
of the agreement, Shaman will screen 100 diabetes-specific plants per year IN
VIVO, isolate and identify active compounds, and participate in any medicinal
chemistry modification. In turn, Ono will provide Shaman with access to Ono's
preclinical and clinical development capabilities through proprietary IN VITRO
assays and medicinal chemistry efforts. Ono's development and commercialization
rights are for the countries of Japan, South Korea and Taiwan. Under the terms
of the Agreement, Ono will provide $7 million (including a $1 million up-front
payment) in collaborative research funding and will pay preclinical and clinical
milestone payments of $4 million per compound for each antidiabetic drug that is
commercialized. Shaman received an additional $1 million payment in December
1996 for enhanced access rights to these compounds.
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In June 1995, the Company licensed several patents from Bayer AG relating to
the use of nikkomycin Z and the composition and use of nikkomycin Z in
combination with other antifungal compounds for the development of antifungal
agents. Under the terms of the agreement, the Company has paid Bayer AG an
initial milestone payment and may be required, upon the occurrence of certain
events, to make additional milestone payments and to pay royalties on any
commercialized products derived from the agreement.
Under the terms of an agreement signed in September 1991, the Company has
granted non-exclusive co-marketing rights to sell SP-303 products in Italy to
Synthelabo, a French company. Under the agreement, Synthelabo is obligated to
pay Shaman royalties on SP-303 product sales, including Provir and Virend.
In February 1990, the Company entered into a license agreement with Dr.
Michael Tempesta. There currently exists a dispute with Dr. Tempesta over the
scope and coverage, if any, of the license. The maximum royalty claimed by Dr.
Tempesta is two percent on net sales of a certain antiviral agent. A demand for
arbitration was filed by the Company to address a claim made by Dr. Tempesta
that the royalty will be payable with respect to either or both of Provir and
Virend. See "--Legal Proceedings."
As the Company continues its product development and commercialization, it
intends to enter into additional corporate alliances which may include licenses
and/or marketing rights to selected products and markets.
MANUFACTURING
Shaman intends to conduct both pilot-scale and commercial manufacturing of
its future products either in-house, with collaborative partners, or through
contract manufacturing facilities. The Company has created an in-house facility
which operates under Good Manufacturing Practices ("GMP") and has conducted
pilot-scale manufacturing of SP-303. The Company has a sufficient quantity of
raw material for SP-303 and SP-303 manufacturing capacity to complete currently
planned clinical trials. In addition, Shaman also expects to establish a second
source manufacturing facility to produce clinical and early commercial lots in
1997.
In September 1991, the Company entered into a long-term manufacturing
agreement with Indena SpA ("Indena"). If Indena achieves certain price targets,
then Shaman has agreed to purchase at least 40% of its commercial requirements
of SP-303 bulk drug from Indena for five years after Shaman receives NDA
approvals from the FDA for Provir and Virend.
In January 1996, the Company entered into an agreement with Abbott
Laboratories ("Abbott") for the development of a manufacturing process for the
production of nikkomycin Z. Abbott has developed processes and initiated the
manufacture of nikkomycin Z in compliance with GMP guidelines for the Company's
clinical trial programs.
MARKETING
At the present time, Shaman has no marketing or sales staff. The Company's
general strategy is to develop corporate alliances with large pharmaceutical
companies for some of its programs in order to take advantage of such companies'
abilities to reach broad-based markets. Shaman is also evaluating the
opportunity to retain certain marketing rights. See "Business--Collaborative
Relationships and License Agreements."
PATENTS AND PROPRIETARY TECHNOLOGY
Proprietary protection for the Company's product candidates, processes and
know-how is important to the Company's business. The Company's policy is to file
patent applications to protect technology, inventions and improvements that are
considered commercially important to the development of its business. The
Company also relies upon trade secrets, know-how and continuing technological
innovation to develop and maintain its competitive position. The Company plans
to aggressively prosecute and defend its patents and proprietary technology.
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<PAGE>
The Company has been issued two U.S. patents related to its specific
proanthocyanidin polymer compositions designated SP-303 contained in the
Company's Virend product. One patent contains composition of matter claims and
the other contains claims directed to methods of use of the composition as an
anti-viral agent.
The Company has also filed foreign applications corresponding to its issued
U.S. patents relating to its proanthocyanidin polymer composition. The Company
has been granted patents in Australia, Mexico and New Zealand and has patent
applications pending in Canada, Europe, Japan, the Republic of Korea and
Singapore. The Company is aware of certain foreign patents and at least one
pending patent application, granted or pending, owned by Leon Cariel and the
Institut des Substances Vegetales with broad claims directed to proanthocyanidin
polymer compositions and methods of use. In particular, patents have been
granted to Leon Cariel and the Institut des Substances Vegetales in Australia,
Europe, France, Germany and an application is pending in Japan. The effective
filing date of these patents is prior to the effective filing date of the
Company's foreign filed pending patent applications in Europe. The Company has
instituted an Opposition in the European Patent Office against the granted
European Patent No. 472531 owned by Leon Cariel and Institut des Substances
Vegetales. Based on opinions of foreign counsel, the Company believes that the
granted claims are invalid and intends to vigorously prosecute the Opposition.
There can be no assurance that the Company will be successful in having the
granted European patent revoked or the claims sufficiently narrowed so as not to
cover potentially the Company's proanthocyanidin polymer compositions and
methods of use.
The Patent and Trademark Office has very recently declared an Interference
between the Company's issued patent covering its specific proanthocyanidin
polymer composition and a U.S. application corresponding to a granted European
patent of Leon Cariel and the Institut des Substances Vegetales by Daniel Jean
and Leon Cariel. The declaration of the Interference indicates that, at present,
the U.S. Patent and Trademark Office believes the Company's patent and the
pending third party patent application claim the same subject matter. The
Interference will seek to determine who is the first inventor of such subject
matter under the U.S. patent laws. The Company believes that the Daniel Jean and
Leon Cariel application is not entitled to claims covering the subject matter of
the Company's patent. There can be no assurance, however, that the Company will
prevail. Additionally, at this very early stage of the Interference proceeding,
the Company has not had an opportunity to review the claims and file history of
the Daniel Jean and Leon Cariel patent application which, under U.S. patent law,
are kept confidential. In view of the analysis conducted in connection with the
corresponding European patent, the Company believes that the U.S. patent
application of Daniel Jean and Leon Cariel is not entitled to claims covering
the subject matter of the Company's patent.
The Company has also recently filed a U.S. patent application directed to
new formulations and methods of using its specific proanthocyanidin polymer
composition for treatment of watery diarrhea. These formulations are contained
in the Company's Provir product.
The Company has also filed a number of U.S. patent applications relating to
compositions and methods for treating Type II diabetes as well as reducing
hyperglycemia associated with other etiologies. Several of the U.S. patent
applications have been indicated to be allowed by the U.S. Patent and Trademark
Office. The Company has filed foreign applications, I.E., international
applications under the Patent Cooperation Treaty designating a number of foreign
countries, as well as applications in Taiwan, corresponding to a number of the
U.S. applications and plans to file additional corresponding foreign
applications within the relevant convention periods.
The Company has also filed two U.S. patent applications and a corresponding
international patent application designating a number of foreign countries
relating to methods for administering and sustained release formulations for
anti-fungal agents like nikkomycins, including in particular nikkomycin Z. The
methods and compositions are useful for treatment of fungal infections,
particularly those associated with CANDIDA spp. The Company has licensed several
patents from Bayer AG relating to the use of nikkomycin Z and the composition
and use of nikkomycin Z in combination with other antifungal compounds for the
development of antifungal agents.
There can be no assurance that the Company's pending patent applications
will result in patents being issued or that, if issued, patents will afford
protection against competitors with similar technology; nor can there be any
assurance that others will not obtain patents that the Company would need to
license or circumvent. See "Risks--Uncertainty Regarding Patents and Proprietary
Rights."
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Patent applications in the United States are generally maintained in secrecy
until patents are issued. Since publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries by several months,
Shaman cannot be certain that it was the first to discover compositions covered
by its pending patent applications or the first to file patent applications on
such compositions. There can be no assurance that the Company's patent
applications will result in issued patents or that any of its issued patents
will afford comprehensive protection against potential infringement.
The Company is prosecuting its patent applications with the U.S. Patent and
Trademark Office but the Company does not know whether any of its applications
will result in the issuance of any patents or, if any patents are issued,
whether any issued patent will provide significant proprietary protection or
will be circumvented or invalidated. During the course of patent prosecution,
patent applications are evaluated, inter alia, for utility, novelty,
nonobviousness and enablement. The U.S. Patent and Trademark Office may require
that the claims of an initially filed patent application be amended if it is
determined that the scope of the claims includes subject matter that is not
useful, novel, nonobvious or enabled. Furthermore, in certain instances, the
practice of a patentable invention may require a license from the holder of
dominant patent rights. In cases where one party believes that it has a claim to
an invention covered by a patent application or patent of a second party, the
first party may provoke an interference proceeding in the U.S. Patent and
Trademark Office or such a proceeding may be declared by the U.S. Patent and
Trademark Office. In general, in an interference proceeding, the Patent and
Trademark Office would review the competing patents and/or patent applications
to determine the validity of the competing claims, including but not limited to
determining priority of invention. Any such determination would be subject to
appeal in the appropriate U.S. federal courts.
There can be no assurance that additional patents will be obtained by the
Company or that issued patents will provide a substantial protection or be of
commercial benefit to the Company. The issuance of a patent is not conclusive as
to its validity or enforceability, nor does it provide the patent holder with
freedom to operate without infringing the patent rights of others. A patent
could be challenged by litigation and, if the outcome of such litigation were
adverse to the patent holder, competitors could be free to use the subject
matter covered by the patent, or the patent holder may license the technology to
others in settlement of such litigation. The invalidation of patents owned by or
licensed to the Company or non-approval of pending patent applications could
create increased competition, with potential adverse effects on the Company and
its business prospects. In addition, there can be no assurance that any
applications of the Company's technology will not infringe patents or
proprietary rights of others or that licenses that might be required as a result
of such infringement for the Company's processes or products would be available
on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of others' proprietary rights. The Company is participating in one
declared Interference proceeding and may participate in interference proceedings
that may in the future be declared by the U.S. Patent and Trademark Office,
which could result in substantial cost to the Company. There can be no assurance
that the outcome of any such litigation or interference proceedings will be
favorable to the Company or that the Company will be able to obtain licenses to
technology that it may require or that, if obtainable, such technology can be
licensed at a reasonable cost.
The patent position of pharmaceutical and biopharmaceutical firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claim allowed in
pharmaceutical and biopharmaceutical patents. Accordingly, there can be no
assurance that patents will afford protection against competitors with similar
technology. See "Risks--Uncertainty Regarding Patents and Proprietary Rights."
In addition to seeking the protection of patents and licenses, the Company
also relies on trade secrets to maintain its competitive position. The Company
has adopted and adheres to procedures for maintaining the proprietary aspects of
its trade secret and know-how information. No assurance can be given, however,
that these measures will prevent the unauthorized disclosure or use of such
information.
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RAW MATERIAL SUPPLY
The Company imports all of the plant material it screens from foreign
countries, particularly Latin and South America, Southeast Asia and Africa.
Shaman's relationships with botanical organizations in tropical regions have
enabled the Company to set up large-scale supply arrangements for the raw
material from which some of its lead products are derived. For example, the
plant material required for SP-303 is found in at least seven Latin and South
American countries and can be harvested in a sustainable manner where work
forces already exist. Presently, Shaman is harvesting approximately 8,000
kilograms of the SP-303 source plant per year in Ecuador and Peru pursuant to
supply agreements with corporations in those countries. The SP-303 source plant
occurs naturally in these areas and, after harvesting, can be regenerated to
maturity in seven years.
Shaman requires that all large-scale plant collections be conducted in a
sustainable manner, which could include replanting in areas of intensive wild
harvesting. In the case of SP-303, the source plant can be sustainably harvested
because it grows spontaneously with minimal management. Shaman works with
communities and cooperatives in South and Latin America to harvest the SP-303
source plant and other source plants in a regenerable manner. These communities
and cooperatives, many of which receive support from national and international
government agencies, are experienced in the sustainable harvest of other
tropical forest products, including natural rubber, nuts and fruits. Company
policy also requires that each source plant targeted for large-scale compound
isolation must have multi-country sources of supply or be economically
synthesizable. This policy reduces the risks associated with using foreign
suppliers, such as political or economic instability.
Shaman has entered into supply agreements with companies in both Peru and
Ecuador pursuant to which they will supply certain quantities of Shaman's
commercial requirements of SP-303 from their countries. These companies work
with cooperatives of indigenous peoples to supply source plants to Shaman, to
transfer material information to Shaman relating to improvements in the
collection and harvesting of the raw material, and to improve sustainable
harvesting techniques in order to create a model of sustainable production in
tropical forests. Although the Company has developed multi-country sources of
supply for its key plant materials and has entered into long-term supply
agreements for the source material for SP-303, there can be no assurance of a
continual source of supply of these materials. See "Risk Factors--Dependence on
Sources of Supply."
When it is economically advantageous and technically feasible to synthesize
a compound rather than extract it from raw plant material, the Company will
utilize large-scale chemical synthesis to obtain a sufficient supply of such
compound in order to satisfy its commercial requirements. However, there can be
no assurance that the Company will be successful in synthesizing any such
products.
COMPETITION
Competition in the pharmaceutical industry is extremely intense. The
principal factors upon which such competition is based include therapeutic
efficacy, side-effect profile, ease of use, safety, physician acceptance,
patient compliance, marketing, distribution and price. Many treatments for
infectious and metabolic diseases exist and additional therapeutics are under
development, including other naturally-sourced pharmaceuticals. To the extent
these therapeutics address the disease indications on which the Company has
focused, they may represent significant competition. Many pharmaceutical
companies have significantly greater research and development capabilities, as
well as substantially greater marketing, financial and human resources than the
Company. In addition, many of these competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals of such products. These companies may represent significant long-term
competition for the Company.
There can be no assurance that developments by other pharmaceutical
companies will not render Shaman's products or technologies obsolete or
noncompetitive, or that the Company will be able to keep pace with technological
developments of its competitors. Many of the Company's competitors have
developed, or are in the process of developing, technologies that are, or in the
future may be, the basis for competitive products. Some of these products may
have an entirely different approach or means of accomplishing the desired
therapeutic effect than products being developed by the Company. These competing
products may be more effective and less costly than the products developed by
Shaman.
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GOVERNMENT REGULATION
The research and development, manufacture and marketing of Shaman's products
are subject to substantial regulation by the FDA in the United States and by
comparable authorities in other countries. These national agencies and other
federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of the
Company's products.
The process required by the FDA before the Company's products may be
marketed in the United States generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission to the FDA of an IND application,
which must become effective before human clinical testing may commence; (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the proposed drug for its intended indications; (iv) the submission
to the FDA of an NDA; (v) satisfactory completion of an FDA inspection of the
manufacturing facilities at which the product is made to assess compliance with
GMP. The testing and approval process requires substantial time, effort and
financial resources, and there can be no assurance that an approval will be
granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product as well as
animal studies to assess the potential safety and efficacy of the product. The
results of the preclinical tests, together with manufacturing information and
analytical data, are submitted to the FDA as part of the IND, which must become
effective before human clinical trials may commence. The IND will automatically
become effective 30 days after receipt by the FDA, unless the FDA before that
time raises concerns or questions about the conduct of the trials as outlined in
the IND. In such cases the IND sponsor and the FDA must resolve any outstanding
concerns before clinical trials can proceed. There can be no assurance that
submission of an IND will result in FDA authorization to commence clinical
trials.
Clinical trials involve the administration of the investigational products
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Further, each clinical study must be reviewed and approved by an
independent Institutional Review Board ("IRB") at each institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
Clinical trials are typically conducted in three sequential phases which may
overlap. Phase I usually involves the initial introduction of the drug into
healthy human subjects 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) determine the efficacy of the product for
specific targeted indications, (ii) determine dose tolerance and optimal dose
and (iii) identify possible adverse effects and safety risks. When Phase II
evaluations demonstrate that the product is effective and has an acceptable
safety profile, Phase III trials are undertaken to further evaluate clinical
efficacy and to further test for safety in an expanded patient population at
geographically-dispersed clinical study sites. The FDA or the sponsor may
suspend clinical trials at any point in this process for a variety of reasons,
including either party's belief that clinical subjects are being exposed to an
unacceptable health risk.
Occasionally, the FDA will require a Phase IV "Post-Marketing Trial" which
is conducted after FDA clearance to gain additional experience from the
treatment of patients in the intended therapeutic area.
After completion of the required testing, generally an NDA is submitted. FDA
approval of the NDA is required before marketing may begin in the United States.
The NDA must include the results of extensive clinical and other testing and the
compilation of data relating to the product's chemistry, pharmacology and
manufacture, the cost of all of which is substantial. The FDA reviews all NDAs
submitted before it accepts them for filing and may request additional
information rather than accept an NDA for filing. In such an event, the NDA must
be resubmitted with the additional information and, again, is subject to review
before filing. Once the submission is accepted for filing, the FDA begins an
in-depth review of the NDA. Under the Federal Food, Drug and Cosmetic Act, the
FDA has 180 days in which to review the NDA and respond to the applicant. The
review is often significantly extended by FDA requests for additional
information or clarification regarding information already provided in the
submission. The FDA may refer the application to the appropriate advisory
35
<PAGE>
committee (typically a panel of clinicians) for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendation of an advisory committee, but generally follows the
committee's recommendation. If evaluations of the NDA and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of an NDA. When and if those conditions
have been met to the FDA's satisfaction, the FDA will issue an approval letter,
authorizing commercial marketing of the drug for certain indications. If the
FDA's evaluation of the NDA submission or manufacturing facilities is not
favorable, the FDA may refuse to approve the NDA or issue a not approvable
letter. Notwithstanding the submission of any requested additional data or
information in response to an approvable or not approvable letter, the FDA may
decide that the application does not meet the regulatory criteria for approval.
Each drug product manufacturing establishment that supplies drugs to the
U.S. market must be registered with, and be approved by, the FDA prior to
commencing commercial production, and is subject to biennial inspections by the
FDA for GMP compliance after an NDA has been approved. In addition, drug product
manufacturing establishments located in California also must be licensed by the
State of California.
The Company will also be subject to a variety of foreign regulations
governing clinical trials, registrations and sales of its products. Whether or
not FDA approval has been obtained, approval of a product by comparable
regulatory authorities of foreign countries must be obtained prior to marketing
the product in those countries. The approval process varies from country to
country and the time needed to secure approval may be longer or shorter than
that required for FDA approval.
EMPLOYEES
As of November 30, 1996, the Company had 83 employees. Of these employees,
66 are dedicated to research, development, quality assurance and quality
control, regulatory affairs and preclinical testing. Twenty-four of the
Company's employees hold a Ph.D. or M.D.
FACILITIES
Shaman's headquarters are located in South San Francisco, California. The
Company leases approximately 73,000 square feet for offices, laboratories, pilot
manufacturing and preclinical testing in three adjacent buildings. An additional
building with approximately 43,000 square feet becomes available to the Company
late in 1999. The lease on these spaces expires February 28, 2003, and the
Company has an option to renew the lease for two additional five-year periods.
The South San Francisco facility serves as the principal site for preclinical
research, clinical trial management, process development, quality assurance and
quality control, regulatory and other affairs. The Company believes that its
current facilities are suitable and adequate to meet its needs for the
foreseeable future. Shaman anticipates it will be able to expand its facilities
to nearby locations as the need develops. There can be no assurance however,
that such space will be available on favorable terms, if at all.
LEGAL PROCEEDINGS
The Company has recently initiated arbitration against Dr. Michael Tempesta
with respect to a February 1990 license agreement. See "--Collaborative
Relationships and License Agreements." With the exception of the patent
opposition proceeding in Europe and the Interference proceeding in the U.S.
Patent and Trademark Office, the Company is not party to any other material
legal proceedings. See "Risk Factors--Uncertainty Regarding Patents and
Proprietary Rights."
36
<PAGE>
MANAGEMENT
The names, ages and positions of the Company's executive officers and
directors, as of December 20, 1996, are set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Lisa A. Conte................................... 37 President, Chief Executive Officer and Director
Barbara J. Goodrich............................. 43 Vice President and Chief Financial Officer
Atul S. Khandwala, Ph.D......................... 54 Senior Vice President, Development
Steven R. King, Ph.D............................ 39 Senior Vice President, Ethnobotany and Conservation
Gerald M. Reaven, M.D........................... 68 Senior Vice President, Research
Jacqueline Cossmon.............................. 41 Vice President, Corporate Communications
G. Kirk Raab.................................... 61 Chairman of the Board
Herbert H. McDade, Jr........................... 69 Director
M. David Titus.................................. 39 Director
John A. Young................................... 64 Director
</TABLE>
LISA A. CONTE founded the Company in May 1989 and currently serves as
President, Chief Executive Officer and Director. From 1987 to 1989, Ms. Conte
was Vice President at Technology Funding Inc., a venture capital firm, where she
was responsible for the analysis and management of healthcare industry
investments. From 1985 to 1987, she conducted risk and strategy audits for
venture capital portfolio companies at Strategic Decisions Group, a management
consulting firm. Ms. Conte received an A.B. in Biochemistry from Dartmouth
College, an M.S. in Physiology/Pharmacology from the University of California,
San Diego and an M.B.A. from The Amos Tuck School, Dartmouth College.
BARBARA J. GOODRICH joined the Company in June 1995 and currently serves as
its Vice President and Chief Financial Officer. Prior to joining the Company,
from April 1994 to May 1995, Ms. Goodrich served as Controller of Quasar
Engineering, a privately-held engineering and architectural company. Ms.
Goodrich served as Director of Finance at Digital Generation Systems, Inc. from
November 1992 to January 1994 and as Client Accounting Manager at Arthur
Andersen LLP from February 1989 to October 1992. Ms. Goodrich worked as an
independent consultant from 1984 through 1988. From 1978 to 1983, Ms. Goodrich
held a series of successively responsible audit positions with Arthur Andersen
LLP. Ms. Goodrich received a B.S. and an M.S. in Accounting from the University
of Illinois at Urbana. Ms. Goodrich is a Certified Public Accountant.
ATUL S. KHANDWALA, PH.D. joined Shaman in March 1996 as Senior Vice
President, Development from Block Drug Company, where he served as Vice
President for Ethical Product Development since August 1995. Prior to joining
Block Drug Company, from 1986 to August 1995, Dr. Khandwala held various
positions, most recently Executive Vice President, with Chemex Pharmaceuticals,
Inc. From 1976 to 1986, Dr. Khandwala held various positions with Revlon
Healthcare Group Research and Development Division. Dr. Khandwala has
successfully defended two FDA applications for market approval. Dr. Khandwala
received a B.Sc. in Chemistry from Gujarat University in India and a Ph.D. in
Pharmaceutical Chemistry from the University of Wisconsin.
STEVEN R. KING, PH.D. joined Shaman in March 1990. He currently serves as
Senior Vice President, Ethnobotany and Conservation. He is responsible for
coordinating the Company's Scientific Strategy Team. From 1989 to 1990, Dr. King
was the chief botanist for Latin America at Arlington, Virginia's Nature
Conservancy. He worked in 1988 as Research Associate for the Committee on
Managing Global Genetic Resources at the National Academy of Sciences, and was a
Doctoral Fellow from 1983 to 1988 at The New York Botanical Garden's Institute
of Economic Botany. Dr. King received a B.A. in Human Ecology from the College
of the Atlantic and M.S. and Ph.D. degrees in Biology from City University of
New York.
GERALD M. REAVEN, M.D. joined Shaman as a consultant in February 1995 and
became an employee in July 1995. He currently serves as Senior Vice President,
Research. Dr. Reaven came to Shaman from the Stanford University School of
Medicine where he served as a faculty member since 1960 and a Professor of
Medicine
37
<PAGE>
since 1970. Over the last 20 years, Dr. Reaven served as head of the Division of
Endocrinology and Metabolic Diseases, Division of Gerontology and director of
the General Clinical Research Center. Most recently, Dr. Reaven served as head
of the Division of Endocrinology, Gerontology and Metabolism at Stanford
University School of Medicine, and director of the Geriatric Research, Education
and Clinical Center, at the Palo Alto Veterans Affairs Medical Center. Dr.
Reaven received his A.B., B.S. and M.D. from the University of Chicago.
JACQUELINE COSSMON joined the Company in May 1996 as Vice President,
Corporate Communications. From February 1996 to May 1996, she acted as an
investor relations consultant to Shaman. From January 1994 to December 1995, Ms.
Cossmon was Director of Corporate Communications at Applied Immune Sciences, a
Santa Clara, California based biotechnology company. From February 1986 to
January 1994, Ms. Cossmon held various positions at Applied Biosystems, a market
leader in the development and delivery of biotechnology equipment, including
National Sales Manager for biochemical and bioseparation products, National
Accounts Manager and Director of Corporate Communications. Ms. Cossmon received
a B.S. in Nutritional Science from Northern Arizona University and an M.B.A.
from Santa Clara University.
G. KIRK RAAB has been a director of the Company since January 1992 and
Chairman of the Board since August 1995. Mr. Raab was President, Chief Executive
Officer and a director of Genentech, Inc. ("Genentech") from February 1990 to
July 1995 and President, Chief Operating Officer and a director from February
1985 to January 1990. Before joining Genentech, Mr. Raab was associated with
Abbott Laboratories, serving as President, Chief Operating Officer and director.
Mr. Raab earned a B.A. from Colgate University, where he currently serves as a
trustee. Mr. Raab is also Chairman of the Board of Connective Therapeutics, Inc.
and a director of Applied Imaging Corp., as well as chairman of the board and
director of several privately held biotechnology companies. Mr. Raab is also a
member of the advisory board of Hambrecht & Quist LLC, the Placement Agent for
this offering.
HERBERT H. MCDADE, JR. has been a director of the Company since October
1991. Mr. McDade served as Chairman of the Board, Chief Executive Officer of
Chemex Pharmaceuticals, Inc. ("Chemex") from June 1989 through January 1996,
when Chemex merged with Access Pharmaceutical Corporation ("Access") and the
combined entity changed its name to Access. From October 1986 to January 1988,
Mr. McDade served as Chairman, President and Chief Executive Officer of Armour
Pharmaceuticals, Inc., after previously serving as President, International
Healthcare Division of the Revlon Healthcare Group. Mr. McDade holds a B.S. in
Biology from the University of Notre Dame and a B.P.H. in Theology and
Philosophy from Laval University. Mr. McDade is Chairman of the Board of Access
and a director of Cytrx, Inc., Discovery Ltd. and several privately held
companies.
M. DAVID TITUS has been a director of the Company since April 1990. Mr.
Titus is currently Managing Director of Windward Ventures, a venture capital
consulting and investment firm, which he founded in 1993. From May 1986 to
December 1992, Mr. Titus served in various capacities at Technology Funding,
Inc., a venture capital firm located in San Mateo, California, including Group
Vice President of Technology Funding, Inc. and General Partner of Technology
Funding Limited. Prior to joining Technology Funding, Inc. in May 1986, Mr.
Titus was a founder and Senior Vice President of the Technology Division of
Silicon Valley Bank. Mr. Titus earned a B.A. in Economics from the University of
California, Santa Barbara. Mr. Titus is a director of several privately held
companies.
JOHN A. YOUNG has been a director of the Company since September 1993. From
1978 until October 1992, Mr. Young served as President and Chief Executive
Officer of the Hewlett-Packard Company, an international manufacturer of
measurement and computation products and systems, which he joined in 1958. Mr.
Young is now retired. Mr. Young received a B.S. in Electrical Engineering from
Oregon State University and an M.B.A. from Stanford University. Mr. Young is
Chairman of the Board of Directors of Novell, Inc., and a director of Wells
Fargo & Company, Chevron Corporation, SmithKline Beecham plc, Affymetrix, Inc.,
Lucent Technologies, Inc. and several privately held companies.
SCIENTIFIC STRATEGY TEAM
Shaman's Scientific Strategy Team ("SST") consists of an interdisciplinary
group of ethnobotanists, scientists, pharmacologists, physicians, pharmacists
and Company personnel. Several members of the SST who are
38
<PAGE>
actively working in the field have agreed to exclusively advise the Company in
connection with medical and ethnobotanical matters and to refrain from
consulting with other pharmaceutical companies on all ethnobotanical matters.
Some members may have collaborative relationships with other pharmaceutical
firms for random collection of plants on a contract basis.
The principal criteria used in selecting members of the SST are breadth of
the scientific discipline, recognized scientific excellence in their fields, and
ability to contribute to the team evaluation process. The Company relies on the
SST to identify plant candidates for Shaman's botanical screening process and to
evaluate the information obtained about these candidates, both in the field and
in literature. SST members who are not employees of the Company are compensated
with stock options for their general contributions throughout the year, and are
paid $1,000 per day for participation at the SST meetings, which occur
approximately every 12 months. Shaman also pays SST members for any additional
consulting services and field expeditions conducted on behalf of the Company.
The SST includes the following members:
EDWARD F. ANDERSON, PH.D. is a Senior Research Botanist at the Desert
Botanical Gardens in Phoenix, Arizona. Formerly, he was a Professor of Biology
at the Whitman College in Walla Walla, Washington. Dr. Anderson received a B.A.
in Biology from Pomona College in California and an M.A. and a Ph.D. in Botany
from Claremont Graduate School and Rancho Santa Ana Botanic Garden,
respectively.
PAUL S. AUERBACH, M.D. is Chief Operating Officer of The Sterling Healthcare
Group in Coral Gables, Florida. Dr. Auerbach was formerly Chief, Division of
Emergency Medicine at Stanford University Hospital in Stanford, California. Dr.
Auerbach earned an A.B. in Religion from Duke University, an M.D. from Duke
University School of Medicine, and was a Sloan fellow, M.S.M. at Stanford
University Graduate School of Business.
MICHAEL J. BALICK, PH.D. is Director of the Institute of Economic Botany at
The New York Botanical Garden. Dr. Balick holds a B.S. in Agriculture and Plant
Science from the University of Delaware and both an A.M. and a Ph.D. in Biology
from Harvard University.
BARUCH S. BLUMBERG, M.D., PH.D. is Associate Director of Clinical Research
at the Fox Chase Cancer Center in Philadelphia and the first American dean of a
college at Oxford University. Dr. Blumberg became a Nobel laureate in 1976 for
his discovery of the hepatitis B antigen. He received a B.S. from Union College
in New York, an M.D. from the College of Physicians and Surgeons at Columbia
University and a Ph.D. in Biochemistry from Oxford University.
ANTHONY CONTE is a retired pharmacist and former proprietor of the Gilliar
Drug Company, Inc. Mr. Conte has 30 years of experience in commercializing
pharmaceuticals. He received a B.S. in Pharmacy from Long Island University,
Brooklyn College of Pharmacy and an M.S. in Pharmaceutical Chemistry from
Columbia University. Mr. Conte is the father of Ms. Conte, President, Chief
Executive Officer and a director of Shaman.
JAMES A. DUKE, PH.D. is a recently retired research scientist at the
Agricultural Research Service of the United States Department of Agriculture.
Dr. Duke earned his A.B., B.S. and Ph.D. in Botany from the University of North
Carolina.
ELAINE ELISABETSKY, PH.D. is a research fellow of the Brazilian Research
Council, Associate Professor at the Universidade Federal do Rio Grande do Sul
and a board member of the International Society of Ethnopharmacology. Dr.
Elisabetsky holds a B.S. in Biomedical Sciences from the Escola de Medicina in
Sao Paulo, Brazil, a Ph.D. in Pharmacology from the Departmento de Farmacologia
e Bioquimica, Escola Paulista de Medicina in Brazil, and has received
post-doctorate training in ethnobotany and ethnopharmacology from The New York
Botanical Garden.
NORMAN R. FARNSWORTH, PH.D. is Research Professor of Pharmacognosy and
Director of the Program for Collaborative Research in the Pharmaceutical
Sciences at the College of Pharmacy, University of Illinois at Chicago. Dr.
Farnsworth received a B.S. and an M.S. in Pharmacy from the Massachusetts
College of Pharmacy and a Ph.D. in Pharmacognosy from the University of
Pittsburgh.
39
<PAGE>
MAURICE M. IWU, PH.D. is founder and director of BioResources Development
Conservation Programme and Professor of Pharmacognosy and Medicinal Chemistry at
the University of Nigeria, Nsukka. Dr. Iwu earned a Ph.D. in Pharmacognosy from
the University of Bradford, England.
CHARLES F. LIMBACH, M.D. is a practitioner of family medicine in Salinas,
California. Dr. Limbach earned a B.A. in Biology from the University of Michigan
and an M.D. from Michigan State University.
KOJI NAKANISHI, PH.D. is Centennial Professor of Chemistry at Columbia
University and formerly Director of the Suntory Institute for Bioorganic
Research in Osaka, Japan. Dr. Nakanishi was the recipient of the 1990 Japan
Academy Prize and the Imperial Prize, the highest Japanese honor a scholar can
receive. He received a B.S. and a Ph.D. in Chemistry from Nagoya University in
Japan.
MARK J. PLOTKIN, PH.D. is Executive Director of Ethnobiology and
Conservation Team and previously served as Director of Plant Conservation at the
World Wildlife Fund. He also serves as a Research Associate of Ethnobotanical
Conservation at the Botanical Museum at Harvard University and Secretary of the
Ethnobotany Specialist Group, Species Survival for the International Union for
the Conservation of Nature. Dr. Plotkin received an A.B. from Harvard University
Extension, an M.F.S. in Wildlife Ecology from Yale School of Forestry and
Environmental Studies, and a Ph.D. in Biological Conservation from Tufts
University.
NATHANIEL QUANSAH, PH.D. is employed by the World Wildlife Fund-Madagascar
Protected Areas Program to conduct a four-year ethnobotanical collection and
conservation project in northern Madagascar. Dr. Quansah obtained a B.S. from
the University of Cape Coast, Ghana and a Ph.D. in Botany from Goldsmith's
College, University of London.
ROBERT F. RAFFAUF, PH.D. is Professor Emeritus at Northeastern University's
College of Pharmacy. He holds a B.S. in Chemistry/Biology from the College of
the City of New York, an M.A. in Chemistry from Columbia University and a Ph.D.
in Organic/Analytical Chemistry from the University of Minnesota.
RICHARD E. SCHULTES, PH.D. is Professor Emeritus at Harvard University. Dr.
Schultes has spent 40 years studying the traditional uses of the higher plants
and fungi of the Colombian Amazon. He has been the recipient of numerous awards,
including the Gold Medal of the World Wildlife Fund. Dr. Schultes holds an A.B.,
an A.M. and a Ph.D. from Harvard University.
CHARLES G. SMITH, PH.D. has been a consultant to start-up businesses, major
pharmaceutical companies and venture capital firms since 1986. Most recently, he
served as Vice President of Research and Development at Revlon Healthcare Group.
Dr. Smith received a B.S. in Chemistry from Illinois Institute of Technology, an
M.S. in Biochemistry from Purdue University, and a Ph.D. in Biochemistry from
the University of Wisconsin.
D. DOEL SOEJARTO, PH.D. is Professor of Pharmacognosy for the Department of
Medicinal Chemistry and Pharmacognosy and for the Program for Collaborative
Research in the Pharmaceutical Sciences at the University of Illinois at
Chicago. Dr. Soejarto holds a B.S. in Biology from the College of Tjiawi, Java,
an A.M. in Biology/Botany from Harvard University and a Ph.D. in Biology from
Harvard University.
HILDEBERT K.M. WAGNER, PH.D. is Professor of Pharmacognosy in the Institut
Fur Pharmazeutische Biologie at the Ludwig Maximilians University in Munich,
Germany. Dr. Wagner also serves as co-director of the Institute of
Pharmaceutical Biology at the University of Munich. He earned his Ph.D. in
Pharmacognosy at the University of Munich.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of November 30, 1996, by (i) each
person who is known by the Company to beneficially own more than five percent of
the Company's Common Stock, (ii) the Chief Executive Officer and each of the
next four highest-paid executive officers of the Company for the nine months
ended September 30, 1996, (iii) each director and (iv) all current executive
officers and directors as a group. Except as otherwise indicated, the Company
believes that each of the beneficial owners of the Common Stock listed below has
sole investment power with respect to such shares, subject to community property
laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------------------
PERCENT
OWNED PERCENT OWNED
NUMBER OF BEFORE AFTER OFFERING
NAME AND ADDRESS SHARES OFFERING (2)
- ------------------------------------------------------------------------------ ---------- ----------- ---------------
<S> <C> <C> <C>
Travelers Group Inc. ......................................................... 1,292,034 9.29% 8.12%
388 Greenwich Street
New York, NY 10013
State of Wisconsin Investment Board .......................................... 1,290,000 9.28% 8.11%
Post Office Box 7842
Madison, WI 53707
Delphi Ventures (3) .......................................................... 993,571 7.14% 6.25%
3000 Sand Hill Road
Building One, Suite 135
Menlo Park, CA 94025
Lisa A. Conte (4) ............................................................ 711,166 5.06% 4.43%
Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, CA 94080
G. Kirk Raab (5).............................................................. 114,031 * *
John A. Young (6)............................................................. 33,198 * *
Herbert H. McDade, Jr. (7).................................................... 23,198 * *
M. David Titus (8)............................................................ 25,698 * *
Jacqueline Cossmon (9)........................................................ 8,615 * *
Atul S. Khandwala, Ph.D. (10)................................................. 26,400 * *
Steven R. King, Ph.D. (11).................................................... 77,674 * *
Gerald R. Reaven, M.D. (12)................................................... 138,280 * *
Current Officers and Directors as a group (10 persons) (13)................... 1,168,093 8.07% 7.09%
</TABLE>
- ------------------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 13,906,634 shares
of Common Stock were outstanding on November 30, 1996. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
November 30, 1996, 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) Percentage of beneficial ownership is adjusted to reflect the sale by the
Company of 2,000,00 shares of Common Stock offered hereby. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of November 30, 1996, are deemed outstanding for computing the
41
<PAGE>
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.
(3) Represents 931,934 shares, 3,304 shares, 58,006 shares and 327 shares held
by entities affiliated with Delphi Ventures.
(4) Includes 139,166 shares subject to options exercisable within 60 days of
November 30, 1996.
(5) Represents 114,031 shares subject to options exercisable within 60 days of
November 30, 1996.
(6) Represents 33,198 shares subject to options exercisable within 60 days of
November 30, 1996.
(7) Represents 23,198 shares subject to options exercisable within 60 days of
November 30, 1996.
(8) Includes 23,198 shares subject to options exercisable within 60 days of
November 30, 1996.
(9) Includes 7,615 shares subject to options exercisable within 60 days of
November 30, 1996.
(10) Represents 26,400 shares subject to options exercisable within 60 days of
November 30, 1996.
(11) Includes 55,416 shares subject to options exercisable within 60 days of
November 30, 1996.
(12) Includes 137,780 shares subject to options exercisable within 60 days of
November 30, 1996.
(13) Includes shares held by family members associated with directors and
officers listed above. Also includes 569,221 shares which are currently
issuable upon the exercise of outstanding options.
PLAN OF DISTRIBUTION
The Shares are being offered by the Company through the Placement Agent on a
best efforts, all or none basis, principally to selected institutional
investors, including current institutional holders of the Company's Common
Stock. Hambrecht & Quist LLC (the "Placement Agent") has been retained to act as
the exclusive agent for the Company in connection with the arrangement of this
financing and sale of the Shares on a best efforts basis.
The Placement Agent is not obligated to and does not intend to take (or
purchase) any of the Shares for itself. It is anticipated that the Placement
Agent will obtain indications of interest from potential investors for the
amount of the offering and that effectiveness of the Registration Statement will
not be requested and no investor funds will be accepted until indications of
interest have been received for the amount of the offering. Confirmation and
definitive prospectuses will be distributed to all investors at the time of
pricing, informing investors of the closing date, which will be scheduled for
three business days after pricing. No investor funds will be accepted prior to
effectiveness of the Registration Statement. Prior to the closing date, all
investor funds will promptly be placed in escrow with First Trust of California
as escrow agent (the "Escrow Agent"), in an escrow account established for the
benefit of the investors. The escrow agent will invest such funds in accordance
with Rule 15c2-4 promulgated under the Securities Exchange Act of 1934, as
amended. Prior to the closing date, the Escrow Agent will advise the Company
that payment for the purchase of the shares of Common Stock has been affirmed by
the investors and that the investors have deposited the requisite funds in the
escrow account at First Trust of California. Upon receipt of such notice, the
Company will deposit with the Depository Trust Company the shares of Common
Stock to be credited to the respective accounts of the investors. Investor
funds, together with interest thereon, if any, will be collected by the Company
through the facilities of First Trust of California on the scheduled closing
date. The offering will not continue after the closing date. In the event that
investor funds are not received in the full amount necessary to satisfy the
requirements of the offering, all funds deposited in the escrow account will
promptly be returned.
The Company has agreed (i) to pay the Placement Agent six percent of the
proceeds of the Offering as selling commissions and reimburse them in the
aggregate for expenses (not to exceed an aggregate of $75,000 without the
Company's consent) and (ii) to indemnify the Placement Agent against certain
liabilities, including
42
<PAGE>
liabilities under the Securities Act, and to contribute to payments that the
Placement Agent may be required to make in respect thereof.
Kirk Raab, the Company's Chairman of the Board, is a member of the Placement
Agent's advisory board.
Certain shares of the Company's Common Stock held by officers, directors and
stockholders of the Company are subject to lock-up agreements with the Placement
Agent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
National Bank of Boston, Canton, Massachusetts.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, Palo Alto, California, is
acting as counsel for the Placement Agent in connection with certain legal
matters relating to the shares of Common Stock offered hereby.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), omits certain of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus regarding the contents of any contract or other document are not
necessarily complete; with respect to each such contract or document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities of the Commission
described below, and copies of such material may be obtained from such office
upon payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
following regional offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates. Furthermore, the Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such Web site is located at http://www.sec.gov. The Company's Common Stock is
quoted on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than the Placement Agent fees and expenses. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 3,713
NNM listing fees.................................................. 17,500
NASD filing fee................................................... *
Blue Sky fees and expenses........................................ *
Accounting fees and expenses...................................... 70,000
Legal fees and expenses........................................... 100,000
Printing and engraving expenses................................... 2,500
Miscellaneous fees and expenses................................... 86,287
---------
Total......................................................... $ 280,000
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
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<PAGE>
The Registrant's Restated Certificate of Incorporation provides that the
Registrant's directors shall not be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the DGCL as in
effect at the time such liability is determined. The Registrant has entered into
indemnification agreements with all of its officers and directors, as permitted
by the DGCL.
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
1.1* Form of Placement Agency Agreement.
1.2* Form of Escrow Agreement.
1.3* Form of Stock Purchase Agreement.
3.1(5) Restated Certificate of Incorporation, as filed with the Delaware
Secretary of State on October 1, 1993.
3.2(8) Amended and Restated By-Laws, as amended May 23, 1996.
4.1(8) Certificate of Designation of Preferences of Series A Preferred Stock of
the Registrant, as filed with the Delaware Secretary of State on July
27, 1996.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1(1)(12) 1990 Stock Option Plan, as amended.
10.2(1)(12) 1992 Stock Option Plan.
10.3(1)(12) 401(k) Plan.
10.4(1)(12) Form of Stock Purchase Agreement.
10.5(1)(12) Form of Stock Option Agreement.
10.6(1) Form of Confidentiality Agreement-Employees & Consultants.
10.7(1) Form of Confidentiality Agreement-Strategic Planning.
10.8(1) Form of Indemnification Agreement.
10.9(1)(12) Form of Employment Agreement.
10.10(1) Form of Agreement with Scientific Strategy Team Members.
10.11(1) Form of Proprietary Information and Inventions Agreement-Employees.
10.12(1) Form of Proprietary Information and Inventions Agreement-Consultants.
10.13(1) Letter Agreements dated December 8, 1989, May 30, 1990, June 21, 1990,
August 24, 1990 and July 22, 1991, between Shaman and National Institute
of Allergy and Infectious Diseases.
10.14(1)(10) License Agreement dated February 8, 1990, between Shaman and Dr. Michael
Tempesta.
10.15(1)(12) Stock Purchase Agreement dated June 15, 1990, between Shaman and Lisa A.
Conte.
10.16(1) Master Equipment Lease Agreement dated September 28, 1990, between Shaman
and MMC/GATX Partnership No. I, with related schedules.
10.17(1) Series B Preferred Stock Warrants dated September 28, 1990 and June 28,
1991, issued to MMC/GATX Partnership No. I.
10.18(1)(10) License Agreement dated December 5, 1990, as amended January 19, 1992,
between Shaman and the University of British Columbia.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
10.19(1) Master Equipment Lease Agreement dated December 26, 1990, between Shaman
and Lease Management Services, Inc.
10.20(1) Master Equipment Lease Agreement dated April 22, 1991, between Shaman and
Industrial Way I Limited Partnership.
10.21(1)(10) Contract Services Agreement dated May 23, 1991, February 1, 1992, February
4, 1992, September 23, 1992 and October 30, 1992, between Shaman and New
Drug Services, Inc.
10.22(1)(10) License Agreement dated September 25, 1991, between Shaman and Inverni
della Beffa SpA.
10.23(1)(10) Manufacturing Agreement dated September 25, 1991 between Shaman and Indena
SpA.
10.24(1)(10) Master Clinical Trial Agreement dated September 30, 1991 between Shaman
and International Drug Registration, Inc.
10.25(1) Series D Preferred Stock Warrant dated February 3, 1992, issued to
MMC/GATX Partnership No. I.
10.26(1)(10) Supply Agreement dated June 1, 1992.
10.27(1)(10) Supply Agreement dated June 1, 1992.
10.28(2) Screening Agreement dated August 31, 1992, as amended June 2, 1993,
between Shaman and Merck Research Laboratories.
10.29(1)(10) Agreement dated October 16, 1992, between Shaman and International Medical
Technical Consultants, Inc.
10.30(4)(10) Research Agreement dated October 21, 1992, as amended April 27, 1994,
between Shaman and Eli Lilly and Company.
10.31(1) Registration Rights Agreement dated October 22, 1992, as amended December
14, 1992, between Shaman and certain holders of preferred stock of
Shaman.
10.32(1) Industrial Lease Agreement dated January 1, 1993, between Shaman and
Grand/ Roebling Investment Company.
10.33(1) Three Party Agreement dated as of January 1, 1993, by and among Berlex
Laboratories, Inc., Shaman and Grand/Roebling Investment Company.
10.34(2)(10) Letter Agreement dated March 1, 1993, between Shaman and Lederle-Praxis
Biologicals, Division of American Cynamide Corporation.
10.35(3) Contract Service Agreements dated May 10, 1993, between Shaman and R.C.
Benson & Sons, Inc.
10.36(3)(10) Clinical Trial Agreement dated July 21, 1993, between Shaman and the
University of Rochester.
10.37(3)(10) Letter Agreement dated August 24, 1993, between Shaman and University of
Michigan.
10.38(3)(10) Laboratory Services Agreement dated September 1, 1993, between Shaman and
Hazelton Washington, Inc.
10.39(3) Loan and Security Agreement dated September 27, 1993, between Shaman and
Household Commercial of California.
10.40(3) Master Equipment Lease Agreement dated September 30, 1993, between Shaman
and MMC/GATX Partnership No. I, with related schedules.
10.41(3) Common Stock Warrant dated September 30, 1993, issued to MMC/GATX
Partnership No. I.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
10.42(3) Common Stock Warrant dated October 5, 1993, issued to Meier Mitchell & Co.
10.43(5)(10) Joint Research and Product Development Agreement, dated May 24, 1995, by
and between Ono Pharmaceutical Co., Ltd. and Registrant.
10.43(a)(9) Amendment Agreement, dated December 4, 1996, to the Joint Research and
Product Development Agreement by and between Ono Pharmaceutical Co.,
Ltd. and Registrant.
10.44(5)(10) License Agreement, dated June 8, 1995, by and between Bayer AG and
Registrant.
10.45(6)(11) Development Agreement, dated January 11, 1996, by and between Abbott
Laboratories and Registrant.
10.46(6) Loan Agreement, dated October 20, 1995, by and between The Daiwa Bank,
Limited and Registrant.
10.47(6) Assignment and Assumption, dated February 2, 1996, between The Daiwa Bank,
Limited and The Sumitomo Bank, Limited.
10.48(7) Letter dated March 29, 1996 from The Sumitomo Bank, Limited to the
Registrant amending the Loan Agreement dated October 20, 1995.
10.49(8)(11) Subscription Agreement dated July 25, 1996 by and between the Registrant
and Fletcher International Limited.
10.50(9)(11) Joint Research and Product Development and Commercialization Agreement
dated September 23, 1996, by and between Lipha, Lyonnaise Industrielle
Pharmaceutique s.a. and the Registrant.
10.51(9)(11) Stock Purchase Agreement dated September 23, 1996, by and between Lipha,
Lyonnaise Industrielle Pharmaceutique s.a. and the Registrant.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed
as Exhibit 5.1).
24.1* Power of Attorney (included in Part II of this Registration Statement
under the caption "Signatures").
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, File No. 33-55892 which was declared
effective January 26, 1993.
(2) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
(3) Incorporated by reference to exhibits filed on November 10, 1993 with
Registrant's Registration Statement on Form S-1, File No. 33-71506.
(4) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994.
(5) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, as amended.
(6) Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
II-4
<PAGE>
(8) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, as amended.
(9) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, as amended.
(10) Confidential treatment has been granted with respect to certain portions of
these agreements.
(11) Confidential treatment pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended, has been requested for certain portions of this
document.
(12) Management contract or compensation plan.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities 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 the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
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-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Company
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South San Francisco, State of California, on the 2nd
day of January, 1997.
SHAMAN PHARMACEUTICALS, INC.
By /s/ LISA A. CONTE
------------------------------------
Lisa A. Conte
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
Director, President and
/s/ LISA A. CONTE Chief Executive Officer
- ------------------------------ (Principal Executive January 2, 1997
Lisa A. Conte Officer)
Vice President and Chief
* Financial Officer
- ------------------------------ (Principal Financial January 2, 1997
Barbara J. Goodrich Officer)
*
- ------------------------------ Chairman of the Board January 2, 1997
G. Kirk Raab
*
- ------------------------------ Director January 2, 1997
Herbert H. McDade, Jr.
*
- ------------------------------ Director January 2, 1997
M. David Titus
*
- ------------------------------ Director January 2, 1997
John A. Young
*By /s/ LISA A. CONTE
-------------------------
(Lisa A. Conte)
ATTORNEY-IN-FACT
II-6
