<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHAMAN PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2834 94-3095806
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</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:
------------------------
J. STEPHAN DOLEZALEK, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CA 94301
(415) 424-0160
------------------------
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 Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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========================================================================================================================
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
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per
share............................... 2,000,000 shares $4.6875 $9,375,000 $2,841
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</TABLE>
(1) The price of $4.6875 per share, which was the average of the high and low
bid prices of the Common Stock reported by The Nasdaq Stock Market on March
11, 1997, 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> 2
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.
SUBJECT TO COMPLETION, DATED MARCH 13, 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 (the "Common Stock") is quoted on the Nasdaq National Market tier
of the Nasdaq Stock Market under the Symbol SHMN. On March 7, 1997, the last
reported sale price for the Common Stock was $4.75 per share. See "Price Range
of Common Stock."
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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==============================================================================================
PRICE TO PUBLIC PROCEEDS TO COMPANY(1)
- ----------------------------------------------------------------------------------------------
Per Share.................................
- ----------------------------------------------------------------------------------------------
Total.....................................
==============================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $200,000.
The shares of Common Stock offered hereby are offered directly by the
Company. It is expected that delivery of certificates representing shares will
be made against payment on or about March , 1997.
------------------------
, 1997
<PAGE> 3
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 Securities
Exchange Act of 1934, as amended (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.
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,
1996, as amended, and (2) 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 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 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.
Provir(TM) is a trademark of the Company. Shaman Pharmaceuticals(R), the
Company's stylized logo, and Virend(R) are registered U.S. trademarks of the
Company.
2
<PAGE> 4
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
commenced 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
or non-insulin dependent) diabetes, an effort that has led to the identification
of 13 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 the treatment of watery diarrhea.
Moreover, approximately 67 million over-the-counter units are sold annually
worldwide. Current treatment for watery diarrhea includes antibiotics, which 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 4 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 coccidiomycosis (valley fever),
histoplasmosis and blastomycosis ("cocci," "histo" and "blasto") found in the
soil of certain regions of the United States. When the soil is
3
<PAGE> 5
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, 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 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 U.S. 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 13 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 6 to 13 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 Effect of Delaware Law and Certain Charter and Bylaws
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
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Common Stock offered by the Company....... 2,000,000 shares
Common Stock outstanding after the
offering shares......................... 17,920,684 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 December 31, 1996, as adjusted to include
2,000,000 shares of Common Stock issued in connection with Company's
registered direct public offering in January 1997. Excludes at December 31,
1996: (i) 2,101,976: 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 Convertible Preferred Stock.
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
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STATEMENTS OF OPERATIONS DATA:
Revenue from collaborative
agreements......................... $ 425 $ 2,050 $ 1,360 $ 2,210 $ 3,406
Operating expenses(1):
Research and development........... 5,449 13,646 18,643 17,635 19,138
General and administrative......... 1,016 2,659 3,545 3,705 3,537
------- -------- -------- -------- --------
Total operating expenses........ 6,465 16,305 22,188 21,340 22,675
------- -------- -------- -------- --------
Loss from operations................. (6,040) (14,255) (20,828) (19,130) (19,269)
Interest income...................... 224 1,543 2,045 1,695 1,082
Interest expense..................... (156) (315) (698) (569) (603)
------- -------- -------- -------- --------
Net loss............................. $(5,972) $(13,027) $(19,481) $(18,004) $(18,790)
======= ======== ======== ======== ========
Net loss per share(2)................ $ (0.85) $ (1.30) $ (1.50) $ (1.37) $ (1.39)
======= ======== ======== ======== ========
Shares used in calculation of net
loss per share(2).................. 7,060 10,036 12,986 13,161 13,496
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 16,533 $ 24,703 $ 34,003
Working capital........................................ 9,641 17,811 27,111
Total assets........................................... 22,377 30,547 39,847
Long-term obligations, excluding current
installments......................................... 2,569 2,569 2,569
Accumulated deficit.................................... (82,622) (82,622) (82,622)
Stockholders' equity................................... 11,977 20,147 29,447
</TABLE>
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(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 1996. Pro forma net loss per share in
1992 is computed as above, and also reflects the conversion of the preferred
stock into Common Stock as if converted at the original date of issuance.
(3) Reflects net proceeds of $8,170,000 for the sale of 2,000,000 shares of
Common Stock in connection with the Company's registered direct public
offering in January 1997.
(4) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at an assumed public offering price of $4.75 per share and the
application of the net proceeds therefrom of approximately $9,300,000. See
"Use of Proceeds" and "Capitalization."
5
<PAGE> 7
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
contained or incorporated by reference 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 December 31, 1996, the Company's accumulated deficit was approximately
$82.6 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 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
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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, but not limited to, 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
Investigational New Drug application ("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 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.
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<PAGE> 9
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 significant 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 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 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
8
<PAGE> 10
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
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 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.
9
<PAGE> 11
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 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 that one claim of the Company's patent and
one claim of 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 an analysis of claims
and file history of the U.S. patent application of Daniel Jean and Leon Cariel,
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, which is the subject matter of the Company's patent. There can be
no assurance, however, that the Company will prevail. Additionally, in
connection with the Interference proceeding, the Company has 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. One broad
claim, in particular, of the Daniel Jean and
10
<PAGE> 12
Leon Cariel patent application, which is not involved in the Interference
proceeding and which has been indicated to be allowable, covers a large variety
of proanthocyanidin polymers. Based on opinion of counsel, the Company believes
that this broad claim is subject to attack as invalid in view of prior art.
Based on knowledge of the Company's specific proanthocyanidin polymer
composition, the Company believes that the manufacture, use or sale of its
specific proanthocyanidin polymer composition would not constitute infringement
of this broad claim, once it issues. There can be no assurances, however, that
the Company would prevail should an action for infringement of such claim be
commenced. 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 or industries. 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,
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."
11
<PAGE> 13
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 600,000 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 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
12
<PAGE> 14
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. Directors and officers of the Company have agreed, in connection
with the Company's January 1997 registered direct public offering, that until
April 22, 1997, they will not 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 December 31,
1996 of approximately $3.29 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.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be approximately $9.3 million,
after deducting expenses of the offering.
Through December 31, 1997, the Company anticipates that the approximately
$9.3 million in net proceeds from this offering, together with the Company's
cash, cash equivalents and short-term investments of $16.53 million at December
31, 1996, the proceeds from the Company's registered direct public offering in
January 1997 of $8.17 million, committed funding from Ono in 1997 of $2.0
million, committed funding from Lipha/Merck in 1997 of $2.25 million, and
Shaman's right to sell 400,000 shares of Common Stock at specified intervals in
1997 for estimated proceeds of $2.75 million, will be used as follows: (i)
approximately $10.0 million for clinical testing and related regulatory
activities for Provir, Virend and nikkomycin Z, (ii) approximately $8.0 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 through at least the
third quarter of 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
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<PAGE> 15
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market tier of
the Nasdaq Stock 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............................................. 7.38 5.38
1997
First Quarter (through March 11, 1997)..................... 6.50 4.50
</TABLE>
On March 7, 1997, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $4.75 per share. As of such date,
there were approximately 762 stockholders of record for the Company's Common
Stock.
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> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i)
actual, as of December 31, 1996; (ii) on a pro forma basis to give effect to the
receipt by the Company of the net proceeds of $8.17 million from the sale of
2,000,000 shares of Common Stock issued in connection with the Company's
registered direct public offering in January 1997; and (iii) on a pro forma 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 $4.75 per share (after deducting estimated
offering expenses):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, excluding
current installments..................................... $ 2,569 $ 2,569 $ 2,569
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, 13,920,684, shares issued and
outstanding, actual; 15,920,684 shares issued and
outstanding, pro forma; and 17,920,684 shares issued
and outstanding, pro forma as adjusted(1)............. 14 16 18
Additional paid-in capital............................... 94,605 102,773 112,071
Deferred compensation and other adjustments.............. (20) (20) (20)
Accumulated deficit...................................... (82,622) (82,622) (82,622)
-------- -------- --------
Total stockholders' equity................................. 11,977 20,147 29,447
-------- -------- --------
Total capitalization....................................... $ 14,546 $ 22,716 $ 32,016
======== ======== ========
</TABLE>
- ---------------
(1) Excludes, as of December 31, 1996: (i) 2,101,976 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 Convertible Preferred Stock. To the extent
outstanding options or warrants are exercised, there may be further dilution
to new investors.
15
<PAGE> 17
DILUTION
The net tangible book value of the Company's Common Stock as of December
31, 1996, as adjusted to reflect net proceeds of $8.17 million from the sale of
2,000,000 shares of Common Stock issued in connection with the Company's
registered direct public offering in January 1997, was approximately $16,888,000
or $1.06 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 $4.75 per share and the receipt of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of December 31, 1996 would have been approximately $26,188,000, or
$1.46 per share. This represents an immediate increase in net tangible book
value of $.40 per share of Common Stock held by the existing stockholders of the
Company and an immediate dilution of $3.29 per share to new investors. The
following table illustrates the dilution to new investors as of December 31,
1996:
<TABLE>
<S> <C> <C>
Public offering price per share(1)................................... $4.75
Net tangible book value per share before offering.................. $1.06
Increase per share attributable to new investors................... .40
-----
Pro forma net tangible book value per share after offering........... 1.46
-----
Dilution per share to new investors.................................. $3.29
=====
</TABLE>
- ---------------
(1) Before deducting 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 December 31, 1996, options to purchase 2,101,976
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
December 31, 1996. To the extent that certain of these options or warrants are
exercised, there could be further dilution to the new investors.
16
<PAGE> 18
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, 1996, and with respect to the Company's balance sheets at December
31, 1995 and 1996, 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 year ended December
31, 1992 and 1993, and with respect to the balance sheet data at December 31,
1992, 1993 and 1994 are derived from audited financial statements not
incorporated by reference herein. 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>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborative
agreements......................... $ 425 $ 2,050 $ 1,360 $ 2,210 $ 3,406
Operating expenses (1):
Research and development........... 5,449 13,646 18,643 17,635 19,138
General and administrative......... 1,016 2,659 3,545 3,705 3,537
------- -------- -------- -------- --------
Total operating expenses............. 6,465 16,305 22,188 21,340 22,675
------- -------- -------- -------- --------
Loss from operations................. (6,040) (14,255) (20,828) (19,130) (19,269)
Interest income...................... 224 1,543 2,045 1,695 1,082
Interest expense..................... (156) (315) (698) (569) (603)
------- -------- -------- -------- --------
Net loss............................. $(5,972) $ 13,027) $(19,481) $(18,004) $(18,790)
======= ======== ======== ======== ========
Net loss per share (2)............... $ (0.85) $ (1.30) $ (1.50) $ (1.37) $ (1.39)
======= ======== ======== ======== ========
Shares used in calculation of net
loss per share(2).................. 7,060 10,036 12,986 13,161 13,496
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments........................ $14,258 $ 57,333 $ 39,843 $ 26,665 $ 16,533
Working capital...................... 13,025 36,711 33,422 22,850 9,641
Total assets......................... 15,964 67,229 49,673 33,810 22,377
Long-term obligations, excluding
current installments............... 473 3,261 3,932 4,930 2,569
Accumulated deficit.................. (13,320) (26,348) (45,828) (63,832) (82,622)
Stockholders' equity................. 13,747 60,436 41,300 24,205 11,977
</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 1996. Pro forma net loss per share in
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.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 an active Type II diabetes research program which
served as the basis for its collaborations 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 December 31, 1996, was
approximately $82.6 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
follow-on offering in December 1993, a registered direct public offering in
January 1997, collaborative agreements with pharmaceutical companies and, to a
lesser extent, through equipment and leasehold improvement financings.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Company recorded collaborative revenues of $3.4 million, $2.2 million
and $1.4 million for 1996, 1995 and 1994, respectively. Revenues for 1996
resulted from the Company's on-going research funding from Ono, an additional
$1.0 million payment from Ono for enhanced rights to Shaman's antidiabetic
compounds, and research payments and access fees from Shaman's collaboration
with Lipha/Merck. Revenues in 1995 resulted solely from the Company's
relationship with Ono, and included a one-time access fee associated with the
May 1995 commencement of the collaboration. Revenues in 1994 resulted from the
Company's antifungal joint research and development agreement with Eli Lilly
("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 continue to 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 $19.1 million,
$17.6 million and $18.6 million for 1996, 1995, and 1994, 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 increased $1.5 million in
1996 compared with 1995, and decreased $1.0 million in 1995 compared with 1994.
The increase in 1996 was primarily attributable to the Company's clinical trials
and development activities for Provir, as well as additional research and
development activities with respect to nikkomycin Z, partially offset by reduced
expenses for clinical trials and development activities for Virend. The decrease
in 1995 compared with 1994 was primarily attributable 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.
Research and development expenses are likely to increase in 1997 as products
enter clinical trials and the Company continues research and development
activities for various product candidates.
18
<PAGE> 20
General and administrative expenses were $3.5 million, $3.7 million and
$3.5 million for 1996, 1995 and 1994, respectively. These expenses include
administrative salaries, consulting, legal, travel and other operating expenses.
The Company's expanded research and clinical activities are not expected to
require commensurate increases in general and administrative support.
Interest income was $1.1 million, $1.7 million and $2.0 million for 1996,
1995 and 1994, respectively. Interest income decreased $600,000 in 1996 compared
with 1995 and decreased $300,000 in 1995 compared with 1994. 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 1994, 1995 and 1996. The
balances of cash, cash equivalents and investments were $16.5, $26.7 and $39.8
million at December 31, 1996, 1995 and 1994, respectively.
Interest expense was $603,000, $569,000 and $698,000 in the years ended
December 31, 1996, 1995 and 1994, respectively. Interest expense increased in
1996 compared with 1995 as the Company absorbed a full year's expense on its
unsecured term loan. Interest expense decreased in 1995 compared with 1994 as
various leases terminated during the year, and the Company did not close its
term debt until the fourth quarter of 1995. 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, 1996, the Company had federal net operating loss
carryforwards of approximately $76.9 million. The federal net operating loss
carryforwards will expire at various dates beginning in 2004 through 2011, if
not sooner utilized. Utilization of the net operating losses and credits is
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986, as amended. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
LIQUIDITY AND CAPITAL RESOURCES
In January 1997, the Company sold 2,000,000 shares of Common Stock in a
registered direct public offering for gross proceeds of $9.0 million, the
proceeds of which are not reflected in the December 31, 1996 cash balance. The
proceeds of the offering will be used for the continued research and clinical
development of the Company's existing product candidates.
As of December 31, 1996, the Company's cash, cash equivalents, and
investments totaled approximately $16.5 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 used 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 to jointly develop Shaman's antihyperglycemic drugs.
Upon signing the collaboration, the Company received an annual research fee of
$1.5 million which will be amortized to revenue over 12 months, as work is
performed. Shaman recognized $406,250 in revenue from the Lipha/Merck
collaboration during the year ended December 31, 1996. The Company also received
approximately $3.0 million for 388,918 shares of Common Stock priced at $7.71
per share, representing a 20% premium to the weighted average price of the
Company's stock at the time of purchase. 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 $9.0 million in research payments and up to $10.5 million 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 $10.0 million per compound for each
antihyperglycemic drug developed and commercialized. 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
19
<PAGE> 21
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, the Company closed a private placement (the "1996 Private
Placement") pursuant to Regulation S under the Securities Act of 1933, as
amended, in which it received gross proceeds of $3.3 million for the sale of
400,000 shares of Series A Convertible Preferred Stock and for the issuance of a
six-year warrant to purchase 550,000 shares of the Company's Common Stock at an
exercise 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.
Holders of preferred shares are entitled to a liquidation preference of $8.147
per share. 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
Company's Common Stock price at the time of sale. If the Company exercises this
right, the investor has the option to increase the shares purchased by up to an
aggregate of 527,500 shares.
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 $16.5
million at December 31, 1996, the collaborative revenue committed by Lipha/Merck
and Ono, Lipha/Merck's commitment to purchase additional equity, Shaman's
additional rights to sell Common Stock under the 1996 Private Placement, and
proceeds from the registered direct public offering in January 1997 (see Note 9
to Notes to Financial Statements -- Subsequent Event) will be adequate to fund
operations, including payments due under long-term obligations, through the
first 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 assurances that these
milestones will be achieved, nor that additional funding, if needed, will be
available on reasonable terms, or at all.
Long-term obligations decreased $2.4 million in 1996 compared with 1995 due
to the acceleration of the principal payments on its term loan to 24 months from
30 months, with the first monthly payment due May 15, 1996 instead of April 30,
1997, and reclassified $1.25 million of its term debt to current liabilities as
of December 31, 1996.
20
<PAGE> 22
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
commenced 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
or non-insulin dependent) diabetes, an effort that has led to the identification
of 13 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 the treatment of watery diarrhea.
Moreover, approximately 67 million over-the-counter units are sold annually
worldwide. Current treatment for watery diarrhea includes antibiotics, which 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 4 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 coccidiomycosis (valley fever),
histoplasmosis and blastomycosis ("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
21
<PAGE> 23
conduct a combination nikkomycin Z plus fluconazole human clinical study in
azole-resistant esophageal candidiasis patients.
Type II 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 U.S. alone,
approximately 625,000 new cases of Type II 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 13
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.
22
<PAGE> 24
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 commenced in
Q1 1997
Provir AIDS diarrhea Phase II (studying Shaman
preliminary efficacy)
will commence in Q1 1997
Provir Pediatric diarrhea Formulation Development Shaman
Virend Genital herpes Initial Phase II completed; Shaman
combination study
commenced in Q1
Nikkomycin Z Endemic mycoses Phase I under U.K. law; IND Shaman
to be filed in the United
States
Nikkomycin Z and azoles Azole-resistant Candida Initiation pending Shaman
completion of Phase I
above (1)
Oral antihyperglycemic Diabetes Preclinical Ono (Japan, Taiwan, South Korea)
compounds (in development) 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 Company's topical
product in Phase II clinical testing for genital herpes, and in Provir, 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, 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
23
<PAGE> 25
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
body's 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 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.
[Diagram 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 in 75 patients 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 cause.
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 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.
In February 1997, Shaman initiated double-blind, randomized, placebo
controlled Phase IIb studies of Provir and will attempt to determine the optimal
effective dose level of Provir for the treatment of watery diarrhea. In
addition, Shaman plans to initiate a Phase II study in the first quarter of 1997
to test Provir as a treatment for diarrhea in patients with AIDS.
Thirty to sixty 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.
24
<PAGE> 26
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. Shaman is currently
engaged in formulation development of Provir as a potential treatment for
pediatric diarrhea.
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.
Virend
Genital herpes is caused by herpes simplex virus which affects nerve cell
ganglia and results in painful lesions that typically last from 4 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 nucleoside
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.
[Diagram illustrating Virend mechanism of action]
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 initiated a study to determine treatment
outcome of combination therapy, Virend plus oral acyclovir, compared with a
placebo gel and oral acyclovir. The study is 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.
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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: coccidiomycosis (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.
[Diagram illustrating a Fungal cell]
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.
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 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 just over 24 months of this
program, the Company has identified 13 orally-active compounds for which, to
date, 11 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.
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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 jointly Shaman's antihyperglycemic drugs.
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 $9.0 million in research
payments and up to $10.5 million 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. Of the $4.5 million received on signing the agreement,
$1.5 million was an up-front research payment and $3.0 million was an equity
investment. 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 $10.0 million per compound for
each antihyperglycemic drug developed and commercialized. To date, Shaman has
identified 13 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 $7.0 million in collaborative research
funding and will pay preclinical and clinical milestone payments of $4.0 million
per compound for each antidiabetic drug that is commercialized. Of the $3.0
million received on signing the agreement, $1.0 million was an up-front research
payment. Shaman received an additional $1.0 million payment (beyond the $7.0
million commitment) in December 1996 for enhanced access rights to these
compounds.
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 "Business -- 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.
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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 intends to recruit a senior staff
to direct marketing and sales activities. Shaman is also evaluating the
opportunity to retain certain marketing rights to its products. 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.
The Company has been issued two U.S. patents related to its specific
proanthocyanidin polymer compositions designated SP-303: one patent contains
composition of matter claims related to SP-303 contained in the Company's Provir
and Virend products and the other contains claims directed to methods of use of
the composition as an anti-viral agent in Virend.
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.
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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 that one claim of the Company's
patent and one claim of 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 and on analysis of the claims and file history of the U.S.
patent application of Daniel Jean and Leon Cariel, 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, which is the
subject matter of the Company's patent. There can be no assurance, however, that
the Company will prevail. Additionally, in connection with the Interference
proceeding, the Company has 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 otherwise kept confidential. One broad claim, in particular, of
the Daniel Jean and Leon Cariel patent application which is not involved in the
Interference proceeding and which has been indicated to be allowable, covers a
large variety of proanthocyanidin polymers. Based on opinion of Counsel, the
Company believes that this broad claim is subject to attack as invalid in view
of prior art. Based on knowledge of the Company's proanthocyanidin polymer
composition, the Company believes that the manufacture, use or sale of its
specific proanthocyanidin polymer composition would not constitute infringement
of this broad claim, once it is issued.
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 11 U.S. patent applications relating to
compositions and methods for treating Type II diabetes as well as reducing
hyperglycemia associated with other etiologies. Six of the U.S. patent
applications have been indicated to be allowed by the U.S. Patent and Trademark
Office. The Company has filed five 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 candidiasis, the most frequently encountered life-threatening
mycoses. 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 "Risk Factors -- Uncertainty Regarding Patents and
Proprietary Rights."
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
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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 "Risk Factors -- 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.
RAW MATERIAL SUPPLY
The Company imports all of the plant material it screens from foreign
countries, particularly from countries in 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
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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 the raw material used to produce 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.
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
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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, 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
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.
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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 March 7, 1997, the Company had 86 employees. Of these employees, 67
are dedicated to research, development, quality assurance and quality control,
regulatory affairs and preclinical testing. Twenty-five of the Company's
full-time employees hold a Ph.D. or M.D. In addition, the Company, currently
fills 13 positions through the use of temporary staff and consultants.
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
"Business -- 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 significant legal proceedings. See "Risk Factors -- Uncertainty
Regarding Patents and Proprietary Rights."
33
<PAGE> 35
MANAGEMENT
The names, ages and positions of the Company's executive officers and
directors, as of March 6, 1997, are set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------- ---- ---------------------------------------------------
<S> <C> <C>
Lisa A. Conte 37 President, Chief Executive Officer, Chief Financial
Officer and Director
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
Gina D. Morhun 31 Vice President, Human Resources
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, Chief Financial 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.
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 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
34
<PAGE> 36
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.
GINA D. MORHUN joined Shaman in November 1994 and currently serves as Vice
President, Human Resources. Ms. Morhun is responsible for Shaman's human
resource functions. Prior to joining the Company, she served as Human Resource
Manager at Abaxis, Inc. of Sunnyvale, California from April to November, 1994,
and as Manager of Compensation and Benefits at ASK Computers, Inc. of Santa
Clara, California from November 1992 to April 1994. From June 1987 to November
1992, Ms. Morhun served as Senior Technical Analyst, Actuarial Consultant and
Underwriter for three large international firms: Alexander & Alexander
Consulting Group, The Wyatt Company, and Metropolitan Life Insurance Company.
Ms. Morhun received a B.A. in Statistics from the University of California at
Davis.
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.
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 March 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, 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.
35
<PAGE> 37
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 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, Chief Financial Officer and 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.
36
<PAGE> 38
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.
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.
37
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of February 28, 1997, 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 fiscal year
ended December 31, 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
-----------------------------------------
PERCENT PERCENT
OWNED OWNED
NUMBER OF BEFORE AFTER
BENEFICIAL SHARES OFFERING(1) OFFERING(2)
- ----------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
State of Wisconsin Investment Board
Post Office Box 7842
Madison, WI 53707........................................ 1,290,000 8.10% 7.20%
Fletcher International Ltd.(3)
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies...................................... 950,000 5.97% 5.30%
Travelers Group Inc.
388 Greenwich Street
New York, NY 10013....................................... 929,700 5.84% 5.19%
Delphi Ventures(4)
3000 Sand Hill Road
Building One, Suite 135
Menlo Park, CA 94025..................................... 993,571 6.24% 5.54%
Lisa A. Conte(5)........................................... 717,000 4.46% 3.97%
G. Kirk Raab(6)............................................ 128,316 * *
John A. Young(7)........................................... 34,983 * *
Herbert H. McDade, Jr.(8).................................. 24,983 * *
M. David Titus(9).......................................... 29,983 * *
Jacqueline Cossmon(10)..................................... 11,500 * *
Atul S. Khandwala, Ph.D.(11)............................... 37,000 * *
Steven R. King, Ph.D.(12).................................. 86,861 * *
Gerald R. Reaven, M.D.(13)................................. 154,947 * *
Current Officers and Directors as a group (10
persons)(14)............................................. 1,251,927 7.55% 6.74%
</TABLE>
- ---------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 15,921,417 shares
of Common Stock were outstanding on February 28, 1997. 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 February 28, 1997 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned.
38
<PAGE> 40
(2) Percentage of beneficial ownership is adjusted to reflect the sale by the
Company of 2,000,000 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 February 28, 1997, are deemed outstanding for
computing the percentage of the person holding such option or warrant but
are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(3) Includes 400,000 shares issuable upon conversion of preferred stock
convertible within 60 days of February 28, 1997 and 550,000 shares issuable
upon exercise of warrants exercisable within 60 days of February 28, 1997.
(4) Represents 931,934 shares, 3,304 shares, 58,006 shares and 327 shares held
by entities affiliated with Delphi Ventures.
(5) Includes 145,000 shares subject to options exercisable within 60 days of
February 28, 1997.
(6) Represents 128,316 shares subject to options exercisable within 60 days of
February 28, 1997.
(7) Represents 34,983 shares subject to options exercisable within 60 days of
February 28, 1997.
(8) Represents 24,983 shares subject to options exercisable within 60 days of
February 28, 1997.
(9) Includes 24,983 shares subject to options exercisable within 60 days of
February 28, 1997.
(10) Includes 10,500 shares subject to options exercisable within 60 days of
February 28, 1997.
(11) Represents 36,000 shares subject to options exercisable within 60 days of
February 28, 1997.
(12) Includes 64,603 shares subject to options exercisable within 60 days of
February 28, 1997.
(13) Includes 154,447 shares subject to options exercisable within 60 days of
February 28, 1997.
(14) Includes shares held by family members associated with directors and
officers listed above. Also includes 650,169 shares which are currently
issuable upon the exercise of outstanding options.
39
<PAGE> 41
PLAN OF DISTRIBUTION
The Common Stock is being offered directly by the Company to a limited
number of investors. The price of the Common Stock offered hereby will be
determined through negotiations between the Company and the purchasers which
will take place after effectiveness of the Registration Statement. No investor
funds will be accepted prior to effectiveness of the Registration Statement. The
price of the Common Stock offered hereby could be below the current market price
which could result in dilution to existing stockholders and could have an
adverse effect on the market for the Company's stock.
The chief executive officer of the Company, with the assistance of other
officers as needed, will participate in the sale of the Common Stock to the
investors. These participants, who will not receive any compensation for these
activities, will not be deemed to be brokers pursuant to Rule 3a4-1 under the
Exchange Act. They will seek to identify prospective investors from among
institutional and other potential investors known to have investments in the
biotechnology industry, as well as current stockholders who may be interested in
increasing their investment in the Company. No broker-dealers will participate
as potential investors.
Prior to the closing date, all investor funds will promptly be placed in an
escrow account established for the benefit of the investors. The escrow agent
will act only as an escrow agent in connection with the offering of the
securities described herein. The escrow agent will invest such funds in
accordance with Rule 15c2-4 promulgated under the Exchange Act. Prior to the
closing date, the escrow agent will advise the Company that payment for the
purchase of the shares of the Common Stock has been affirmed by the investors
and that the investors have deposited the requisite funds in the escrow account.
Upon receipt of such notice, the Company will instruct its transfer agent or the
Depository Trust Company, as appropriate, to deliver the shares of Common Stock
to the investors. Investor funds will be collected by the Company through the
facilities of the escrow agent on the closing date. The offering will not
continue after the closing date. In the event that the offering is not
consummated, all funds deposited in the escrow account, plus interest earned
thereon, if any, will be promptly returned to the investors.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for
sale.
The Company will pay all the expenses incident to the offering and sale of
the Common Stock to the public. Such expenses are estimated to be $200,000.
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.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such 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.
40
<PAGE> 42
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE 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. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 18
Business.............................. 21
Management............................ 34
Principal Stockholders................ 38
Plan of Distribution.................. 40
Legal Matters......................... 40
Experts............................... 40
</TABLE>
======================================================
======================================================
2,000,000 SHARES
SHAMAN
PHARMACEUTICALS,
INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1997
======================================================
<PAGE> 43
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. 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.............................................. $ 2,841
NNM listing fees.................................................. 17,500
Accounting fees and expenses...................................... 25,000
Legal fees and expenses........................................... 75,000
Printing and engraving expenses................................... 12,000
Miscellaneous fees and expenses................................... 67,659
--------
Total........................................................... $200,000
========
</TABLE>
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.
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,
II-1
<PAGE> 44
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 Escrow Agreement.
1.2** 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)(11) 1990 Stock Option Plan, as amended.
10.2(1)(11) 1992 Stock Option Plan.
10.3(1)(11) 401(k) Plan.
10.4(1)(11) Form of Stock Purchase Agreement.
10.5(1)(11) 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)(11) 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)(11) 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.
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.
</TABLE>
II-2
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------- ------------------------------------------------------------------------
<S> <C>
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.
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)(10) 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)(10) Subscription Agreement dated July 25, 1996 by and between the Registrant
and Fletcher International Limited.
</TABLE>
II-3
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------- ------------------------------------------------------------------------
<S> <C>
10.50(9)(10) 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)(10) 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>
- ---------------
* Filed herewith.
** To be filed by amendment.
(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.
(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) Management contract or compensation plan.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are included because they are not required
or the required information is included in the financial statements or notes
thereto.
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
II-4
<PAGE> 47
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> 48
SIGNATURES
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 11th
day of March, 1997.
SHAMAN PHARMACEUTICALS, INC.
By: /s/ LISA A. CONTE
------------------------------------
Lisa A. Conte
President, Chief Executive Officer
and
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint jointly and severally, Lisa A.
Conte and G. Kirk Raab, or either of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their substitute of
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
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:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ LISA A. CONTE Director, President, Chief March 11, 1997
- ----------------------------------------------- Executive Officer and Chief
Lisa A. Conte Financial Officer (Principal
Executive and Financial
Officer)
/s/ G. KIRK RAAB Chairman of the Board March 11, 1997
- -----------------------------------------------
G. Kirk Raab
/s/ HERBERT H. MCDADE, JR. Director March 11, 1997
- -----------------------------------------------
Herbert H. McDade, Jr.
/s/ M. DAVID TITUS Director March 11, 1997
- -----------------------------------------------
M. David Titus
/s/ JOHN A. YOUNG Director March 11, 1997
- -----------------------------------------------
John A. Young
</TABLE>
II-6
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
------------- -------------------------------------------------------------------
<S> <C> <C>
1.1** Form of Escrow Agreement.
1.2** 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)(11) 1990 Stock Option Plan, as amended.
10.2(1)(11) 1992 Stock Option Plan.
10.3(1)(11) 401(k) Plan.
10.4(1)(11) Form of Stock Purchase Agreement.
10.5(1)(11) 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)(11) 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)(11) 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.
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.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
------------- -------------------------------------------------------------------
<S> <C> <C>
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.
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.
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
------------- -------------------------------------------------------------------
<S> <C> <C>
10.45(6)(10) 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)(10) Subscription Agreement dated July 25, 1996 by and between the
Registrant and Fletcher International Limited.
10.50(9)(10) 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)(10) 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>
- ---------------
* Filed herewith.
** To be filed by amendment.
(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.
(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) Management contract or compensation plan.
<PAGE> 1
EXHIBIT 5.1
March 12, 1997
Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, CA 94080
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be
filed by Shaman Pharmaceuticals, Inc. (the "Company") with the Securities and
Exchange Commission (the "Commission") on March 13, 1997, as thereafter amended
or supplemented (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to Two Million
(2,000,000) shares (the "Shares") of the Company's Common Stock, par value
$0.001 per share (the "Common Stock").
We have examined originals or copies of (i) the Restated
Certificate of Incorporation of the Company; (ii) the Bylaws of the Company;
(iii) certain resolutions of the Board of Directors of the Company; and (v)
such other documents and records as we have deemed necessary and relevant for
the purposes hereof. In addition, we have relied on certificates of officers
of the Company and certificates of public officials as to certain matters of
fact relating to this opinion and have made such investigations of law as we
have deemed necessary and relevant as a basis hereof.
We have assumed the genuineness of all signatures, the
authenticity of all documents, certificates and records submitted to us as
originals, the conformity to authentic original documents, certificates and
records of all such documentation submitted to us as copies and the
truthfulness of all statements of facts contained therein. Based on the
foregoing and subject to the limitations set forth herein and having due regard
for such legal considerations as we deem relevant, we are of the opinion that
the Shares, when issued and sold in the manner described in the Registration
Statement, will be validly issued, fully paid and nonassessable shares of the
Common Stock.
The foregoing opinion is based on and limited to the General
Corporation Law of the State of Delaware and the relevant federal laws of the
United States, and we express no opinion with respect to the laws of any other
jurisdiction.
<PAGE> 2
Shaman Pharmaceuticals, Inc. Page 2
March 12, 1997
We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" in the Registration Statement (Form S-3) and
related prospectus of Shaman Pharmaceuticals, Inc. for the registration of
2,000,000 shares of its common stock and to the incorporation by reference
therein of our report dated January 20, 1997, with respect to the financial
statements of Shaman Pharmaceuticals, Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Palo Alto, California
March 12, 1997
