<PAGE>
As filed with the Securities and Exchange Commission on May 6, 1999.
Registration No. 333-75079
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Ribozyme Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 2834 34-1697351
(Primary Standard (I.R.S. Employer
(State or other IndustrialClassification Identification Number)
jurisdiction of Code Number)
incorporation or
organization)
2950 Wilderness Place
Boulder, Colorado 80301
(303) 449-6500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
RALPH E. CHRISTOFFERSEN
Ribozyme Pharmaceuticals, Inc.
Chief Executive Officer and President
2950 Wilderness Place
Boulder, Colorado 80301
(303) 449-6500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies:
HERBERT H. DAVIS III JAMES R. TANENBAUM
ROTHGERBER JOHNSON & LYONS LLP STROOCK & STROOCK & LAVAN LLP
1200 17th Street, Suite 3000 180 Maiden Lane
Denver, Colorado 80202 New York, New York 10038
(303) 623-9000 (212) 806-6048
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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: [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 6, 1999
1,800,000 Shares
Ribozyme Pharmaceuticals, Inc.
Common Stock
-------------
Ribozyme Pharmaceuticals, Inc. is offering shares of its common stock which
is quoted on the Nasdaq National Market under the symbol "RZYM." On May 5,
1999, the last reported sale price of the common stock on the Nasdaq National
Market was $4.44 per share. See "Price Range of Common Stock."
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $
Placement Agency Fees........................................... $
Proceeds to Ribozyme Pharmaceuticals............................ $
</TABLE>
. Hambrecht & Quist LLC, the placement agent, will use its best efforts to
introduce Ribozyme Pharmaceuticals to investors.
. The offering is being made on an all or none basis.
. All funds received prior to the closing will be held in escrow until closing.
. If funds for the full amount of the offering are not received shortly after
pricing of the offering, the offering will be terminated and any funds in
escrow will be returned promptly.
-------------
Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
-------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
Prospectus dated , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................... 1
Risk Factors......................................................... 5
Use of Proceeds...................................................... 11
Price Range of Common Stock.......................................... 12
Dividend Policy...................................................... 12
Capitalization....................................................... 13
Dilution............................................................. 14
Selected Financial Data.............................................. 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 16
Business............................................................. 23
Management........................................................... 39
Certain Transactions................................................. 49
Principal Stockholders............................................... 51
Description of Capital Stock......................................... 53
Plan of Distribution................................................. 56
Legal Matters........................................................ 56
Experts.............................................................. 57
Additional Information............................................... 57
</TABLE>
ANGIOZYME(TM) and HEPTAZYME(TM) are trademarks of Ribozyme Pharmaceuticals.
i
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you
should consider before investing in our common stock. You should read the
entire prospectus carefully, including "Risk Factors" and the financial
statements, before making an investment decision.
Ribozyme Pharmaceuticals, Inc.
Business
Ribozyme Pharmaceuticals is developing a new class of drugs based on
"ribozymes," a form of ribonucleic acid which has the ability to selectively
inhibit protein production. Because many human disease states result from
abnormal protein production, we believe that ribozymes are applicable to a wide
range of human diseases. We are currently conducting preclinical development
and clinical trials for our two lead product candidates, ANGIOZYME and
HEPTAZYME. We are collaborating with Chiron Corporation for the development and
commercialization of ANGIOZYME, a drug for the treatment of solid tumor
cancers. We have completed Phase Ia clinical trials in healthy volunteers,
commenced Phase Ib trials in cancer patients and expect to begin Phase II
trials by the end of the year. We are collaborating with Eli Lilly and Company
for the development and commercialization of HEPTAZYME, a drug for the
treatment of Hepatitis C, a viral liver disease. In 1998, we transferred our
target validation and discovery technology to a newly formed German company,
Atugen Biotechnology GmbH, in return for a substantial equity interest.
The Market Opportunity
Our two lead product candidates, ANGIOZYME and HEPTAZYME, are therapeutics
for large markets. ANGIOZYME is a drug which targets solid tumor cancers, such
as cancers of the lung, breast, prostate, colon and rectum. These cancers
account for over 750,000 new cancer cases and 200,000 deaths per year in the
United States alone. HEPTAZYME targets the Hepatitis C virus, the most common
blood-borne infection in the United States. Each year in the United States,
Hepatitis C infects approximately 50,000 people and causes 10,000 deaths.
Existing therapies are ineffective in over 50% of Hepatitis C patients and have
serious side effects.
The Ribozyme Advantage
We believe ribozymes offer significant advantages over other approaches to
treating human disease. Ribozymes can selectively inhibit protein production by
binding to and cutting apart its associated messenger RNA sequence. Many common
human diseases involve either abnormal protein production or RNA viruses.
Ribozymes can be used to treat human disease in two ways. First, ribozymes can
be designed to inhibit abnormal protein production associated with a disease.
Second, ribozymes can be designed to target RNA viruses or protein production
in other infectious agents that cause disease. Ribozymes also are useful in
identifying the function of specific genes (validating targets) and in
diagnosing disease.
Strategy
Our primary business objective is to use our technology to identify and
develop drugs containing ribozymes to treat or prevent human disease. Our
strategy to achieve this objective includes the following:
. develop identified product candidates,
. identify new product candidates,
. partner with others to develop products,
1
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. focus on human therapeutics and license other applications of our
technology, and
. maintain and expand our patent portfolio and proprietary technology.
Patents
Our patents and proprietary technology provide a significant competitive
advantage in the use of ribozymes in drug development. Our licenses to patents
of Dr. Cech and others, together with patents issued to and filed by us, give
us the exclusive rights to control the manufacture, use and sale of ribozymes.
Our current patent portfolio includes 84 issued or allowed patents and over 100
applications.
Our corporate headquarters are located at 2950 Wilderness Place, Boulder,
Colorado 80301, and our telephone number is (303) 449-6500. Our web site
address is www.rpi.com. Information contained on our website does not
constitute part of this prospectus.
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The Offering
<TABLE>
<C> <S>
Common stock offered............................... 1,800,000 shares
Common stock to be outstanding after the offering.. 10,986,504 shares
Use of proceeds.................................... To fund preclinical
studies and clinical
trials of our products,
research and development,
and for working capital
and other general
corporate purposes
Nasdaq National Market symbol...................... RZYM
</TABLE>
- --------
This information is based on the number of shares outstanding at April 28,
1999. It excludes:
. 1,474,124 shares reserved for issuance under our stock option plan, of
which 1,401,936 shares were outstanding, at a weighted average exercise
price of $4.20 per share.
. 487,458 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $22.30 per share.
. 1,222,416 shares issuable to one of our collaborators upon conversion of
outstanding debt, assuming a conversion price of $4.44 per share, which
was the closing price of our common stock on April 28, 1999.
. up to approximately 1,689,189 shares issuable to one of our collaborators
upon conversion of five shares of our Series L Preferred Stock, assuming
a conversion price of $4.44 per share, which was the closing price of our
common stock on April 28, 1999.
. 200,168 shares available for issuance under our Employee Stock Purchase
Plan.
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Summary Financial Data
(in thousands except per share amounts)
The selected historical financial data presented below is derived from the
financial statements of Ribozyme Pharmaceuticals. The financial statements for
each of the five years ended December 31, 1994, 1995, 1996, 1997 and 1998 have
been audited by Ernst & Young LLP, independent auditors. The as adjusted
balance sheet data summarized below reflects the application of the net
proceeds from the sale of the 1,800,000 shares of common stock offered by
Ribozyme Pharmaceuticals at the assumed offering price of $5.00 after deducting
estimated placement agency fees and offering expenses. Our results at March 31,
1999 do not necessarily indicate our expected results for 1999. You should read
this information together with the more detailed information presented in
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited financial statements and
related notes.
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, March 31,
---------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
-------- --------- --------- --------- --------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........ $ 1,317 $ 1,280 $ 773 $ 1,983 $ 8,988 $ 765 $ 1,701
Expenses:
Research and
development........ 9,212 12,204 14,189 15,170 16,941 5,001 3,760
General and
administrative..... 1,291 1,397 1,943 1,886 1,813 467 559
-------- --------- --------- --------- --------- -------- --------
Total operating
expenses.......... 10,503 13,601 16,132 17,056 18,754 5,468 4,319
-------- --------- --------- --------- --------- -------- --------
Operating loss........ (9,186) (12,321) (15,359) (15,073) (9,766) (4,703) (2,618)
Total other income
(expense)............ (64) (159) 91 (49) (1,152) 43 (517)
-------- --------- --------- --------- --------- -------- --------
Net loss.............. $ (9,250) $ (12,480) $ (15,268) $ (15,122) $ (10,918) $ (4,660) $ (3,135)
======== ========= ========= ========= ========= ======== ========
Net loss per share
(basic and
diluted)............. $ (3.52) $ (3.86) $ (2.61) $ (2.04) $ (1.22) $ (0.54) $ (0.34)
Shares used in
computing net loss
per share (basic and
diluted)............. 2,627 3,230 5,845 7,420 8,978 8,609 9,182
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and securities available-
for-sale....................................... $ 5,802 $13,902
Working capital................................. 6,860 14,960
Total assets.................................... 17,684 25,784
Capital lease obligations and long-term debt,
net of current portion......................... 5,588 5,588
Accumulated deficit............................. (76,557) (76,557)
Total stockholders' equity...................... 7,904 16,004
</TABLE>
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
We are in an early stage of development and have only a limited operating
history for you to review in evaluating our business and prospects
You must consider, based on our limited history, our ability to:
. obtain the financial resources necessary to develop, test, manufacture
and market products,
. engage corporate partners to assist in developing, testing, manufacturing
and marketing our products,
. satisfy the requirements of clinical trial protocols, including patient
enrollment,
. establish and demonstrate the clinical efficacy of our products,
. obtain necessary regulatory approvals, and
. market our products to achieve acceptance and use by the medical
community in general.
We are an early stage biotechnology company. We have focused our research and
development efforts on potential products and services based on ribozyme
technology. All of our products are in early stages of development, have never
generated any sales and require extensive testing before commercialization. We
do not expect HEPTAZYME or our most advanced product, ANGIOZYME, to be
commercially available for at least five years.
We have a history of losses, expect future losses and cannot assure you that we
will ever become or remain profitable
We have incurred significant losses and have had negative cash flows from
operations since inception. To date, we have dedicated most of our financial
resources to research and development and general and administrative expenses.
We have funded our activities primarily from sales of stock, revenues under
research and development agreements and lines of credit. As of March 31, 1999,
our accumulated deficit was $76.6 million.
We expect to incur operating losses for at least the next several years
because we plan to spend substantial amounts on research and development of
products, including preclinical studies and clinical trials, and, if we obtain
necessary regulatory approvals, on sales and marketing efforts.
We depend upon our collaborative relationships and these third parties may
choose not to continue to work with us which may adversely affect our operating
results and the price of our common stock
Should our corporate partners elect not to proceed with our collaborative
agreements, it may have a significant adverse effect on our operating results
and the price of our common stock.
Engaging corporate partners and other third parties to help us develop, test
and manufacture our products is a key element of our strategy. As a result,
many important aspects of our business have been and will continue to be
outside of our control. These factors include:
. extension, renewal or termination of collaborative relationships by
partners,
. payments based upon our company meeting performance milestones,
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. development by partners of technologies that compete with those being
developed with us, which would result in a potential loss of revenue for
us,
. decision to develop or market any products with us,
. withdrawal of resources for our products,
. termination at will under existing agreements,
. loss of royalty payments and licensing rights to jointly developed
products if we are unwilling or unable to fund our share of development
costs.
. relinquish some or all of our rights to our products, and
. negotiation of additional collaborative agreements with partners.
Both Chiron and Lilly may unilaterally terminate their agreements with us
relating to the development of our two leading products.
We have granted exclusive rights to our collaborators to products targeting
specific gene sequences which could delay development of those products and
prevent us from entering into other collaborative agreements
Under our collaborations, up to approximately 50 targets may be reserved at
any time. Development of the products subject to these exclusivity provisions
is out of our control. Development may be delayed, and these products will not
be available to us during the exclusivity term either to develop internally or
in collaboration with third parties.
Some of our collaborators have the right to reserve exclusive rights to
specified products for a period of time, even if they are not developing that
product. Also, many of our collaboration agreements require us to offer our
collaborators a right of first offer as to certain targets and products.
Under our collaborations, each collaborator has certain exclusive rights to
gene sequence targets as follows:
. Chiron may exclusively develop products against up to five targets
designated by it for the term of Chiron's collaboration with us, which
could exceed 30 years.
. Chiron may at any time reserve for 18 months the exclusive rights to
additional targets, not to exceed four.
. Under our gene function and target validation agreement, Chiron may
reserve the exclusive right to products against additional targets for up
to two and a half years.
. Schering AG may reserve indefinitely the exclusive right to products
against targets designated by it.
. Roche may reserve products against a specific number of diseases for up
to three years.
If we cannot obtain additional financing, we may have to dilute your interest,
curtail research and development, relinquish rights to some or all of our
products or declare bankruptcy
We will need to raise substantial additional capital to fund our operations
after mid-2001. We may need to raise funds prior to that time if:
. changes in research and development plans cause unexpected large future
expenditures, or
. changes in our collaborative relationships cause a significant reduction
in our expected revenues from our collaborations.
We may raise additional funding through:
. public capital markets,
. private capital markets, or
. collaboration agreements upon achievement of performance milestones.
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If we raise funds by selling more stock, your ownership share in us will be
diluted. In addition, we may grant future investors rights superior to those of
the common stock that you are purchasing. We do not know if additional funding
will be available at all or on acceptable terms when needed.
Atugen GmbH is a newly formed company and will require considerable time and
attention from our management team; we may not exercise control over Atugen
GmbH management
Atugen GmbH is a new company without a permanent CEO, a permanent CFO, or its
own business development team. Pursuant to the terms of a service agreement
between Atugen GmbH and us, Atugen GmbH has access to our management, including
our business development team, for a limited time. There is no assurance that
Atugen GmbH will be able to hire the management and business development
professionals needed for its success. Therefore, our management may need to
continue to dedicate time and resources to both the management and business
development of Atugen GmbH which may detract from management's attention to our
business. In addition, while we have the right to appoint two designees to
Atugen GmbH's Board of Directors, we do not exercise control over Atugen GmbH's
business and operations.
Our products require materials that may not be readily available or cost
effective, which may adversely affect our competitive position or profitability
All of the products we are developing are new chemical entities and are not
yet available in commercial quantities. Raw materials necessary for the
manufacture of our products may not be available in sufficient quantities or at
a reasonable cost in the future. Therefore, our products may not be available
at a reasonable cost in the future. Delays in obtaining raw materials or in
product manufacturing could delay our submission of products for regulatory
approval and our initiation of new development programs, which could, in turn,
materially impair our competitive position and potential profitability.
We experience a substantial degree of uncertainty relating to patents that
could cause us to incur substantial costs and delays as a result of proceedings
and litigation regarding patents and other proprietary rights, possibly
resulting in additional expenses and the loss of some patent protection
Our basic patents expire in 2008 in the United States and in 2007 in Europe
and Japan; however, although our license to these patents extends through 2007
or 2008, our licensor preserves the right to terminate our license before such
time under certain circumstances. We have received approval of some patent
applications for improvements and modifications to these patents, and we have
filed patent applications for other improvements and modifications which have
not yet been approved.
We cannot be certain that the inventors of subject matter covered by our
patents and patent applications were the first to invent or the first to file
patent applications for these inventions. Furthermore, we cannot guarantee that
any patents will issue from any pending or future patent applications owned by
or licensed to us. Existing or future patents may be successfully challenged,
invalidated, found to be unenforceable, infringed upon, or circumvented by
others so that our patent rights would not create an effective competitive
barrier. We also cannot assure you that the scope of our issued patents will be
sufficiently broad to offer meaningful protection against competitive products.
We have filed documents in opposition of two patents granted to a competitor in
Europe. Competitors have filed documents in opposition of our patents in Europe
and Japan. The patent opposition in Japan has been resolved in our favor. We
may not have identified all United States and foreign patents that pose a risk
of infringement.
We may be forced to litigate if an intellectual property dispute arises. This
litigation could be extremely expensive. Proceedings and litigation involving
our patents or patent applications also could result in adverse findings about:
. the patentability of our inventions and products, and/or
. the enforceability, validity or scope of protection offered by our
patents.
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The manufacture, use or sale of our products may infringe on the patent
rights of others. If we are unable to avoid infringing another party's patent
rights, we may be required to seek a license, defend an infringement action or
challenge the validity of the patents in court. Patent litigation is costly and
time consuming. We may not have sufficient resources to bring these actions to
a successful conclusion. In addition, if we do not obtain a license, do not
successfully defend an infringement action or are unable to have infringing
patents declared invalid, we may:
. incur substantial monetary damages,
. encounter significant delays in marketing our products, and
. be unable to participate in the manufacture, use or sale of products or
methods of treatment requiring licenses.
In addition, we regularly enter into agreements to in-license technologies
and patent rights. Should we fail to comply with the terms of those agreements,
including payment of any required maintenance fees or royalties, we would lose
the rights to those technologies and patents.
Disclosure of our trade secrets could hurt our competitive position
Because trade secrets and other unpatented proprietary information are
critical to our business, we attempt to protect our trade secrets by entering
into confidentiality agreements with third parties, employees and consultants.
However, these agreements can be breached and, if they are, there may not be an
adequate remedy available to us. In addition, third parties may independently
discover trade secrets and proprietary information. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our
proprietary rights.
We lack sales and marketing experience and will rely upon third parties to
market our products which will result in a loss of control over the marketing
process
We intend to rely on third parties with established direct sales forces to
market, distribute and sell any products we develop. These third parties may
have significant control over important aspects of the commercialization of our
products, including market identification, marketing methods, pricing, sales
force recruitment and management and promotional activities. We may be unable
to control the actions of these third parties. We may be unable to make or
maintain arrangements with third parties to perform these activities on
favorable terms.
Our success may depend on third-party reimbursement of patients' costs for our
products which could result in price pressure or reduced demand for our
products
Our ability to market products successfully will depend in part on the extent
to which various third parties are willing to reimburse patients for the costs
of our products and related treatments. These third parties include government
authorities, private health insurers and other organizations, such as health
maintenance organizations. Third-party payors are increasingly challenging the
prices charged for medical products and services. Accordingly, if less costly
drugs are available, third-party payors may not authorize or may limit
reimbursement for our products, even if our products are safer or more
effective than the alternatives. In addition, the trend toward managed
healthcare and government insurance programs could result in lower prices and
reduced demand for our products. Cost containment measures instituted by
healthcare providers and any general healthcare reform could affect our ability
to sell products and may have a material adverse effect on us. We cannot
predict the effect of future legislation or regulation concerning the
healthcare industry and third-party coverage and reimbursement on our business.
You will experience immediate and substantial dilution
Purchasers in this offering will pay more for their shares than existing
stockholders or individuals who acquire shares by exercising options granted
before this offering. At an assumed public offering price of
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$5.00 per share, you will experience immediate dilution of $3.81 per share in
pro forma net tangible book value. You will also experience additional dilution
upon (1) the exercise by holders of outstanding options and warrants, (2) the
conversion by Schering AG of outstanding debt into shares of our common stock
or (3) the conversion by Lilly of five shares of our Series L preferred stock
into shares of our common stock.
We do not anticipate paying cash dividends; therefore, your return on this
investment depends upon your ability to sell our stock at a profit
We have never declared or paid cash dividends on our common stock. We
currently intend to retain future earnings, if any, to support the development
of our business and for general corporate purposes, and do not anticipate
paying any cash dividends in the foreseeable future. We are also party to
agreements restricting our payment of dividends.
Some investors favor companies that pay dividends.
Our common stock has limited trading volume and a history of volatility which
could impair your investment
You may be unable to sell shares purchased in this offering at the time or
price desired. The market price of our common stock has fluctuated dramatically
in recent years. The trading price of our common stock may continue to
fluctuate substantially due to:
. quarterly variations in our operating results,
. our ability to raise additional funds,
. changes in the status of our corporate collaborative agreements,
. changes in earnings estimates by market research analysts,
. clinical trials of products,
. research activities, technological innovations or new products by us or
our competitors,
. developments or disputes concerning patents or proprietary rights,
. sales of our stock by existing holders,
. timing or denial by the FDA of clinical trial protocols or marketing
applications,
. securities class actions or other litigation, and
. changes in government regulations.
These fluctuations have sometimes been unrelated to our operating
performance. As a result, the value of your shares could vary significantly
from time to time. The historical trading volume of our common stock has been
limited. After this offering, an active public market for the common stock may
not develop or be sustained.
Both our corporate documents and Delaware law have anti-takeover provisions
that may discourage transactions involving actual or potential changes of
control at premium prices
Our corporate documents:
. require procedures to be followed and time periods to be met for any
stockholder to propose matters to be considered at annual meetings of
stockholders, including nominating directors for election at those
meetings, and
. authorize our Board of Directors to issue up to 5,000,000 shares of
preferred stock without stockholder approval and to set the rights,
preferences and other designations, including voting rights, of those
shares as the Board of Directors may determine.
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In addition, we are subject to provisions of the Delaware General Corporation
Law that may make some business combinations more difficult. Accordingly,
transactions that otherwise could involve payment of a premium over prevailing
market prices to holders of common stock may be discouraged or more difficult
for our company than for other companies organized in other jurisdictions.
Any Year 2000 compliance problems of ours, our customers or our vendors may
result in unanticipated costs or adverse effects on our operations
We anticipate that we will incur less than $60,000 to complete our Year 2000
review and remediation efforts. However, significant uncertainty exists
concerning the potential costs and effects associated with any Year 2000
compliance.
Many currently installed systems and software products are coded to accept
only two digit entries in the date code field. Beginning in the Year 2000,
these date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, in less than one year,
computer systems and/or software used by many companies may need to be upgraded
to comply with these Year 2000 requirements. We are in the process of
soliciting representations from our software vendors to ensure that the
software that we have licensed from third parties will operate properly in the
Year 2000 and beyond. In addition, we are soliciting representations from our
external suppliers, service providers and corporate partners to ensure that
they and their systems will be able to support our needs and, where necessary,
interoperate with our server and networking hardware and software
infrastructure in preparation for the Year 2000.
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed
under "Risk Factors."
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USE OF PROCEEDS
Ribozyme Pharmaceuticals will receive an estimated $8,100,000 in net proceeds
from the sale of the 1,800,000 shares of common stock offered by us, assuming a
public offering price of $5.00 per share and after deducting the estimated
placement agency fee and offering expenses. We intend to use these proceeds to
fund our preclinical studies and clinical trials of our products, research and
development and for working capital and other general corporate purposes. The
amounts we actually expend will vary significantly depending on a number of
factors, including:
. results of preclinical studies and clinical trials of products,
. progress of our research and development programs,
. cost and timing of regulatory approvals,
. terms of any collaborative arrangements into which we enter,
. commercial potential of our products,
. status of competitive products,
. technological advances, and
. hiring of additional personnel.
As a result, we will retain significant discretion in the application of
these funds.
We anticipate that the net proceeds of this offering, together with our
existing financial resources and expected revenues from our collaborations,
should be sufficient to meet our anticipated operating and capital requirements
into mid-2001. This estimate is based on assumptions that could be negatively
impacted by the matters discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Until we use the net proceeds as described above, we will invest them in
short-term, interest-bearing, investment grade securities.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"RZYM." The following table sets forth, for the periods indicated, the high and
low sales prices per share of our common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Year Ended December 31, 1997
First Quarter................................................ $16.50 $9.88
Second Quarter............................................... $12.38 $8.63
Third Quarter................................................ $12.00 $7.38
Fourth Quarter............................................... $11.38 $7.00
Year Ended December 31, 1998
First Quarter................................................ $ 9.34 $5.13
Second Quarter............................................... $10.50 $4.88
Third Quarter................................................ $ 6.25 $2.00
Fourth Quarter............................................... $ 7.63 $3.31
Year Ended December 31, 1999
First Quarter ............................................... $ 5.75 $4.06
Second Quarter (through May 5, 1999)......................... $ 5.38 $3.88
</TABLE>
The sale price of the common stock as reported on the Nasdaq National Market
on May 5, 1999, was $4.44 per share. At May 5, 1999, there were approximately
148 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock during any
of the periods presented above. We currently intend to retain future earnings,
if any, to support the development of our business and for general corporate
purposes, and do not anticipate paying any cash dividends in the foreseeable
future. We are also party to agreements restricting our ability to pay
dividends.
12
<PAGE>
CAPITALIZATION
The following table describes our capitalization as of March 31, 1999, on an
actual basis and as adjusted to give effect to our receipt of the estimated net
proceeds from the sale of 1,800,000 shares of common stock offered by us at the
public offering price of $5.00 per share, after deducting the estimated
placement agency fee and offering expenses. When you read this table, it is
important that you also read "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes.
<TABLE>
<CAPTION>
March 31, 1999
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt and capital lease obligations, net of
current............................................... $ 5,588 $ 5,588
Stockholders' equity:
Voting convertible preferred stock, $0.01 par value
per share; 5,000,000 shares authorized; no shares
outstanding......................................... -- --
Common stock, $0.01 par value per share; 20,000,000
shares authorized; 9,185,390 shares issued and
outstanding, actual; 10,985,390 shares issued and
outstanding, as adjusted*........................... 92 110
Additional paid-in capital........................... 84,439 92,521
Deferred compensation................................ (70) (70)
Accumulated deficit.................................. (76,557) (76,557)
------- -------
Total stockholders' equity......................... 7,904 16,004
------- -------
Total capitalization............................... $13,492 $21,592
======= =======
</TABLE>
- --------
* As of April 28, 1999, the actual and as adjusted amounts exclude the
following:
. 1,474,124 shares reserved for issuance under our stock option plan, of
which 1,401,936 shares were outstanding, at a weighted average exercise
price of $4.20 per share;
. 487,458 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $22.30 per share;
. 1,222,416 shares issuable to one of our collaborators upon conversion of
outstanding debt, assuming a conversion price of $4.44 per share, which
was the closing price of our common stock on April 28, 1999;
. up to approximately 1,689,189 shares issuable to one of our collaborators
upon conversion of five shares of our Series L preferred stock, assuming
a conversion price of $4.44 per share, which was the closing price of our
common stock on April 28, 1999; and
. 200,168 shares available for issuance under our Employee Stock Purchase
Plan. See "Description of Capital Stock--Warrants" and "Management--Stock
Option Plan."
13
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the as adjusted net tangible book value per share of our
common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock.
Our net tangible book value as of March 31, 1999, was $5.0 million in the
aggregate, or $0.54 per share. After giving effect to the sale of the 1,800,000
shares of common stock we are offering at an assumed public offering price of
$5.00 per share, and the deduction of the estimated placement agency fee and
offering expenses payable by us, our net tangible book value as of March 31,
1999, as adjusted, would have been $13.1 million in the aggregate, or $1.19 per
share. This represents an immediate increase in the net tangible book value of
$0.65 per share to existing stockholders and an immediate dilution in net
tangible book value of $3.81 per share to new investors purchasing shares in
this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share................................. $5.00
Net tangible book value per share as of March 31, 1999........ $0.54
Increase per share attributable to new investors.............. 0.65
-----
As adjusted net tangible book value per share after this
offering....................................................... 1.19
-----
Dilution per share to new investors............................. $3.81
=====
</TABLE>
At March 31, 1999, we had outstanding the following options and warrants to
purchase shares of common stock:
<TABLE>
<CAPTION>
Weighted Average
Number Exercise Price
--------- ----------------
<S> <C> <C>
Stock option plan................................. 1,391,852 $4.19
Warrants.......................................... 487,458 22.30
---------
Total........................................... 1,879,310
</TABLE>
Additionally, on April 28, 1999, there were:
. 72,188 options available for future grant under our stock option plan,
. 200,168 shares available for issuance under our Employee Stock Purchase
Plan,
. 1,222,416 shares issuable to one of our collaborators upon conversion of
outstanding debt, assuming a conversion price of $4.44 per share, which
was the closing price of our common stock on April 28, 1999 and
. up to approximately 1,689,189 shares issuable to one of our collaborators
upon conversion of five shares of our Series L preferred stock, assuming
a conversion price of $4.44 per share, which was the closing price of our
common stock on April 28, 1999.
To the extent we issue these additional shares, there will be further
dilution to new investors.
14
<PAGE>
SELECTED FINANCIAL DATA
(in thousands except per share amounts)
The following yearly selected financial data are derived from our audited
financial statements. Our financial statements for 1994, 1995, 1996, 1997 and
1998 have been audited by Ernst & Young LLP, independent auditors. The
following quarterly selected financial data are derived from our unaudited
financial statements. These historical results do not necessarily indicate
future results. When you read this data, it is important that you also read our
financial statements and related notes, as well as the section "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, March 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Collaborative
agreements.......... $ 1,145 $ 1,178 $ 759 $ 1,976 $ 8,963 $ 740 $ 1,701
Grant and other
income.............. 172 102 14 7 25 25 --
------- -------- -------- -------- -------- -------- -------
Total revenues...... 1,317 1,280 773 1,983 8,988 765 1,701
Expenses:
Research and
development......... 9,212 12,204 14,189 15,170 16,941 5,001 3,760
General and
administrative...... 1,291 1,397 1,943 1,886 1,813 467 559
------- -------- -------- -------- -------- -------- -------
Total operating
expenses........... 10,503 13,601 16,132 17,056 18,754 5,468 4,319
Operating loss........ (9,186) (12,321) (15,359) (15,073) (9,766) (4,703) (2,618)
------- -------- -------- -------- -------- -------- -------
Other income
(expense):
Interest income...... 270 395 936 795 634 212 90
Interest expense..... (334) (554) (845) (844) (704) (169) (112)
Equity in loss of
unconsolidated
affiliates.......... -- -- -- -- (1,082) -- (495)
------- -------- -------- -------- -------- -------- -------
Total other income
(expense).......... (64) (159) 91 (49) (1,152) 43 (517)
------- -------- -------- -------- -------- -------- -------
Net loss.............. $(9,250) $(12,480) $(15,268) $(15,122) $(10,918) $ (4,660) $(3,135)
======= ======== ======== ======== ======== ======== =======
Net loss per share
(basic and diluted).. $ (3.52) $ (3.86) $ (2.61) $ (2.04) $ (1.22) $ (0.54) $ (0.34)
Shares used in
computing net loss
per share (basic and
diluted)............. 2,627 3,230 5,845 7,420 8,978 8,609 9,182
Balance Sheet Data:
Cash, cash equivalents
and securities
available-for-sale... $ 7,734 $ 6,420 $ 17,594 $ 16,102 $ 6,512 $ 12,973 $ 5,802
Working capital....... 5,640 4,648 15,788 13,238 4,467 9,694 6,860
Total assets.......... 12,392 14,223 25,292 24,850 19,224 21,439 17,684
Capital lease
obligations and long-
term debt, current
portion.............. 1,378 1,898 1,724 2,078 498 1,839 443
Capital lease
obligations and long-
term debt, net of
current portion...... 1,853 3,179 2,430 2,752 4,545 3,676 5,588
Accumulated deficit... (19,635) (32,115) (47,383) (62,505) (73,422) (67,165) (76,557)
Total stockholders'
equity............... 8,247 8,478 20,362 18,870 11,034 14,220 7,904
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Financial
Statements of Ribozyme Pharmaceuticals and the notes therein included elsewhere
in this prospectus. Our discussion contains forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our
plans, objectives, expectations and intentions. Our actual results and the
timing of certain events could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors," "Business" and elsewhere in this
prospectus.
Overview of our Business
Our primary business focus is to use our technology to develop a new class of
drugs consisting of ribozymes to treat or prevent human disease. We are in
various stages of preclinical development and clinical trials for two lead
product candidates: ANGIOZYME and HEPTAZYME. Chiron is our collaborator for the
development and commercialization of ANGIOZYME. Lilly is our collaborator for
the development and commercialization of HEPTAZYME. We have gene function
identification and target validation agreements with Schering AG, Roche
Biosciences and GlaxoWellcome. In addition, we have existing gene function
identification and target validation agreements with Chiron and Parke-Davis
which are substantially complete, but under which we may be obligated to
perform additional work.
To date, we have committed substantially all our resources to our research
and product development programs. We have not generated any revenues from
product sales, nor do we anticipate any in the foreseeable future. Revenue
recorded from our collaborative agreements consists of:
.Research revenue. Typically research revenue is based on the fully burdened
cost of a researcher working on a collaboration. Rates are billed per
employee, per year, prorated for time worked on a project. This revenue is
typically invoiced on a quarterly basis, either up front or in arrears.
Revenue is recognized ratably over the period, with the balance reflected
as deferred revenue until earned. The revenue is typically recurring over
the term of a collaboration.
.License revenue. License revenue is recognized ratably over the term of the
license. Payments received in advance are recorded as deferred revenue
until earned.
.Milestone revenue. Milestone revenue is recognized in full when the related
milestone performance goal is achieved. Milestone revenue is typically not
consistent or recurring in nature.
.Upfront revenue. Upfront revenue is fully recognized upon signing a
collaboration and is related to the value of the research at that point in
time. Upfront revenue may also be a reimbursement to us of recent expenses
which we incurred related to product development.
Our revenue has consisted primarily of research revenue payments from our
collaborators. All revenues are either deferred as a liability or recognized
upon satisfying revenue criteria. We have no further research commitments from
our collaborators that have provided us with revenues. As of March 31, 1999,
all revenues recognized had been earned and no other obligation exist for this
revenue. We depend upon funding from external financing and corporate
collaborations for our research and product development programs and expect to
do so for the foreseeable future.
We expect to commit significant additional resources conducting clinical
trials for ANGIOZYME and HEPTAZYME, as well as for clinical trials for other
potential product candidates. In addition, although we believe our existing
manufacturing facilities and those available from contract manufacturers will
be satisfactory for the manufacture of our current product candidates through
clinical trials, we will need to commit significant resources in order to
support manufacture on a commercial scale. We have not been profitable since
inception and have an accumulated deficit of $76.6 million as of March 31,
1999. Losses
16
<PAGE>
have resulted primarily from our research and development programs. We
anticipate incurring additional losses as ANGIOZYME, HEPTAZYME and other
product candidates advance through development. In addition, future milestone
payments under some of our collaborations are contingent upon our meeting
particular research or development goals. The amount and timing of future
milestone payments are contingent upon the terms of each collaboration
agreement. Milestone performance criteria are specific to each agreement and
based upon future performance. In some instances, we may forfeit milestone
payments if we fail to accomplish a goal within a certain time frame.
Therefore, we are subject to significant variation in the timing and amount of
our revenues and results of operations from period to period.
In 1998, we transferred our gene function identification and target
validation technology to Atugen GmbH in exchange for a substantial equity
interest. We will continue our existing gene function identification and target
validation agreements with our collaborators by subcontracting services to be
performed to Atugen GmbH.
Our revenues are denominated in U.S. dollars, therefore, we have not been
exposed to foreign currency translation risks and have not engaged in any
hedging instruments.
Results of Operations for Three Months Ended March 31, 1998 and 1999
Revenues. Generally, revenue fluctuations result from changes in the number
of funded research projects as well as the timing and completion of contract
milestones. Collaborative revenues increased to $1.7 million for the three
months ended March 31, 1999, from $740,000 for the corresponding period in
1998. The increase is primarily due to $1.1 million in revenues recorded from
Chiron related to joint product development of ANGIOZYME. According to our
agreement with Chiron, we share equally with Chiron in the clinical trial costs
of ANGIOZYME. We paid for virtually all of the development expenses related to
ANGIOZYME which were incurred in the first quarter of 1999. Chiron then
reimbursed us for half of the costs. Revenue recorded from Chiron relates to
research and development expenses already incurred and no further obligation
exists between us and Chiron related to revenues recognized. Future Chiron
revenues related to the joint development of ANGIOZYME will vary and will
depend on the stage of ANGIOZYME clinical development. In addition, during the
first quarter of 1999, we recorded $593,000 in revenue in connection with our
service agreement with Atugen GmbH. Atugen GmbH pays for oligonucleotides and
management and administrative services which we provide. Atugen GmbH revenues
are earned as the products and services are provided. Future revenues will
depend on the level of activities performed by us for Atugen GmbH.
In January 1998, we recorded as other income a gain of $25,000 from our sale
of stock in a privately held corporate partner back to that corporate partner.
We purchased this stock in the first quarter of 1996 for $250,000.
Expenses. Research and development expenses decreased to $3.8 million for the
three months ended March 31, 1999, compared to $5.0 million for the
corresponding period in 1998. The decrease in expenses was primarily due to
transferring our gene identification and target validation business to Atugen
GmbH. Atugen USA, a wholly-owned subsidiary of Atugen GmbH, was incorporated in
January 1999 and subsequently all gene identification and target validation
expenses previously charged to us were transferred to Atugen USA. Expenses of
approximately $797,000 were recorded by Atugen USA during the first quarter of
1999, which included payroll, facility and general expenses for approximately
fifteen of our employees which we transferred to Atugen USA. Expenses for these
employees were included in our 1998 first quarter expenses but were not
included in our 1999 expenses. However, we expect research and development
expenses to increase as we expand our development programs for ANGIOZYME and
HEPTAZYME, including pre-clinical studies and clinical trials.
General and administrative expenses increased to $559,000 for the three
months ended March 31, 1999, compared to $467,000 for the corresponding period
in 1998. The increase is primarily the result of increased staffing and
associated expenses necessary to manage and support our expanding product and
business development efforts. We expect general and administrative expenses to
continue to increase as a
17
<PAGE>
result of increasing legal and other professional fees in connection with the
overall scale-up of our operations, and our business development and patent
protection efforts.
Other income (expense). Interest income decreased to $90,000 for the three
months ended March 31, 1999, compared to $212,000 for the corresponding period
in 1998. The decrease is due to lower average balances in our cash, cash
equivalents and securities available-for-sale during the first quarter of 1999,
compared to the same quarter in 1998. Interest income generally fluctuates as a
result of the average amount of cash available for investment and prevailing
interest rates.
Interest expense decreased to $112,000 for the three months ended March 31,
1999, compared to $170,000 for the corresponding period in 1998. The decrease
is due to the payoff of a loan for tenant improvements and equipment in
December 1998. However, interest expense is expected to increase in the future
as we arrange for additional financing for operations.
Equity in loss of unconsolidated affiliate was $495,000 for the period ending
March 31, 1999. No expense was required or recorded in the corresponding period
in 1998. This expense arises in connection with our initial cash investment of
$2.0 million and the subsequent transfer of our gene identification and target
validation technology to Atugen GmbH. At March 31, 1999, we retained a 49.5%
equity interest in the voting stock of Atugen GmbH which includes both common
and preferred stock. Although we own 83.2% of Atugen GmbH's outstanding common
stock, we do not meet the criteria for consolidating this affiliate because:
. we own less than 50.0% of Atugen GmbH's voting stock, and
. the preferred shareholders retain significant participating rights.
Accordingly, we have accounted for our investment in Atugen GmbH under the
equity method. As a result, we recorded 83.2% of Atugen GmbH's first quarter
loss of $595,000, resulting in equity in loss of unconsolidated affiliate of
$495,000. At March 31, 1999, our remaining net investment in Atugen GmbH was
$366,000, which we expect to eliminate entirely during the remainder of 1999 as
we share further in Atugen GmbH's anticipated losses.
Results of Operations for Years Ended December 31, 1996, 1997 and 1998
Revenues. Revenues from collaborative agreements increased from $2.0 million
for the year ended December 31, 1997, to $9.0 million in 1998. The increase was
primarily due to $6.0 million recorded for Chiron partnership payments related
to the product development of ANGIOZYME. Of the $6.0 million recorded for
Chiron in 1998, $5.0 million was a nonrecurring payment for 50% of past
expenses incurred by us for the preclinical development of ANGIOZYME. The
payment became due when Chiron agreed to be our partner in the development of
ANGIOZYME. In addition, Chiron paid us $1.0 million for expenses incurred by us
for clinical development of ANGIOZYME during the fourth quarter of 1998. There
are no future obligations between us and Chiron for these revenues. In
addition, we received approximately $650,000 in collaborative revenue in 1998
due to new target validation agreements with Roche, Parke-Davis and
GlaxoWellcome.
Revenues from collaborative agreements increased from $759,000 in 1996 to
$2.0 million in 1997. The increase was primarily due to $1.5 million in
research payments made by Schering AG in 1997. The 1997 payments from Schering
AG were the first payments in the collaboration which includes $2.0 million in
annual research funding over the five-year term of the collaboration, provided
the agreement is extended for each of those years.
Expenses. Research and development expenses increased from $14.2 million in
1996 to $15.2 million in 1997, and increased to $16.9 million for the year
ended December 31, 1998. These increases were
18
<PAGE>
primarily due to hiring additional personnel and the overall scale-up of
research and product development. Research and development expenses consist
primarily of:
. clinical and preclinical supplies and related costs,
. salaries and benefits for scientific, regulatory, quality control and
pilot manufacturing personnel,
. consultants,
. supplies,
. occupancy costs, and
. depreciation for laboratory equipment and facilities.
In 1998, expenses were primarily related to ANGIOZYME development and target
validation service costs. We expect research and development expenses to
continue to increase as ANGIOZYME and HEPTAZYME proceed through clinical trials
and manufacturing.
General and administrative expense decreased slightly from $1.9 million in
1996 to $1.89 million in 1997, and decreased slightly again to $1.81 million
for the year ended December 31, 1998. The slight decrease in general and
administrative expense in 1997 was primarily due to higher expenses in 1996
which included one-time cash and stock bonus payments made to our executive
officers in connection with our initial public offering in April 1996. The
decrease in 1998 was due to reimbursements of $480,000 made to us from Atugen
related to management's time during closing and start-up of operations. We
expect general and administrative expenses to increase as a result of hiring
additional management and administrative personnel and the incurring of legal
and other professional fees in connection with the overall expansion of our
operations and business development efforts.
Other income (expense). Interest income was $936,000, $795,000 and $635,000
for the years ended 1996, 1997 and 1998, respectively. The higher interest
income in 1996 resulted from increased cash balances due to our initial public
offering in April 1996. Interest income has decreased in the last three years
due to declining cash balances. Interest income generally fluctuates as a
result of cash available for investment and prevailing interest rates.
Interest expense has remained stable at $845,000 in 1996, $844,000 in 1997
and $704,000 in 1998. We expect interest expense to increase as we continue to
borrow under existing or new lines of credit to finance equipment purchases.
In 1998, in connection with our initial cash investment of $2.0 million and
the transfer of our gene identification and target validation technology to
Atugen GmbH, we recorded our share of the unconsolidated affiliate's 1998 net
loss, or $1.1 million as equity in loss of unconsolidated affiliate. At
December 31, 1998, our remaining net investment in Atugen GmbH was $860,000,
which we expect to eliminate entirely during 1999 as we share further in Atugen
GmbH's anticipated losses.
Liquidity and Capital Resources
We have financed our operations since inception through public offerings in
April 1996 and October 1997, private placements of preferred stock and funds
received under our collaborative agreements. From inception through March 31,
1999, we have received approximately:
. $29.0 million in net proceeds from private placements,
. $31.1 million in net proceeds from public offerings,
. $41.9 million from our collaborations, and
. $9.8 million from equipment financing.
We had cash, cash equivalents and securities available-for-sale of $5.8
million at March 31, 1999 compared with $6.5 million at December 31, 1998. The
$700,000 decrease in cash, cash equivalents and securities available-for-sale
is primarily the result of:
19
<PAGE>
. $1.1 million used for operations,
. $460,000 used for investments in equipment and patents, and
. $140,000 in loan payments, loan advances and expenses related to this
proposed offering.
These uses of cash were offset by loan proceeds of $1.0 million.
We invest our cash, cash equivalents and securities available-for-sale in
interest-bearing, investment grade securities.
Accounts receivable at December 31, 1998 was $3.9 million compared to $8,000
at December 31, 1997. The increase was a result of:
. $2.0 million due from Atugen GmbH for the license agreement,
. $730,000 due from Atugen GmbH for expenses related to the formation of
Atugen GmbH,
. $1.0 million due from Chiron for 1998 fourth quarter research revenue
related to ANGIOZYME clinical development, and
. $115,000 due from Roche for research performed in the fourth quarter of
1998.
Accounts receivable at March 31, 1999 was $3.5 million compared to $3.9
million at December 31, 1998. The net decrease in accounts receivable was
attributable to:
. receipt of $2.0 million due from Atugen GmbH for the license agreement,
. receipt of $115,000 due from Roche for research revenue,
. $1.1 million due from Chiron for 1999 first quarter research revenue
related to ANGIOZYME clinical development, and
. $633,000 due from Atugen GmbH related to the service agreement.
Total additions for property, plant and equipment for the three months ending
March 31, 1999 were $413,000, most of which were financed through our existing
equipment loan facility with Schering AG.
Schering AG made a $2.5 million equity investment in us in May 1997 in
exchange for 212,766 shares of common stock and made an additional equity
investment of $2.5 million for 465,117 shares in April 1998. Separately,
Schering AG provided loans of $2.0 million in each of 1997 and 1998. We
received an additional $1.0 million advanced on this loan facility in January
1999. Schering AG will continue to provide loans of up to $2.0 million annually
for each of the next three years, provided that the collaboration is continued,
at Schering AG's option, in each of those years. If Schering AG does not
continue the collaboration, we will need to seek alternative sources of
financing. Amounts not used in any calendar year may be carried forward to
future years. According to the terms of our agreement with Schering AG, 50% of
any borrowings on the line of credit must be collateralized by equipment
purchases. The loans, which carry an interest rate of 8.0% per annum, are
immediately convertible into equity at the option of Schering AG. At March 31,
1999, the outstanding borrowings of $5.4 million were convertible into
approximately 1.1 million shares of our common stock. Principal and interest
payments are deferred until maturity of the loans which is April 2004. In
addition, Schering AG made research payments of $2.0 million and $1.5 million
in 1998 and 1997, respectively. If the collaboration is continued, Schering AG
will make research payments of $2.0 million a year for each year through April
2002, but Schering AG may terminate its collaboration at any time. We may earn
success fees upon product development milestones and will manufacture synthetic
ribozyme products and receive royalties on sales of products resulting from the
collaboration. Schering AG may terminate the research collaboration at any time
by paying us termination fees.
20
<PAGE>
We anticipate that net proceeds of this offering, together with our existing
financial resources and expected revenues from our collaborations, should be
sufficient to meet our anticipated operating and capital requirements into mid-
2001. We expect to incur substantial additional costs, including:
. costs related to our research, drug discovery and development programs,
. preclinical studies and clinical trials of our products, if developed,
. prosecuting and enforcing patent claims,
. general administrative and legal items, and
. manufacturing and marketing of products, if any.
We do not have any currently available credit facilities. In the future we
may raise additional capital through public or private financing, as well as
from new collaborative relationships, new credit facilities and other sources.
We cannot assure you that funds will be available on favorable terms, if at
all. If we raise additional funds by issuing equity securities, the holdings of
existing stockholders will be further diluted. In addition, future
collaborative relationships may not successfully reduce our funding
requirements which may require us to relinquish or reduce rights to our
technologies or products. See "Risk Factors."
At December 31, 1998, we had available net operating loss carryforwards,
research and development credit carryforwards and state investment credit
carryforwards of $73.7 million, $1.5 million and $31,000, respectively, for
income tax purposes. Our ability to utilize our net operating loss
carryforwards is subject to an annual limitation in future periods pursuant to
the "change in ownership" rules under Section 382 of the Internal Revenue Code.
Year 2000 Affect on Computer Systems
Year 2000 issues result from the inability of some computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is represented as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business.
Based on our evaluations and remediation efforts, we do not anticipate that
we will incur any significant costs relating to the assessment and remediation
of year 2000 issues. To date, we estimate that we have spent approximately
$20,000 in reviewing and remediating year 2000 issues and that total
expenditures incurred in completing our review and remediation efforts will not
exceed $60,000. These expenditures are budgeted as part of our operating
expenses. However, expenditures for year 2000 remediation efforts may exceed
this amount if unforeseen complications arise. Also, we or our vendors,
suppliers and corporate partners may not be able to successfully identify and
remedy all potential year 2000 problems.
We have developed and are implementing a contingency plan including the
following:
. maintaining all data in hard copy that is generated or collected by our
vendors, suppliers and collaborators so any loss of data due to year 2000
problems could be re-entered manually,
. maintaining all of our accounting records in hard copy so that we can
continue to manually pay vendors, employees, consultants and
collaborators in the event that our accounting software or other computer
programs or systems malfunction,
. maintaining hard copies of all scientific and business related electronic
data,
. archiving critical business paperwork,
. scheduling manufacturing campaigns not to extend or overlap the year 2000
time change, and
. upgrading security systems.
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We continue to review these requirements to complete our contingency plan for
noncritical business functions.
We do not believe that we will have to modify or replace any significant
portions of our computer applications in order for our computer systems to
continue to function properly in the year 2000. However, a "worst case"
scenario may include the temporary interruption of research, development and
business if we need to upgrade or replace computer systems.
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BUSINESS
An overview of our company
Ribozyme Pharmaceuticals is developing a new class of drugs based on
Professor Thomas R. Cech's discovery of "ribozymes," for which he shared a
Nobel Prize. We are currently conducting preclinical development and clinical
trials for our two lead product candidates, ANGIOZYME and HEPTAZYME. We are
collaborating with Chiron in the development and commercialization of
ANGIOZYME, a drug for the treatment of solid tumor cancers. We have completed
Phase Ia clinical trials in healthy volunteers, commenced Phase Ib trials in
cancer patients and expect to begin Phase II trials by the end of the year. We
are collaborating with Lilly for the development and commercialization of
HEPTAZYME, a drug for the treatment of Hepatitis C, a viral liver disease.
HEPTAZYME is in preclinical testing, and we expect to file an investigational
new drug application before the end of the year and commence clinical trials in
2000. We are also researching several other product candidates and expect to
begin preclinical testing on one of these product candidates by the end of
1999.
Ribozymes also may be used for gene function identification and target
validation, the process by which genes that cause or contribute to human
disease are identified. We have target validation and discovery partnerships
with Schering AG, Roche Biosciences, GlaxoWellcome, Chiron and Parke-Davis. In
1998, we transferred our gene function identification and target validation
technology to a newly formed German company, Atugen GmbH. As a result of this
technology transfer, we will focus exclusively on the development of ribozymes
as human therapeutics and will subcontract target validation and discovery
services to Atugen GmbH.
The traditional process of drug discovery and development
Traditional drug discovery and development is difficult, time consuming and
extremely costly. Historically, diseases have been treated using drugs
developed based on clinical observation of symptoms which were correlated with
abnormal physiological processes and, where possible, biochemical changes. Most
drugs are chemicals designed to inhibit the function of a targeted molecule
with as few unwanted side effects as possible. Drug discovery is a complex
process, which includes:
. selecting a target (usually a protein),
. developing a screening assay,
. chemically synthesizing large numbers of different molecules tested in
cell cultures and in animal models for their effect on the target,
. using those test results to narrow down the number of molecules, and
. refining the molecules through additional chemical synthesis and testing.
Unfortunately, drugs produced from this traditional process may have
undesirable side effects due to interactions with non-targeted molecules. These
side effects can limit the effective use of a drug.
Pharmaceutical companies are under intense competitive pressure to identify
and commercialize novel drugs having fewer side effects more quickly and cost
effectively. Pricing pressures from managed care organizations, governmental
agencies and other third-party payors, coupled with the proliferation of new
technologies that offer revolutionary approaches to drug design and
development, are causing major changes in the drug development process.
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Genetic function and human disease
The abnormal production of proteins, which are products of genes, directly
causes many human diseases. The abnormality may be due to a defective gene or
to the over- or under-production of a protein by a "normal" gene. The abnormal
production of proteins may have direct effects on cells within the body or may
initiate a series of events involving other proteins within the body, thereby
producing disease. The gene functions of infectious agents, such as viruses,
allow replication and growth of infectious agents in the human body.
Production of proteins from genes, called protein "expression," generally
involves two steps. First, the information from the DNA sequence of the gene is
"transcribed" to messenger RNA. The second step involves "translation" of the
mRNA and its information into a protein. The process by which genetic
information is "expressed" in the form of a protein is highly selective;
production of a particular protein generally requires its own specific DNA
sequence which leads to a corresponding specific mRNA sequence. Blocking a
gene's function, and hence the production of its associated proteins, is an
increasingly vital tool in treating and diagnosing human disease.
Our ribozyme technology
Our approach to drug discovery and development begins by either identifying a
gene in humans causing or contributing to disease or identifying an essential
gene in a disease-causing infectious agent. We analyze the nucleotide sequence
of the target gene and create a complementary ribozyme nucleotide sequence.
A ribozyme is a sequence of nucleotides that has a catalytic core capable of
cleaving a specific mRNA molecule. Ribozymes act as "molecular scissors" by
cutting mRNA molecules into two ineffective strands, thereby preventing protein
production. Each ribozyme destroys only a specifically targeted mRNA sequence,
thereby minimizing the risk of unwanted side effects. In addition, ribozymes
can be used to identify gene function and validating the disease contributing
function of a specific gene. In this way, ribozymes assist in the
identification of new drug candidates. Our ribozyme technology is an important
bridge between the growing body of knowledge regarding gene function and its
contribution to the treatment or prevention of human diseases.
We initially test the effectiveness of the ribozyme in cell cultures or in
animal models. If the ribozyme reduces or stops production of the protein
associated with the disease, or slows the associated growth or spread of the
disease, not only has the disease contributing function of the gene been
validated, but also a drug candidate has been identified.
Once we identify a target gene and related ribozyme, we optimize the
ribozyme's effectiveness by varying the length of the portion of the ribozyme
which binds to the mRNA to maximize the ribozyme's selectivity and modifying
the chemical structure to increase the ribozyme's stability in the human body.
To successfully commercialize ribozyme products to treat or prevent human
disease, we must successfully deal with technical issues such as:
. ribozyme design,
. stability,
. selectivity,
. drug delivery and cellular absorption,
. safety,
. effectiveness, and
. manufacturing capabilities and scale-up.
To date, we have achieved a number of significant milestones important to the
development of ribozymes and related technical issues, including the following:
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Design. We have developed a proprietary computer program to design ribozymes
against sites in a target mRNA sequence. This program allows us to accelerate
the identification of potential ribozyme product candidates and design multiple
back-up candidates.
Stability. To be useful as a treatment, a ribozyme must remain stable in
human serum and cells long enough to destroy the targeted mRNA and ideally long
enough for each ribozyme molecule to destroy several mRNA molecules. Unmodified
ribozymes are stable and fully active in human serum for only a few seconds. We
have successfully produced chemically-modified ribozymes that are stable and
fully active in human serum and cells for more than 10 days. We believe this
level of stability will be sufficient for ribozymes to be effective drugs.
Selectivity. Based on third-party studies and our internal work, we believe
that a ribozyme with a binding region of approximately 15 nucleotides is
optimal. A binding region of this length is expected to match, on a statistical
basis, only one specific mRNA sequence in the entire human genome. Since the
ribozyme should interact only with the target mRNA, it should not affect other
gene function and, therefore, should not have side effects when used as a drug.
The high degree of selectivity of ribozymes has been demonstrated both by us
and by third parties.
Drug Delivery and Cellular Absorption. Successful development of any drug
requires that the drug be delivered to the desired site in the body. We are
exploring local and systemic delivery of chemically synthesized ribozymes, as
well as vector delivery. For example, we have demonstrated systemic delivery of
chemically synthesized ribozymes without any delivery vehicle using either
intravenous or subcutaneous delivery in several animal models and in humans.
Additionally, we have identified several proprietary carriers which, when
combined with chemically synthesized ribozymes, have shown significant
increases in the effective delivery of ribozymes to a variety of different cell
types relative to ribozymes without a carrier.
Safety. We have completed single and multiple dose animal safety studies with
several ribozymes which have confirmed the ribozymes' lack of toxicity. For
example, ANGIOZYME has shown a lack of toxicity in rodents and monkeys. As a
result, the FDA has allowed initial human clinical trials to be carried out in
healthy volunteers. A Phase Ia trial in healthy volunteers has now been
completed and has shown an excellent safety and tolerability profile.
Effectiveness. We have demonstrated through internal research and in
conjunction with our collaborators that our ribozymes reduce the amount of
target mRNA and the level of corresponding protein produced as well as inhibit
the spread of disease. Studies showing the effectiveness of ribozymes have been
conducted in multiple animal models for cancer in both models of solid tumor
growth and metastasis, and in cell cultures for viral replication.
Manufacturing Capabilities and Scale-Up. To meet our needs for preclinical
studies, clinical trials and the eventual commercialization of ribozymes, we
must have the ability to manufacture a sufficient amount of ribozymes. We and
our collaborators have developed proprietary technology allowing us to
synthesize several thousand stabilized ribozymes in milligram quantities per
month. These quantities are sufficient to permit us to perform direct cell-
based screening of multiple potential target sites in short periods of time. We
have also developed the capability to manufacture kilogram quantities under the
FDA's current good manufacturing practices. In addition, when we combine our
manufacturing capabilities with available contract manufacturing, we expect to
be able to produce those drugs currently under development in sufficient
quantities, and of the quality required by the FDA, for our anticipated
clinical trials.
The potential advantages of ribozymes in treating a disease
We believe that ribozymes offer the following advantages over traditional
approaches to treating diseases:
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Potential Broad Applicability. Once a gene has been identified, a ribozyme
can be designed to target and destroy the associated mRNA to inhibit the
related gene function. Therefore, all diseases for which a gene can be
identified as a cause or an essential contributing factor of diseases are
potentially treatable with a ribozyme drug. In addition, identifying the
essential genes of viruses and other infectious agents that cause human disease
creates the potential to develop ribozyme products to inhibit these genes from
functioning and, consequently, prevent the targeted infectious agent from
surviving or reproducing.
High Selectivity. The mechanism by which traditional drugs act on a target
gene or protein often is not well understood. Consequently, the side effects of
such drugs are difficult to predict and characterize. Side effects may be
reduced or avoided by using ribozymes designed to attach to and cut only a
specific targeted mRNA, a significant advantage over traditional drug
therapies. We have observed the selectivity of ribozymes in both animal studies
and human clinical trials. Because of this selectivity, only the function of
the targeted genetic sequence is affected; other molecules and gene functions
are not altered.
Destruction of Target. Instead of temporarily preventing gene function like
traditional drugs, ribozymes destroy the target mRNA and stop the associated
protein production. By contrast, most drugs do not destroy their target. This
inherent feature of ribozymes may offer significant advantage in the treatment
of diseases caused by infectious agents such as viruses. For example, cleavage
of target viral mRNA by ribozymes will inhibit the virus's ability to
propagate, which may cause significant reduction in viral load in the patient.
Our business strategy
Our primary business objective is to use our technology to identify and
develop drugs containing ribozymes to prevent or treat human disease. Our
secondary objective is to license our technology to others on terms which could
provide us an economic benefit. Our strategy for achieving these objectives
includes the following goals:
Develop Identified Product Candidates. We are developing two products,
ANGIOZYME and HEPTAZYME. In collaboration with Chiron, we are developing
ANGIOZYME for the treatment of solid tumor cancers and metastasis, and possibly
for other diseases that require extensive new blood vessel formation. We have
completed a Phase Ia clinical trial for ANGIOZYME in healthy volunteers and are
conducting Phase Ib clinical trials in cancer patients. Internally, we
identified a second product, HEPTAZYME, for the treatment of Hepatitis C. In
collaboration with Lilly, we are conducting preclinical testing for HEPTAZYME,
and we plan to file an IND before year-end.
Identify New Product Candidates. We have developed a variety of sources to
identify additional product candidates. Internally, we are researching several
product candidates and intend to begin preclinical testing and development of
one of these product candidates by year-end. We believe that our relationship
with Atugen GmbH could provide an important source of new product candidates
for us. Atugen GmbH will seek additional partners in the pharmaceutical and
biotechnology industries using Atugen's GmbH gene function identification and
validation technology. We have retained rights to develop ribozymes against any
targets validated by Atugen GmbH on its own or for its partners. We are engaged
in several collaborations to validate selected genetic sequences as candidates
for drugs development. Under these collaborations, we have the right to develop
ribozyme products against validated targets not developed by our collaborators.
Partner with Others to Develop Products. We intend to develop our products in
collaboration with larger corporate partners. In the past, we have entered into
collaborations prior to identifying product candidates and performing the
research and preclinical testing necessary to bring such products to
development. In the future, we intend to demonstrate a product candidate's
commercial potential through preclinical testing and, perhaps, early clinical
trials using internally funded research. We believe entering into a development
collaboration after a product's potential has been demonstrated will improve
our negotiating position. Our development process with HEPTAZYME prior to
entering into the Lilly collaboration is an example of this new partnering
strategy.
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Focus on Human Therapeutics and License Other Applications of Our
Technology. We will look for opportunities to license our technology on terms
which provide a reasonable opportunity for significant business benefit. In
late 1998, we transferred our gene function identification and validation
technology to Atugen GmbH in exchange for an equity interest in Atugen GmbH. We
expect Atugen GmbH to continue to build the target validation and discovery
business by actively pursuing collaborations with new corporate partners. We
will benefit from Atugen GmbH's activities through our ownership interest in
Atugen, as well as through the rights we retained to develop ribozymes against
targets validated by Atugen GmbH.
Maintain and Expand Patent Portfolio and Proprietary Technology. To maximize
the value of our technology, we dedicate substantial resources to the discovery
of new inventions. We aggressively pursue patent protection. We currently own,
or have exclusive licenses to, 84 issued or allowed patents worldwide and have
over 100 patent applications pending worldwide.
Our product programs
The development process for our products starts with research and preclinical
development. Research includes identification of a target protein, synthesis of
an appropriate ribozyme to block expression of the target protein, and testing
the activity of the ribozyme in a specific cell population. Preclinical testing
includes pharmacology and toxicology testing in cell cultures and animal
models, product formulation, dosage studies and manufacturing scale-up for
submission of the necessary data to comply with regulatory requirements of the
FDA and similar agencies in other countries prior to commencement of human
trials. Regulatory requirements concerning the conduct of clinical trials are
described below in the section "--Government regulation of our drug development
activities."
We are currently in various stages of development and clinical trials for two
products. ANGIOZYME is being developed to treat solid tumor cancers, but it may
also be applicable to other diseases such as diabetic retinopathy and macular
degeneration. HEPTAZYME is being developed to treat Hepatitis C.
Angiozyme
For a cancerous tumor to grow, the body must generate new blood vessels
surrounding the tumor to supply the blood necessary for tumor growth, a process
known as angiogenesis. In many cases, the Vascular Endothelial Growth Factor
("VEGF") molecule and its receptor are essential to angiogenesis. ANGIOZYME was
developed to inhibit the production of the VEGF receptor, thereby slowing or
stopping angiogenesis and related tumor growth. Animal studies conducted by us
and by independent third parties showed dramatic reduction in tumor growth and
metastasis. Animal studies using ribozymes alone and in conjunction with
existing cytotoxic cancer therapies demonstrated the elimination of metastasis
of the cancer. As a result of our research and preclinical studies, the FDA
approved an IND allowing us to begin clinical trials. We completed Phase Ia
clinical trials in healthy volunteers in January 1999. These trials, conducted
on 14 healthy volunteers, demonstrated safety and tolerability and showed no
drug related side effects. We are conducting Phase Ib clinical trials to test
for safety and tolerability in approximately 16 cancer patients with a broad
spectrum of solid tumors and metastasis. We expect to initiate Phase II
clinical trials prior to the end of 1999.
If the results of clinical trials are positive, ANGIOZYME could be developed
as a treatment of some solid tumor cancers such as cancers of the lung, breast,
prostate, colon and rectum. These cancers account for over 750,000 new cancer
cases and over 200,000 deaths per year in the United States alone. In addition,
ANGIOZYME could also be used in products for the treatment of other diseases in
which angiogenesis is a contributor such as the eye diseases, macular
degeneration and diabetic retinopathy.
ANGIOZYME is being developed in collaboration with Chiron. We have control of
all development activities and decisions. The material terms of the agreement
with Chiron are discussed below.
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Heptazyme
We are developing a potential product to treat Hepatitis C, a viral disease
of the liver. There are over four million chronically infected persons in the
United States and over 175 million worldwide. Hepatitis C infects approximately
50,000 people with over 10,000 deaths associated with Hepatitis C each year in
the United States. It is the most common blood borne infection in the United
States and has been identified as a "silent epidemic" and "a daunting challenge
to public health" by the United States Congress.
Current therapies for Hepatitis C are effective in less than 50.0% of
existing patients and have serious side effects. Our research and preclinical
testing has indicated that HEPTAZYME selectively cuts Hepatitis C RNA in a
manner that significantly inhibits viral replication in cell culture. These
results were presented at a meeting of the American Association for the Study
of Liver Diseases in November 1998. It is also expected to be effective against
all known Hepatitis C sub-types, which now number over 90. We intend to conduct
toxicology and other preclinical studies commencing in the second quarter of
1999 and file an IND with the FDA by the end of 1999.
HEPTAZYME is being developed in collaboration with Lilly. The material terms
of the agreement are described below.
Other Programs. In collaboration with Chiron, the City of Hope and Children's
Hospital (Los Angeles), we have successfully completed a gene therapy HIV Phase
I/IIa clinical trial. The treatment phase of this trial was completed in
December 1997. Five patients were treated, and no drug-related toxicities were
observed. In 1998, a proof-of-principle Phase II clinical trial in AIDS
Lymphoma patients was initiated. The pilot trial is intended to assess the
viability of the gene therapy approach for delivering anti-HIV ribozymes. The
commercial viability of current gene therapy technologies and thus the future
of this program will be decided during 1999.
Internally, we are researching several product candidates and intend to begin
preclinical testing and development of one of these product candidates by year-
end.
Chiron Collaboration. In July 1994, we entered into an agreement with Chiron
to collaborate exclusively on up to five specific targets selected by Chiron.
Four targets are currently subject to the exclusivity provision, including
ANGIOZYME, the target of our HIV product, and two additional targets.
Therefore, Chiron has the right to select an additional exclusive target. From
time to time during the term of the collaboration, Chiron also has the right to
reserve four potential targets. In addition, Chiron may replace exclusive
targets with other targets including reserved targets. No target may be
selected as an exclusive or reserved target if the rights to such target have
been granted to a third party or such target is the subject of an active
internal development program.
Unless otherwise mutually agreed, no target may be reserved for more than 18
months after its designation. During the 18-month period, we cannot develop, or
grant rights to third parties to develop, products against a reserved target.
Following such period, Chiron will not have any rights to a reserved target
unless during the 18-month period the reserved target replaces another target
as an exclusive target.
Pursuant to the collaboration, we commenced a five-year joint research
program which expires in July 1999. During the five-year program, each party
pays for its own research and preclinical development of products. Additional
collaborative research may be done on a product against targets by mutual
agreement and either party may research and conduct preclinical testing on its
own, at its own cost.
Either party may propose that an IND be submitted and Phase I clinical trials
be commenced for a product against exclusive targets. If the other party does
not agree to share equally in the development costs through Phase I clinical
trials, the party not sharing in the Phase I development cost forfeits any
rights to the proposed product.
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If, after jointly funded Phase I clinical trials have been completed, one
party discontinues funding its share of the costs of clinical development that
party would not share equally in the profits from product sales but would
receive a royalty based on net sales of that product. However, the non-
participating party may regain its interest in the profits of the product by
repaying the other party one-half of the development costs incurred solely by
the other party, plus a predetermined risk premium, at either the commencement
of Phase III testing or the filing of a New Drug Application or Product License
Application. In some instances we may pay up to 50.0% of such payment in shares
of common stock. However, the maximum number of shares we can issue to Chiron
in lieu of a cash payment is limited such that after issuance of these shares
Chiron will not own more than 19.9% of our outstanding common stock. If
development of a product is funded equally by the parties, we will share
equally the profits from product sales.
We have retained the right to manufacture chemically synthesized ribozyme
products resulting from the collaboration whether developed jointly or
individually by each party.
Chiron holds exclusive worldwide marketing rights for all jointly developed
products, subject to a co-promotion agreement for sales in North America and
Europe. In Asia, Chiron has exclusive marketing rights with the right to
sublicense, although we have retained the right to share in 50% of the profits.
The collaboration terminates on the later of (1) 30 years after the first
commercial sale of the last jointly developed product arising out of the
collaboration or (2) upon the expiration of patents or 15 years after the first
commercial sale for a solely developed product.
As part of the collaboration, in 1994 Chiron made an equity investment of
$4.36 million in our stock. In addition, Chiron purchased 377,202 shares of our
common stock for $3.64 million in 1996. Also in 1996, Chiron purchased warrants
for 444,444 shares of our common stock for $2.0 million, exercisable at a price
of $22.50 per share with an expiration date of December 30, 2004.
We and Chiron could not reach agreement on a development plan for ANGIOZYME.
In consideration for the payment by Chiron of $5.0 million of our research
costs related to ANGIOZYME prior to the filing of the IND for ANGIOZYME, we
amended the collaboration agreement in the following manner. If the parties do
not agree as to the plans, timing or budget for any development activities, our
proposed plans, timing and budget will be adopted but we must then fund 55% of
the costs for such development activities. If the total costs do not exceed our
proposed budget, Chiron must pay us 5% of the total costs incurred for such
development activities.
Lilly Collaboration. In March 1999, we entered into a collaboration with Eli
Lilly and Company pursuant to which Lilly was granted the exclusive worldwide
right to develop and commercialize HEPTAZYME and any other ribozyme drug for
the treatment of Hepatitis C. If Lilly abandons or does not diligently pursue
the development of HEPTAZYME or another ribozyme drug for the treatment of
Hepatitis C, all rights to HEPTAZYME and such other ribozymes revert to us,
subject to the right of Lilly to receive royalty payments, if applicable, on
the sale of products developed by us or our third-party collaborators.
On April 30, 1999, we issued five shares of our Series L preferred stock to
Lilly for $7.5 million in cash. Eash share of Series L preferred stock:
. has a $1.5 million face value,
. has liquidation preference over our common stock,
. has no voting rights, except as may be required under Delaware law, and
. is convertible into shares of our common stock based upon milestones
related to the development and commercialization of HEPTAZYME.
Lilly will pay us $9.2 million in 1999, which includes $1.7 million of
funding for research, payable in three equal installments, and the $7.5 million
equity investment made by Lilly in April 1999. Including
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development milestones, which we will be entitled to receive if a commercial
product is offered for sale in the United States, Europe and Japan, we could
receive as much as $38 million, including the $9.2 million in 1999. In
addition, we will be entitled to royalties on the sale of products developed
pursuant to the collaboration. We would also realize increased revenues from
product manufacturing and research.
We have the right to manufacture all ribozymes for clinical trials. In
addition, we have the manufacturing rights for any commercial product developed
from the collaboration subject to Lilly's right to manufacture a portion of the
commercial product, in which event Lilly must pay us an increased royalty on
product sales.
Gene validation
We developed a gene function identification and target validation business
internally to generate revenues and accelerate the discovery of potential drugs
using ribozymes. We entered into gene function identification and target
validation agreements with Schering AG, Chiron, Parke-Davis, Roche and
GlaxoWellcome and developed with our collaborators additional technologies
helpful in target validation and discovery. These technologies use ribozymes
and other oligonucleotides to block the function of genetic sequences selected
by our partners. The effect of the ribozyme or other oligonucleotides in cell
cultures or animal models is then analyzed to determine whether the protein
associated with the disease or the disease itself is reduced or eliminated.
Alternatively, a genetic sequence, the function of which is unknown, can be
analyzed using ribozyme inhibition in a collection of cell culture assays or
animal models that represent a broad range of biological functions.
Gene Validation Collaborations. We entered into gene function identification
and target validation agreements with various collaborators and granted
licenses to these collaborators to use our technology to develop products
identified or validated under these collaborations.
. Schering AG. In April 1997, we entered into a research collaboration with
Schering AG focusing on the use of ribozymes and related technologies for gene
function validation. We provide our expertise in ribozyme design, synthesis and
delivery, and Berlex Laboratories, Inc., a United States subsidiary of Schering
AG, provides candidate gene or expressed sequence tag targets, screening in
cell culture and animal models as well as development and commercialization
expertise to the collaboration. We anticipate that hundreds of potential
targets may be examined over a five-year period.
Schering AG may reserve exclusive rights to a specified number of targets at
any time. Rights to a Schering AG target will revert to us, however, if
Schering AG is not developing or selling a product against such target.
Schering AG may not reserve exclusive rights to a target if we have granted a
third-party license for products against that target or we are conducting an
active internal program for the development of a product against that target.
Schering AG has a license to commercialize both ribozyme and non-ribozyme
products from any validated targets subject to paying us certain milestone
success fees and royalties on product sales. We have the right to manufacture
ribozyme products developed by Schering AG and to develop independently any
ribozyme product not developed by Schering AG, unless Schering AG is developing
a non-ribozyme product against the same target and agrees to pay specified
milestone success payments to us in exchange for our relinquishing our right to
make ribozyme products against such target.
In May 1997, Schering AG purchased 212,766 shares of our common stock for
$2.5 million and in 1998 Schering AG purchased 465,117 shares of common stock
for $2.5 million. Separately, Schering AG provided loans of $2.0 million in
both 1997 and 1998. We received an additional $1.0 million on this loan
facility in January 1999. Schering AG will continue to provide loans of up to
$2.0 million annually through 2001, provided that the collaboration continues
in each of those years. If Schering AG does not continue the collaboration, we
will need to seek alternative sources of financing. The loans, which carry an
interest rate of 8.0% per annum, are immediately convertible into equity at
Schering AG's option. At March 31, 1999, our outstanding borrowings of $5.4
million were convertible into approximately 1.2 million shares of our
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common stock. Principal and interest payments are deferred until maturity of
the loans which is in April 2004. In addition, Schering AG made research
payments of $1.5 million in 1997 and $2.0 million in 1998 and, provided that
the collaboration is continued, will make research payments of $2.0 million a
year through 2001, but Schering AG may terminate its collaboration at any time.
Upon payment of termination fees to us, the research collaboration may be
terminated at Schering AG's option at any time.
. Roche. In May 1998, we entered into a gene function identification and
target validation collaboration with Roche. Roche may obtain the exclusive
right to up to a specified number of targets over approximately five years if
it requests and pays for validation research for such targets. Roche may
reserve the rights to all targets related to a particular disease for up to
three years. It may not obtain the rights to products for a target or disease
which we have granted to third parties or to targets which we have patented or
for which we have pending patent applications. We do not receive periodic fees
from Roche but rather Roche pays us a set amount for the specific research
activities conducted on its behalf and for materials used in the research
program.
Roche also is obligated to make payments for successful target validations.
Roche has the right to develop ribozyme or non-ribozyme products against
targets discovered or validated under the collaboration subject to the payment
to us of milestone success fees and royalties on product sales. We have the
right to manufacture ribozyme products developed by Roche and to develop
independently any ribozyme product not developed by Roche.
. GlaxoWellcome. In July 1998, we entered into an agreement with
GlaxoWellcome to evaluate our gene function identification and validation
technology on a limited number of genes. GlaxoWellcome paid research fees to us
in connection with the evaluation program for reagents plus the cost of any
services or additional reagents requested by them. We will not be entitled to
any royalties or other payments in connection with products developed by
GlaxoWellcome against the initial targets covered by the evaluation agreement.
. Chiron. In May 1996, we entered into a gene function identification and
target validation collaboration with Chiron for the use of ribozymes to
validate gene function. We and Chiron each pay a portion of the research and
development expenses of the collaboration. We paid Chiron $1.8 million for
research funding related to the collaboration. We do not receive periodic fees
but rather Chiron pays a predetermined amount for materials actually used in
the collaboration. The collaboration with Chiron is substantially complete, but
we may be obligated to perform additional work.
Chiron has the option to reserve exclusive rights to a specified number of
targets for up to two and a half years, as well as the exclusive right to any
products developed against the targets subject to the collaboration. We are
entitled to:
. receive success payments related to the development of any products
arising under the agreement,
. receive milestone success payments for the development of ribozyme
products and royalties on sales of any commercial products containing
ribozymes,
. manufacture synthetic ribozymes, and
. develop any ribozyme product not developed by Chiron subject to the
payment of royalties on product sales to Chiron. Chiron also has the
right to manufacture endogenously delivered ribozyme products developed
by us.
. Parke-Davis. In March 1998, we entered into a gene function identification
and target validation collaboration with Parke-Davis to use our technology to
validate genes as therapeutic targets. We do not receive periodic fees but
rather Parke-Davis pays for our research and for materials provided by us.
Parke-Davis will have the exclusive right to develop oligonucleotide products
against targets validated under the collaboration pursuant to a mutually
satisfactory license which we anticipate would provide for the payment of
milestone success fees and royalties on product sales. The collaboration with
Parke-Davis is substantially complete, but we may be obligated to perform
additional work.
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We expect to subcontract these agreements to Atugen GmbH in the future,
subject to the consent of our collaborators. If an agreement is subcontracted
to Atugen GmbH, we will retain any rights we have now under the collaboration
to:
. milestone success payment,
. royalties on products developed by our collaborators, and
. develop ribozyme products which our collaborators choose not to develop
under the terms of the agreements subject to royalties from products that
may be payable to our collaborators.
Formation of Atugen GmbH. In 1998, we transferred our gene function
identification and target validation technologies to Atugen GmbH in exchange
for an equity interest in Atugen GmbH. This opportunity was attractive to us
because substantial funding was available from both outside investors and the
German government. This funding would not otherwise have been available to us
and should allow us to benefit indirectly from Atugen GmbH's expansion of the
target validation business and technology.
We will benefit from Atugen GmbH's activities in the future in several ways:
. we retain an interest in Atugen GmbH and, as of March 31, 1999, owned
49.5% of its outstanding voting stock,
. we have the right to develop ribozymes against targets validated by
Atugen GmbH for its customers,
. we will be paid by Atugen GmbH for ribozymes and other material
manufactured by us pursuant to our exclusive manufacturing rights,
. we will be paid by Atugen GmbH for a portion of our costs of prosecuting
patents applicable to Atugen GmbH's business,
. we will be paid by Atugen GmbH for certain administrative and other
services rendered by us to Atugen GmbH, and
. we retain the right to use the target validation and discovery technology
in non-high throughput applications for our own use and in connection
with limited research and development collaborations with third parties.
Financing for Atugen GmbH was accomplished through a combination of venture
capital investment, an investment by us and German government grants and loans.
We contributed $2.0 million in cash to Atugen GmbH. On March 31, 1999, we owned
a 49.5% equity interest in Atugen GmbH. Our equity interest in Atugen GmbH is
subject to dilution if additional equity is issued for any purpose, such as to
raise additional capital in connection with acquisitions or in connection with
stock option or similar incentive plans for Atugen GmbH employees.
We have the right to name two of six designees to Atugen GmbH's Board of
Directors and the Chairman of the Board for as long as we and BB BioVentures
together own a majority of Atugen GmbH's outstanding stock. Nonetheless, most
corporate actions taken by Atugen GmbH require a 75.0% vote or consent of the
holders of Atugen GmbH's outstanding stock.
Pursuant to a service agreement with Atugen GmbH, we provide a business
development team which devotes 50.0%of its time to support Atugen GmbH's
business development efforts for nine months beginning on September 1, 1998
and, at Atugen GmbH's option, for an additional three months. Our CEO, CFO and
Vice President of Research, Dr. Christoffersen, Mr. Bullock and Dr. Usman,
respectively, devoted up to 25.0%of their time to Atugen GmbH activities for
six months beginning on September 1, 1998 to ensure a smooth transfer of
technology. They are making every reasonable attempt to accommodate any
additional time needed by Atugen GmbH during or after the six-month period.
As part of the formation, Atugen GmbH received exclusive royalty-free
licenses to our extensive patents and technologies for target validation and
discovery. We received a one-time $2.0 million license payment in
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1999 for a portion of the licensed technology. The initial technology base
includes our entire gene function identification and target validation
technologies for both chemically synthesized and expressed nucleic acids,
including target site selection, cell culture assays, RNA and other assays,
optimized delivery vehicles and animal pharmacology.
Atugen GmbH's primary goal is to accelerate discovery and validation of human
health therapeutic targets. It will provide a variety of technologies and
services to utilize information emerging from human genome sequencing efforts
to determine which genes are key factors causing human disease. The significant
technology base transferred from us to Atugen GmbH combined with the
substantial initial capitalization should allow Atugen GmbH to improve the
speed and certainty of identifying and validating new therapeutic targets both
for corporate partners and for internal use. As part of the formation, Atugen
GmbH acquired Transgenics Berlin-Buch GmbH in return for equity in Atugen GmbH.
This transaction provides Atugen GmbH with transgenic animal capabilities,
allowing early and rapid animal model assessment of the effect of inhibiting
expression of a targeted gene sequence using a ribozyme. Atugen GmbH formally
opened its research and administrative facilities in January 1999 on the
Biomedical Research Campus of the Max Delbruck Center in Berlin-Buch, Germany.
Other licenses
An element of our business strategy is to enter into licensing agreements or
other arrangements to exploit our technology. We seek licensing partners who
pursue the development of drugs for human diseases and other applications of
our technology which we cannot otherwise develop due to our limited resources.
In the past, we have entered into the following two licenses for such
activities.
Dow AgroSciences LLC. In September 1993, we entered into a collaborative
research feasibility study with Dow AgroSciences LLC. The goal of the
feasibility study was to demonstrate the ability of ribozymes to alter corn oil
traits. Dow AgroSciences provided research support for the feasibility study
conducted by us. The feasibility study was completed successfully in April 1997
and we entered into a long-term license agreement with Dow AgroSciences. The
agreement provides Dow AgroSciences with a worldwide, non-exclusive license to
some of our technology to commercialize oil, meal and starch products in corn
and several other crops. As consideration for the long-term license agreement,
41,666 shares of our common stock held by Dow AgroSciences were returned to us.
We will receive royalties on products sold; however, we do not expect to
receive royalties, if any, from this license for a substantial period of time.
IntelliGene. In March 1997, we granted a worldwide exclusive license to some
of our technology to IntelliGene to develop and sell diagnostics for several
target diseases using ribozymes. IntelliGene is a private, venture-backed
biotechnology company headquartered in Jerusalem, Israel with an office in
Sudbury, Massachusetts. IntelliGene is developing diagnostic products using
ribozymes created using a process called in vitro evolution. The agreement
provides for IntelliGene to develop diagnostic tests initially against six
infectious diseases in their laboratories in Jerusalem and elsewhere, and to
develop, make and sell diagnostic products based on these tests, either alone
or through sublicenses. We received a license fee and will receive royalties on
product sales. We do not expect to receive royalties, if any, from this license
for a substantial period of time.
Our competition
We are engaged in the rapidly changing business of developing treatments for
human disease through gene modulation. Competition among entities attempting to
develop gene modulation products for disease treatment is intense and is
expected to increase. We face direct competition from other companies engaged
in the research, development and commercialization of ribozyme-based technology
as well as competition from companies attempting other methods of gene
expression control, such as antisense and triplex. In addition, we compete with
large pharmaceutical companies and established biotechnology firms, many of
whom are developing new products for the treatment of the same diseases
targeted by us. In some cases,
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those companies have already commenced clinical trials for their products. Many
of these companies have significantly greater financial resources and expertise
in research and development, manufacturing, preclinical studies and clinical
trials, obtaining regulatory approvals and marketing than us. Our collaborators
and licensees may be conducting research and development programs directed at
the same diseases that we are targeting. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. In addition, companies that
complete clinical trials, obtain required regulatory approvals and commence
commercial sales of their products before their competitors may achieve a
significant competitive advantage.
Academic institutions, governmental agencies and other public and private
research organizations also conduct research, seek patent protection and
establish collaborative arrangements for products and clinical development and
marketing. These companies and institutions compete with us in recruiting and
retaining highly qualified scientific and management personnel.
In addition, we face competition based on product efficacy, safety, the
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, price and patent position.
Our patents and proprietary technology
Protecting patents and other proprietary rights is crucial to developing our
business. In addition to patents, we rely upon trade secrets, know-how and
continuing technological innovations in the design, synthesis, and purification
of ribozymes and in nucleic acid chemistry. We also rely on licensing
opportunities to develop and maintain our competitive position. It is our
policy to file patent applications when appropriate to protect technology,
inventions, and improvements that are considered important in the development
of our business.
At the core of our technology are inventions and patents of the University of
Colorado developed by Dr. Thomas R. Cech and various of his associates.
Pursuant to the University's policies, these inventions and the related patents
became the property of the University. The Cech Technology was assigned to the
University's affiliate, University Research Corporation ("URC"), which in turn
assigned the rights to license parts of the Cech Technology to Competitive
Technologies, Inc. United States Biochemical Corporation ("USB") licensed the
Cech Technology pursuant to two sublicenses. We have entered into a license
with URC and sublicenses with USB and Competitive Technologies pursuant to
which we have obtained the exclusive (except for non-commercial academic
research) worldwide right to the Cech Technology to, among other things, make,
use and sell ribozymes and ribozyme products covered by the licensed patents.
The URC license and USB sublicense are fully paid. The Competitive Technologies
license provides for the payment of a royalty on sales of ribozyme products
covered by the licensed patents. We may grant sublicenses to the licensed
technology subject to the payment to Competitive Technologies of a share of
royalty income from such sublicenses or a royalty on sales from sublicensed
products, methods or services, depending on the particular licensed patents
involved. In addition, we must pay Competitive Technologies a share of any
option fee, license fee, prepaid royalty or other "front-end" fee other than
research and development funding paid in connection with such sublicense.
In September 1993, we were granted a right of first refusal to license any
new inventions, improvements and patents related to ribozyme technology
developed by Dr. Cech or others at the University, in exchange for payments. To
maintain this right, we agreed to fund research at CU through an unrestricted
grant of $750,000 payable in various installments over a five-year period. This
grant has been paid in full. In addition, we have agreed to pay CU a fee for
each invention accepted by us under the license.
As part of our overall intellectual property strategy, we selectively enter
into agreements with academic institutions either to license pre-existing
technology or to support the development of new technologies and gain the
commercial rights to such new technologies.
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As a result of these licenses and sublicenses, and our own internal research,
we currently have the rights to 84 issued or allowed patents, and more than 100
patent applications under consideration worldwide. This includes exclusive
worldwide rights to 61 patents issued in the United States, 3 patents issued in
Europe, 1 patent issued in Japan and 8 patents issued in Australia. In
addition, Notices of Allowance have been received for at least 11 patents from
the United States Patent and Trademark Office. Six of the 61 United States
issued patents, 1 European patent and 1 Japanese patent cover enzymatic RNA and
the use of an enzymatic RNA to cleave a single stranded RNA. The Cech Patents
grant us the right to exclude others from practicing ribozyme technology as it
is currently known to us in the United States, Europe and Japan irrespective of
the application, the method of production, the method of purification, or the
ribozyme motif used. Unless extended, the Cech Patents will expire in December
2008 in the United States and December 2007 in Europe and in Japan. The
additional issued patents cover both ribozyme technology (e.g., ribozyme
design, synthesis, chemical modifications, delivery, ribozyme motifs, vector
production, target site selection) as well as application to specific
therapeutic targets.
In addition, we have filed or hold exclusive licenses to more than 100
pending United States and related foreign applications. Our patent portfolio
includes approximately 40 United States applications for various
areas of interest in human therapeutics and diagnostics and agricultural uses.
The portfolio also includes approximately 80 United States applications related
to the chemistry, design, optimization, manufacture and delivery of ribozyme
products. These patents collectively extend our ribozyme patent coverage well
beyond the life of the Cech Patents.
We have filed opposition documents against two patents granted to a
competitor in Europe. Opposition proceedings against two of our European and
Japanese patents have been initiated by our competitors. The Japanese
Opposition Division has rejected competitor oppositions, and has issued a
notification that it will maintain our Japanese patent without change. The
opposition proceedings against our European patent are still ongoing. In
addition, we anticipate interference proceedings against some of our patents
and patent applications in the United States. Our patents and applications are
soundly based, but the extent of protection may vary in different countries and
no assurance can be given that any patent will provide commercially significant
protection or will not be challenged, invalidated, or circumvented. Litigation
could prove necessary to protect our patent position, which would result in our
incurring substantial costs as well as diverting our efforts. Atugen GmbH will
be responsible for the patent prosecution costs for patents transferred to it.
Competitors or other patent holders could bring legal actions against us
involving our patents, patent applications or rights to use proprietary
technology. If any actions succeed, in addition to any potential liability for
damages, we could be enjoined from selling the affected product, or be required
to obtain a license in order to continue to manufacture or market the product.
There can be no assurance that we would prevail in any such action or that any
license required under any such patent would be made available on acceptable
terms, if at all. There has been, and there will likely continue to be,
significant litigation in the pharmaceutical industry regarding patent and
other intellectual property rights. Any additional litigation could consume a
substantial portion of the our resources regardless of the outcome.
Government regulation of our drug development activities
The development, manufacture and potential sale of therapeutics is subject to
extensive regulation by United States and foreign governmental authorities. In
particular, pharmaceutical products undergo rigorous preclinical and clinical
testing and to other approval requirements by the FDA in the United States
under the federal Food, Drug and Cosmetic Act and the Public Health Service Act
and by comparable agencies in most foreign countries.
Before testing agents with potential therapeutic value in healthy human test
subjects or patients may begin, stringent government requirements for
preclinical data must be satisfied. The data, obtained from studies in several
animal species, as well as from laboratory studies, are submitted in an IND
application or
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its equivalent in countries outside the United States where clinical studies
are to be conducted. Preclinical data must provide an adequate basis for
evaluating both the safety and the scientific rationale for the initiation of
clinical trials.
Clinical trials are typically conducted in three sequential phases, although
these phases may overlap. In Phase I, which frequently begins with initial
introduction of the compound into healthy human subjects prior to introduction
into patients, the product is tested for safety, adverse affects, dosage,
tolerance, absorption, metabolism, excretion and clinical pharmacology. Phase
II typically involves studies in a small sample of the intended patient
population to assess the efficacy of the compound for a specific indication to
determine dose tolerance and the optimal dose range as well as to gather
additional information relating to safety and potential adverse effects. Phase
III trials are undertaken to further evaluate clinical safety and efficacy in
an expanded patient population at geographically dispersed study sites to
determine the overall risk-benefit ratio of the compound and to provide an
adequate basis for product labeling. Each trial is conducted in accordance with
certain standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Data from preclinical and clinical trials are submitted to the FDA as an NDA
for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a new
drug is likely to take a number of years and requires the expenditure of
substantial resources. Preparing an NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense.
There can be no assurance that FDA or any other health authority approval will
be granted on a timely basis, if at all. The approval process is affected by a
number of factors, primarily the risks and benefits demonstrated in clinical
trials as well as the severity of the disease and the availability of
alternative treatments. The FDA or other health authorities may deny an NDA or
marketing authorization application if the authority's regulatory criteria are
not satisfied or may require additional testing or information.
Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide additional data on safety and will be required to gain approval for the
use of a product as a treatment for clinical indications other than those for
which the product was initially tested. Also, the FDA or other regulatory
authorities may require post-marketing reporting to monitor the side effects of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the drug,
including changes in indication, manufacturing process or labeling or a change
in manufacturing facility, an application seeking approval of such changes will
be required to be submitted to the FDA or other regulatory authority.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to
commencing commercial sales of the product in such countries. The requirements
governing the conduct of clinical trials and product approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some procedures for
unified filings for certain European countries, in general, each country at
this time has its own procedures and requirements. Further, the FDA regulates
the export of products produced in the United States and may prohibit the
export of such products even if they are approved for sale in other countries.
In addition to FDA requirements, the National Institute of Health has
established guidelines for research involving recombinant DNA molecules, which
are utilized by us and our collaborators and licensees. These guidelines apply
to all recombinant DNA research within the United States or its territories
which is conducted at or supported by the NIH. Under current guidelines,
proposals to conduct clinical research involving gene therapy which is
supported by the NIH must be reviewed by the NIH Recombinant DNA Advisory
Committee. Our vector delivery of ribozymes will need to be reviewed by this
Committee.
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We are also subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resources Conservation and Recovery Act and other present and potential future
federal, state and local regulations.
Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and a lengthy period of
time. Delay or failure in obtaining the required approvals, clearances or
permits by us, our corporate partners or our licensees would have a material
adverse affect on our ability to generate sales or royalty revenue. The impact
of new or changed laws or regulations cannot be predicted with any accuracy.
Our manufacturing and marketing strategies
To support our preclinical and clinical trial manufacturing requirements, we
constructed manufacturing facilities that we believe comply with applicable
regulatory requirements. We have also established operational quality assurance
and quality control procedures. We believe that our existing facilities and
those available from contract manufacturers will be satisfactory for production
of ribozymes needed through clinical trials for our products currently in
development.
We do not currently have the facilities or means to manufacture, market,
distribute or sell on a commercial scale any of products we may develop. We
will need to develop our own facilities or contract with third parties for the
manufacture of products. We have expanded our quality control and quality
assurance program internally, including adopting a set of standard operating
procedures designed to assure that any products manufactured by or for us are
made in accordance with cGMP and other applicable domestic and foreign
regulations.
In connection with establishing of our manufacturing capabilities, we have
entered into agreements with Pharmacia Biotech and Protogene. In November 1995,
we agreed to collaborate with Pharmacia Biotech to develop better synthesis and
purification methods for the preparation of modified amidites and chimeric
oligonucleotides on a large scale. The goal of the collaboration is to reduce
the cost of manufacturing ribozymes and other oligonucleotides products that
use amidites. Pharmacia Biotech, a subsidiary of Pharmacia & Upjohn, Inc., has
expertise in the manufacture of oligonucleotides synthesis and purification
instrumentation and software. Under the terms of the collaboration, Pharmacia
Biotech is providing us with synthesis instrumentation and software, research
funding and milestone payments, a portion of which may be set-off against
future royalties payable to us.
In December 1996, we entered into an agreement with Protogene, a private
biotechnology company, to develop an instrument allowing high throughput
synthesis of non-DNA oligonucleotides. Under the terms of the agreement, we
have purchased an instrument manufactured by Protogene.
We expect to market and sell any products developed, at least initially,
directly and through co-promotion or other licensing arrangements with third
parties, including our collaborators. In some markets, we may enter into
distribution or partnership agreements with pharmaceutical or biotechnology
companies that have large, established sales organizations.
Our employees
As of April 28, 1999, we had 66 full-time employees, including a technical
scientific staff of 50. Our future performance depends significantly on the
continued service of our key personnel. None of our employees are covered by
collective bargaining arrangements. We believe our employee relations are good.
Legal proceedings
We are not actively involved in any litigation which could reasonably be
expected to have a material adverse effect on our business or the results of
our operations.
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Properties
We lease approximately 30,000 square feet of laboratory, manufacturing and
office space at 2950 Wilderness Place, Boulder, Colorado, under an operating
lease that lasts through June 2007. This facility will be sufficient to meet
our needs at least through 2000.
Our Scientific Advisory Board
We are assisted in our research and development activities by our Scientific
Advisory Board composed of leading scientists who meet with us several times
each year to review our research and development activities, and to discuss
technological advances and our business. We also have collaborative
relationships with several board members that further advance our product
development. Our current Scientific Advisory Board members are:
Thomas R. Cech, Ph.D.Distinguished Professor, Department of Chemistry &
Biochemistry, University of Colorado; Chairman, SAB
Gerald Joyce, M.D., Ph.D.
Professor, Department of Molecular Biology, Scripps
Research Institute
Edward Mocarski, Ph.D.
Professor and Chairman, Departments of Microbiology &
Immunology, Stanford University
Gary Nabel, M.D., Ph.D.
Professor, Departments of Internal Medicine and
Biological Chemistry, University of Michigan
Bruce Sullenger, Ph.D.
Assistant Professor, Departments of Experimental Surgery
and Genetics, Duke University
Olke C. Uhlenbeck, Ph.D.
Professor, Department of Chemistry and Biochemistry,
University of Colorado
Each member has entered into an exclusive consulting agreement with Ribozyme
Pharmaceuticals in the field of ribozymes and signed confidentiality and non-
disclosure agreements. In 1998, they each received:
. an annual retainer of $4,000 paid quarterly (except Dr. Cech who received
$40,000),
. an honorarium of $1,500 per day for meetings attended, and
. options for 4,000 shares of our common stock, which vest ratably over
three years.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of Ribozyme Pharmaceuticals are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ralph E. Christoffersen, 61 Chief Executive Officer, President and Director
Ph.D. (1)................
Lawrence E. Bullock....... 43 Vice President of Administration and Finance,
Chief Financial Officer and Secretary
Alene A. Holzman.......... 42 Vice President of Business Development and
General Manager of Target Validation and
Discovery Business
Thomas H. Rossing, M.D.... 49 Vice President of Product Development
Nassim Usman, Ph.D........ 39 Vice President of Research
David T. Morgenthaler (1) 79 Chairman of the Board
(2)......................
Jeremy L. Curnock Cook (1) 49 Director
(3)......................
Anthony B. Evnin, Ph.D. 58 Director
(1) (2)..................
David Ichikawa (3)........ 46 Director
Anders P. Wiklund (2) 58 Director
(3)......................
</TABLE>
- --------
(1) Member of the Executive Committee.
(2)Member of the Compensation Committee.
(3)Member of the Audit Committee.
Ralph E. Christoffersen, Ph.D., has served as Chief Executive Officer,
President and Director of Ribozyme Pharmaceuticals since June 1992. From 1989
to June 1992, Dr. Christoffersen was Senior Vice President and Director of U.S.
Research at SmithKline Beecham Pharmaceuticals, a pharmaceutical company. From
1983 to 1989, he held senior management positions in research at The Upjohn
Company, a pharmaceutical company. Prior to joining The Upjohn Company, Dr.
Christoffersen served as a Professor of Chemistry and Vice Chancellor for
Academic Affairs at the University of Kansas, and as President of Colorado
State University. He received his Ph.D. in physical chemistry from Indiana
University.
Lawrence E. Bullock has served as Vice President of Administration and
Finance, Chief Financial Officer and Secretary, since January 1996. From
December 1990 to January 1996, Mr. Bullock was Chief Financial Officer,
Director of Finance and Administration and Secretary of La Jolla Pharmaceutical
Company, a biopharmaceutical company. Mr. Bullock received his M.B.A. from the
University of Utah.
Alene A. Holzman has served as Vice President of Business Development and
General Manager of Target Validation and Discovery Business since April 1997.
From January 1990 to March 1997, Ms. Holzman was Vice President of ChemTrak
Corporation, a medical technology firm, where she was responsible for finance,
business development and marketing and sales. From 1987 to 1990, she was Vice
President of CytoSciences, Inc., a biomedical company, and from 1981 to 1987
she was Vice President of Marketing and Sales for Hana Biologics, Inc. (now
Cell Genesys Corporation), a biotechnology firm. Ms. Holzman received her
M.B.A. from the University of California at Berkeley.
Thomas H. Rossing, M.D., has served as Vice President of Product Development
since July 1997. From July 1996 to July 1997, Dr. Rossing was Vice President of
Clinical Development and Regulatory Affairs at GeneMedicine, Inc., a
biotechnology company. From March 1993 to July 1996, Dr. Rossing was Director
of International Respiratory Clinical Research at GlaxoWellcome, a
pharmaceutical company. He has also
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served as Director of Clinical Pharmacology and Worldwide Regulatory Liaison at
Merck Research Laboratories, a pharmaceutical company, and a staff physician at
Brigham and Women's Hospital in Boston, Massachusetts. He received his M.D.
degree from Harvard University. Dr. Rossing announced that he is retiring
effective August 3, 1999.
Nassim Usman, Ph.D., has served as Vice President of Research since May 1996.
From April 1994 until May 1996, Dr. Usman served as Director of Chemistry and
Biochemistry Research at Ribozyme Pharmaceuticals and from September 1992 until
April 1994 Dr. Usman served as Senior Scientist in Chemistry and Biochemistry.
From January 1987 to September 1992, Dr. Usman was a Postdoctoral Fellow and
Scientist in the Departments of Biology and Chemistry at the Massachusetts
Institute of Technology. Dr. Usman received his Ph.D. in chemistry from McGill
University.
David T. Morgenthaler has served as a director since February 1992 and was
elected Chairman of the Board in December 1995. Mr. Morgenthaler was a founder
of and has been Managing Partner of Morgenthaler Ventures, a private venture
capital firm, since 1968. He has been a director of a number of public and
private companies. Mr. Morgenthaler received his M.S. degree from the
Massachusetts Institute of Technology.
Jeremy L. Curnock Cook has served as a director since July 1995. Mr. Cook is
a director of Rothschild Asset Management, an investment fund, and has been
responsible for the Rothschild Bioscience Unit since 1987. Mr. Cook founded the
International Biochemicals Group in 1975 which he subsequently sold to Royal
Dutch Shell in 1985, remaining as Managing Director until 1987. He is also a
director of the International Biotechnology Trust plc, Creative BioMolecules
Inc., Targeted Genetics Inc., Cantab Pharmaceuticals plc, SUGEN, Inc., Cell
Therapeutics, Inc., Amrad Corporation, Vanguard Medica plc, Angiotech
Pharmaceuticals, Inc., Inflazyme Pharmaceuticals, Inc. and Biocompatibles
International plc. Mr. Cook received an M.A. in Natural Sciences from Trinity
College Dublin.
Anthony B. Evnin, Ph.D., has served as a director since February 1992. Dr.
Evnin has been a General Partner of Venrock Associates, a venture capital
partnership, since 1975. He is also a director of AxyS Pharmaceutical
Corporation, Centocor, Inc., Opta Food Ingredients, Inc., and Triangle
Pharmaceuticals, Incorporated. Dr. Evnin received his Ph.D. from the
Massachusetts Institute of Technology.
David Ichikawa has served as a director since May 1998. Mr. Ichikawa has been
employed by Chiron Corporation, a biotechnology company, since September 1994
and is currently Vice President of Finance and Operations of Chiron
Technologies. He has also held management positions at Boehringer Mannhiem
Corporation and Chiron (Cetus) Corporation. Mr. Ichikawa received his M.B.A.
from the University of California at Berkeley.
Anders P. Wiklund has served as a director since August 1994. Since January
1997, Mr. Wiklund has been the principal of Wiklund International, an advisory
firm to the biotechnology and pharmaceutical industries. From 1967 through
1996, Mr. Wiklund served in numerous executive positions for the Kabi and
Pharmacia group of companies, including President and CEO of Kabi Vitrum Inc.
and Kabi Pharmacia, Incorporated. Mr. Wiklund is also a director of Trega
Bioscience, Inc., Medivir, A.B. and InSite Vision, Inc., as well as serving on
private company boards. Mr. Wiklund received a Master of Pharmacy degree from
the Pharmaceutical Institute in Stockholm.
40
<PAGE>
Executive Compensation
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our other four most highly compensated executive
officers whose annual compensation exceeded $100,000 in 1998 ("Named Executive
Officers"). The "All Other Compensation" column shows matching contributions in
common stock made by us under our 401(k) Salary Reduction Plan. The amounts
shown for 1998 under "Shares Underlying Options Granted" include shares granted
in connection with the stock option repricing in 1998. See "Stock Option Plan--
Repricing."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
------------------------ --------------------------------
Shares
Other Restricted Underlying All
Annual Stock Options Other
Name and Principal Position Year Salary($) Bonus($) Comp.($) Awards(#) Granted(#) Comp.($)
- --------------------------- ---- ---------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph E. Christoffersen,
Ph.D. ................. 1998 285,670 50,000 37,862(1) 198,748 4,998
Chief Executive Officer
and 1997 269,520 50,000 45,000(1) -- 129,450 4,744
President 1996 247,248 -- 70,000(1) 188,100(2) 97,770 153,910(2)
Lawrence E. Bullock .... 1998 150,800 25,000 75,883(3) -- 85,957 4,998
Vice President of
Administration 1997 136,254 25,000 35,524(3) -- 37,500 4,744
and Finance, CFO and
Secretary 1996 118,433 15,000 24,993(3) -- 66,000 --
Alene A. Holzman(4)..... 1998 156,900 6,500 37,721(5) -- 100,000 4,998
Vice President of
Business 1997 108,557 12,500 28,389(5) -- 80,000 3,494
Development and General
Manager of Target
Validation and
Discovery Business
Thomas H. Rossing,
M.D.(6)................ 1998 250,650 -- 34,000(7) -- 110,624 4,998
Vice President of 1997 105,859 22,000 84,008(7) -- 107,500 --
Product Development
Nassim Usman, Ph.D. .... 1998 183,038(8) 23,000 25,841(9) 99,167 4,998
Vice President of
Research 1997 158,004 -- 25,397(9) -- 45,000 4,744
1996 132,919 25,000 20,499(9) -- 53,892 --
</TABLE>
- --------
(1) Includes (a) $50,000 in 1996 and $25,000 in each of 1997 and 1998 for
forgiveness of a loan made to Dr. Christoffersen for relocation expenses;
and (b) $20,000 in each of 1996 and 1997 and $12,862 in 1998 to assist him
with the tax liability relating to the loan forgiveness.
(2) Dr. Christoffersen received a bonus of $342,010, payable $153,910 in cash
and $188,100 in shares of common stock (18,810 shares at our initial public
offering price of $10.00 per share), upon closing of our initial public
offering in April 1996.
(3) Includes (a) $9,058 and $9,641 in 1996 and 1997, respectively, representing
implied interest related to an interest-free loan made to Mr. Bullock for
relocation expenses; (b) $15,000 in each of 1997 and 1998 for partial
forgiveness of the loan; (c) $7,883 in each of 1997 and 1998 for taxes
relating to the loan; (d) $3,000 in each of 1997 and 1998 as reimbursements
for dependent daycare expenses; and (e) $15,935 and $50,000, in 1996 and
1998, respectively, to reimburse Mr. Bullock for relocation expenses.
(4) Ms. Holzman joined Ribozyme Pharmaceuticals on April 1, 1997.
(5) Includes (a) $10,036 in 1997 representing implied interest related to an
interest-free loan made to Ms. Holzman for relocation expenses; (b) $15,853
and $9,721 in 1997 and 1998, respectively, to reimburse Ms. Holzman for
relocation expenses; (c) $25,000 in 1998 for partial forgiveness of the
loan; and (d) $2,500 and $3,000 in 1997 and 1998, respectively, as
reimbursements for dependent day care expenses.
41
<PAGE>
(6) Dr. Rossing joined Ribozyme Pharmaceuticals on July 28, 1997.
(7) Includes (a) $14,901 in 1997 representing implied interest related to an
interest-free loan made to Dr. Rossing for relocation expenses; (b)
$34,000 in 1998 for partial forgiveness of the loan; and (c) $69,107 in
1997 to reimburse Dr. Rossing for relocation expenses.
(8) Includes $13,988 in additional salary for Dr. Usman's three-month temporary
position as Vice President of Atugen GmbH.
(9) Includes (a) $20,499 in 1996 representing implied interest related to an
interest-free loan made to Dr. Usman for relocation expenses; (b) $15,000
in each of 1997 and 1998 for partial forgiveness of the loan; (d) $7,883 in
each of 1997 and 1998 for taxes relating to the loan; and (d) $2,496 in
each of 1997 and 1998 as reimbursements for dependent day care expenses.
Stock Option Plan
In March 1996 we amended, restated and merged our stock option plans and
named the resulting plan the 1996 Stock Option Plan. Currently, 1,474,124
shares of our common stock are reserved for issuance under the Plan. As of
April 28, 1999, options to purchase 1,401,936 shares were outstanding under the
Plan. The Plan will terminate in January 2006, unless earlier terminated by the
Board of Directors. The purpose of the Plan is to:
. attract and retain qualified personnel,
. provide additional incentives to our employees, officers, directors and
consultants, and
. promote the success of our business.
Under the Plan, we may grant or issue incentive stock options and
supplemental (non-qualified) stock options to our consultants, employees,
officers and directors.
Administration. Our Board has delegated administration of the Plan to a
Compensation Committee comprised of three independent directors (see "Board
Committees"). Subject to the limitations set forth in the Plan, the Board or
the Compensation Committee has the authority to:
. select the persons to whom grants are to be made,
. designate the number of shares to be covered by each option,
. determine whether an option is an incentive stock option or a non-
statutory stock option,
. establish vesting schedules, and
. subject to restrictions, specify the type of consideration to be paid
upon exercise and to specify other terms of the options.
Terms. The maximum term of options granted under the Plan is ten years,
however, the maximum term is five years for incentive options granted to a
person who at that time owns 10% of the total combined voting power of all
classes of stock. The aggregate fair market value of the stock with respect to
which incentive stock options are first exercisable in any calendar year may
not exceed $100,000 per optionee. Any portion in excess of $100,000 shall be
treated as non-statutory stock options. Options granted under the Plan are non-
transferable and generally expire upon the earlier of the stated expiration
date or three months after the termination of an optionee's service to Ribozyme
Pharmaceuticals. However, the expiration date would be 18 months in the event
the optionee's employment terminates by reason of death, or 12 months in the
event the optionee's employment terminates due to disability, or a longer or
shorter period as may be specified in the option agreement.
Our Board has discretion in connection with a merger, consolidation,
reorganization or similar corporate event where we are the surviving
corporation to prescribe the terms and conditions for the modifications of the
options granted under the Plan. If we are not the surviving corporation in the
event of our dissolution or
42
<PAGE>
liquidation, or our merger or consolidation, all outstanding options will
terminate unless assumed by another corporation.
No specific vesting schedule is required under the Plan. The exercise price
of incentive stock options must equal at least the fair market value of the
common stock on the date of grant, except that the exercise price of incentive
stock options granted to any person who at the time of grant owns stock
possessing more than 10% of the combined voting power of all classes of stock
must be at least 110% of the fair market value of the stock on the date of
grant. The exercise price on non-statutory stock options under the Plan may be
no less than 85% of the fair market value of the common stock on the date of
grant.
Repricing. In September 1998 our Board of Directors approved a repricing of
all employee stock options outstanding under the Plan. Pursuant to this
repricing, each Named Executive Officer holding options received 0.75 option
for each one option surrendered with a new vesting date and an exercise price
of $3.00 per share. All non-executive employees who were option holders
received one new option for each one option surrendered with a new vesting date
and an exercise price of $3.00 per share. As a result of this repricing offer,
890,921 options were canceled and 747,060 options were granted effective
September 18, 1998.
43
<PAGE>
The following table contains information about stock options granted to each
of the Named Executive Officers during 1998 under the Plan. All options, other
than performance-based options which are indicated by *, vest in increments of
20% over a five-year period and become exercisable on the first anniversary of
the grant date. Options granted in connection with the stock option repricing
first vest on September 18, 1999. The exercise price of each option was equal
to the fair market value of the common stock on the date of the option grant
as determined by the Board of Directors. The options are granted for a term of
ten years, subject to earlier termination if employment is terminated.
Option Grants in 1998
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
% of Total Potential Realizable
Number of Options Value at
Shares Granted Annual Rate of Stock
Underlying to Price Appreciation
Options Employees Exercise for Option Term(1)
Granted in Price Expiration ---------------------
(#) 1998 ($/Share) Date 5%($) 10%($)
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph E.
Christoffersen......... 76,874(2) 6.7% $3.00 09-18-08 145,037 367,552
*76,874(2) 6.7 3.00 09-18-08 145,037 367,552
22,500 2.0 5.63 12-02-08 79,665 201,887
*22,500 2.0 5.63 12-02-08 79,665 201,887
------- ----
198,748 17.4
Lawrence E. Bullock..... 39,395(2) 3.4 3.00 09-18-08 74,326 188,356
*21,562(2) 1.9 3.00 09-18-08 40,681 103,093
12,500 1.1 5.63 12-02-08 44,258 112,160
*12,500 1.1 5.63 12-02-08 44,258 112,160
------- ----
85,957 7.5
Alene A. Holzman........ 30,000(2) 2.6 3.00 09-18-08 56,601 143,437
*30,000(2) 2.6 3.00 09-18-08 56,601 143,437
20,000 1.8 5.63 12-02-08 70,814 179,455
*20,000 1.8 5.63 12-02-08 70,814 179,455
------- ----
100,000 8.8
Thomas H. Rossing....... 40,312(2) 3.5 3.00 09-18-08 76,056 192,741
*40,312(2) 3.5 3.00 09-18-08 76,056 192,741
15,000 1.3 5.63 12-02-08 53,110 134,592
*15,000 1.3 5.63 12-02-08 53,110 134,592
------- ----
110,624 9.6
Nassim Usman............ 44,542(2) 3.9 3.00 09-18-08 84,037 212,965
*29,625(2) 2.6 3.00 09-18-08 55,893 141,644
12,500 1.1 5.63 12-02-08 44,258 112,160
*12,500 1.1 5.63 12-02-08 44,258 112,160
------- ----
99,167 8.7
</TABLE>
- --------
* These options become 100% vested upon the completion of various research or
business performance milestones.
(1) Amounts reported in these columns show hypothetical gains that may be
realized upon exercise of the options, assuming the market price of common
stock appreciates at the specified annual rates of
appreciation, compounded annually over the term of the options. These
numbers are calculated based upon rules promulgated by the SEC. Actual
gains, if any, depend on the future performance of our common stock and
overall market conditions.
(2) Shares granted in connection with the stock option repricing.
44
<PAGE>
The following table contains information about the number and value of stock
options held by each Named Executive Officer as of December 31, 1998. No other
Named Executive Officer exercised any stock options during 1998. A stock option
is "in-the-money" if the closing market price of our common stock exceeds the
exercise price of the stock option. The value of "in-the-money" unexercised
stock options set forth in the table represents the difference between the
exercise price of these options and the closing sales price of our common stock
on December 31, 1998, as reported by the Nasdaq National Market, $4.38 per
share.
1998 Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1998(#) at December 31, 1998($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
Ralph E. Christoffersen.... 69,706/174,374 176,794/178,536
Lawrence E. Bullock........ 17,847/89,394 28,295/91,863
Alene A. Holzman........... 12,001/87,250 16,560/65,205
Thomas H. Rossing.......... 9,000/101,624 12,420/98,841
Nassim Usman............... 28,265/85,885 47,537/84,288
</TABLE>
Employment agreements
Ralph E. Christoffersen. In May 1992, we entered into an employment agreement
with Ralph E. Christoffersen, Ph.D., our President and Chief Executive Officer,
which, as amended, currently provides for:
. an annual salary of $297,000,
. an annual performance-based cash bonus of up to $80,000 (a bonus of
$64,000 was received in January 1999 for 1998 performance), and
. stock options for common stock as reflected in the tables in this
"Management" section.
Dr. Christoffersen's agreement may be terminated upon his death, disability
or for cause. If we terminate Dr. Christoffersen's employment, he is entitled
to receive all accrued salary and benefits up to his termination and, unless he
has been terminated for cause, nine months of severance pay at the same monthly
rate as in effect at the time of his termination. If termination occurs after
January 1, 2000, Dr. Christoffersen shall be paid a lump sum cash payment of up
to $27,500.
Lawrence E. Bullock. In January 1996, we entered into an employment agreement
with Lawrence E. Bullock, our Vice President of Administration and Finance,
Chief Financial Officer and Secretary, which, as amended, currently provides
for:
. an annual salary of $158,350,
. an annual performance-based cash bonus of up to 20% of his current salary
(a bonus of $26,850 was received in January 1999 for 1998 performance),
. stock options for common stock as reflected in the tables in this
"Management" section, and
. an interest-free loan of $75,000 made in 1996 and forgivable in five
equal annual installments, grossed-up for taxes, as long as Mr. Bullock
remains employed by us.
If we terminate Mr. Bullock's employment without cause, he is entitled to six
months' severance pay at his then current salary.
45
<PAGE>
Nassim Usman, Ph.D. In May 1996, we entered into an employment agreement with
Nassim Usman, Ph.D., our Vice President of Research, which, as amended,
currently provides for:
. an annual salary of $177,925,
. an annual performance-based cash bonus of up to 20% of his current salary
(a bonus of $29,075 was received in January 1999 for 1998 performance),
. stock options for common stock as reflected in the tables in this
"Management" section, and
. an interest-free loan of $75,000 made in May 1996 and forgivable in five
equal installments, grossed-up for taxes, as long as Dr. Usman remains
employed by us.
If we terminate Dr. Usman's employment without cause, he will be entitled to
six months' severance pay at his then current salary.
Alene A. Holzman. In February 1997, we entered into an employment agreement
with Alene A. Holzman, our Vice President of Business Development and General
Manager of Target Validation and Discovery Business, which, as amended,
currently provides for:
. an annual salary of $166,325,
. an annual performance-based cash bonus of up to 20% of her current salary
(a bonus of $24,175 was received in January 1999 for 1998 performance),
. stock options for common stock as reflected in the tables in this
"Management" section, and
. an interest-free loan of $75,000 made in June 1997 and forgivable in
three equal installments as long as Ms. Holzman is employed by us.
If we terminate Ms. Holzman's employment without cause, she is entitled to
six months' severance pay at her then current salary.
Thomas H. Rossing. In July 1997, we entered into an employment agreement with
Thomas H. Rossing, M.D., our Vice President of Product Development, which, as
amended, currently provides for:
. an annual salary of $258,175,
. an annual performance-based cash bonus of up to 15% of his current salary
(a bonus of $35,725 was received in January 1999 for 1998 performance),
. stock options for common stock as reflected in the tables in this
"Management" section, and
. an interest-free loan of $100,000 made in September 1997 and forgivable
in three equal installments as long as Dr. Rossing is employed by us.
Dr. Rossing has given notice that he will retire from Ribozyme
Pharmaceuticals on August 3, 1999. If we terminate Dr. Rossing's employment
without cause prior to that time, he will be entitled to six months' severance
pay at his then current salary.
Employee Benefits
Executive Bonus Plan. In March 1998, our Executive Bonus Plan was adopted by
the Board of Directors. This Bonus Plan provides our executive officers with
the opportunity to earn an annual bonus contingent upon their fulfillment of
annual goals as determined by our Compensation Committee comprised of three
independent directors. The Compensation Committee has complete authority to
establish the goals for each executive officer, to interpret all provisions of
the Bonus Plan and to make all other determinations necessary or advisable for
the administration of the Bonus Plan. The Compensation Committee may award each
of our executive officers with an annual bonus comprised of one or more of the
following:
. cash payment,
. stock options pursuant to our stock option plan, or
46
<PAGE>
. forgiveness of any portion of the principal of interest-free loans
provided to the executive officer.
Section 401(k) Plan. As part of our effort to attract and maintain high
quality staff, we adopted a 401(k) Salary Reduction Plan and Trust on June 1,
1992. Our employees may make pre-tax elective contributions of up to 20% of
their salary, subject to limitations prescribed by law. All contributions are
paid to a trustee who invests for the benefit of members of the 401(k) Plan. In
March 1997, the 401(k) Plan was amended to provide that we may match the
employee's contributions with common stock. We may amend or terminate the
401(k) Plan at any time, subject to legal restrictions.
Employee Stock Purchase Plan. In March 1996, we adopted an Employee Stock
Purchase Plan, which authorizes the issuance of up to 300,000 shares of our
common stock to eligible employees. Generally, each offering lasts for twenty-
four months, and purchases are made on each October 31 and April 30 during each
offering. For example, the initial offering began on April 11, 1996, and
terminated on April 30, 1998. Common stock is purchased for accounts of
employees participating in the Purchase Plan at a price per share equal to the
lower of:
. 85% of the fair market value of a share of common stock on the date of
commencement of participation in the offering, or
. 85% of the fair market value of a share of common stock on the date of
purchase.
Generally, all regular employees, including executive officers, may
participate in the Purchase Plan and may authorize payroll deductions of up to
15% of their base compensation for the purchase of common stock under the
Purchase Plan. Our Board of Directors has the authority to terminate the
Purchase Plan at its discretion. As of March 1, 1999, 99,832 shares had been
issued pursuant to the Purchase Plan.
Director Compensation
Fees. All non-employee directors receive a fee of:
. $1,000 per day for each Board or Committee meeting attended, and
. $500 per day for participating telephonically in a meeting of the Board
or a Committee.
Stock Options. Non-employee directors may also receive stock options for
5,000 shares of our stock annually under our stock option plan. In 1997 and
1998, each non-employee director was granted an option to purchase 5,000
shares. The options vest after one year of service. In addition, Mr. Wiklund
received an option to purchase 4,444 shares in June 1994, of which 1,111 shares
vested immediately and the remaining 3,333 shares vest in increments of 20%
over five years starting in 1995.
Board Committees
The Board has established an Audit Committee, a Compensation Committee and an
Executive Committee. The Executive Committee, consisting of Messrs.
Morgenthaler (Chairman) and Cook and Drs. Christoffersen and Evnin, oversees
the management and operation of our business.
The Compensation Committee, consisting of Dr. Evnin (Chairman) and Messrs.
Morgenthaler and Wiklund:
. reviews and recommends for Board approval grants of options pursuant to
our stock option plan,
. decides salaries and incentive compensation for our employees and
consultants, and
. recommends compensation for executive officers.
The Audit Committee, consisting of Messrs. Ichikawa (Chairman), Cook and
Wiklund:
. recommends to the Board the selection of independent auditors,
. reviews the results and scope of the audit and other services provided by
our independent auditors, and
47
<PAGE>
. reviews and evaluates our audit and control functions.
Compensation Committee Interlocks
The members of our Compensation Committee have no interlocking relationships
as defined under SEC regulations.
Director and Officer Indemnification and Liability
Pursuant to provisions of Delaware General Corporation Law ("DGCL"), we have
adopted provisions in our certificate of incorporation which provide that our
directors shall not be personally liable for monetary damages to us or our
stockholders for breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. under Section 174 of the DGCL relating to improper dividends or
distributions, and
. for any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the DGCL. Pursuant to Section 145 of the
DGCL, which empowers us to enter into indemnification agreements with our
officers, directors, employees and agents, we have entered into separate
indemnification agreements with our directors and executive officers which may,
in some cases, be broader than the specific indemnification provisions
contained in the DGCL. The indemnification agreements may require us to
indemnify the executive officers and directors against liabilities that may
arise by reason of their status or service as directors or executive officers,
other than liabilities arising from acts or omissions not in good faith or
willful misconduct, and to advance expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents where indemnification will be required or
permitted, and we are not aware of any threatened litigation or proceeding that
may result in a claim for indemnification.
48
<PAGE>
CERTAIN TRANSACTIONS
We believe that the following transactions were in our best interests. As a
matter of policy, these transactions were, and all future transactions between
Ribozyme Pharmaceuticals and any of our officers, directors or principal
stockholders will be:
. approved by a majority of the independent members of our Board of
Directors,
. entered into on terms no less favorable to Ribozyme Pharmaceuticals than
could be obtained from unaffiliated third parties, and
. entered into in connection with bona fide business purposes.
Executive Loans. We made interest-free loans for relocation expenses to our
executive officers when we hired them. We have forgiven all or a portion of the
outstanding principal amount of each loan under the terms of each officer's
employment agreement. See "Management--Employment Agreements."
<TABLE>
<CAPTION>
Balance as of
Name Loan Amount April 28, 1999
---- ----------- --------------
<S> <C> <C>
Ralph E. Christoffersen, Ph.D. ................. $250,000(1) $ 0
Lawrence E. Bullock............................. 75,000(2) 30,000
Nassim Usman, Ph.D. ............................ 75,000(3) 45,000
Alene A. Holzman................................ 75,000(4) 25,000
Thomas H. Rossing............................... 100,000(5) 66,000
</TABLE>
- --------
(1) $50,000 forgiven in each of June 1993, January 1995, January 1996 and
January 1997, and $25,000 forgiven in each of January 1994 and January
1998.
(2) $15,000 forgiven in each of June 1997, January 1998 and January 1999.
(3) $15,000 forgiven in each of June 1997 and May 1998.
(4) $25,000 forgiven in each of March 1998 and March 1999.
(5) $34,000 forgiven in July 1998.
Chiron Transactions. Chiron and Ribozyme Pharmaceuticals granted each other
licenses to technologies and agreed to undertake research activities pursuant
to a collaboration agreement. Chiron purchased:
. 100,000 shares of our common stock for a purchase price of $3.60 per
share,
. 107,095 shares of our Series E Preferred Stock for a purchase price of
$37.35 per share, and
. a warrant at a price of $4.50 per warrant share, exercisable for 444,444
shares of our common stock at an exercise price of $40.50 per share.
In February 1996, we amended the warrant issuable to Chiron to reduce the
exercise price from $40.50 per share to $22.50 per share. When we closed our
initial public offering in April 1996, Chiron:
. purchased 377,202 shares of our common stock for $3.6 million at the
initial public offering price less one-half of the underwriting discount,
. paid us $1.8 million to complete the purchase of its warrant, and
. received 35,127 additional shares of our common stock pursuant to anti-
dilutive provisions.
Chiron also has a representative on our Board of Directors.
In May 1996, we entered into a second collaboration with Chiron for the use
of ribozymes to characterize gene function. The collaborations give Chiron the
right to develop and commercialize products that result from the collaboration,
and entitle us to receive product development milestone payments and royalties
on sales of commercial products. Chiron and Ribozyme Pharmaceuticals each pay a
portion of the
49
<PAGE>
research and development expenses of the collaboration, and we agreed to
provide Chiron $1.8 million, which was paid in 1996 to fund cell culture assays
of potential targets and research related to potential target identification,
development of delivery systems for ribozyme drugs and other matters related to
our collaborations with Chiron.
Schering AG Transaction. In April 1997, we entered into a research
collaboration with Schering focusing on the use of ribozymes and related
technologies for gene function validation. Schering AG purchased:
. 212,766 shares of our common stock for $2.5 million in May 1997, and
. 465,117 shares of our common stock for $2.5 million in 1998.
Separately, Schering AG provided loans of $2.0 million in both 1997 and 1998.
We received an additional $1.0 million on this loan facility in January 1999.
Schering AG will continue to provide loans of up to $2.0 million annually for
each year through 2001, provided that the collaboration is continued in each of
those years. The loans, which carry an interest rate of 8.0% per annum, are
convertible into equity at Schering AG's option under certain circumstances.
Principal and interest payments are deferred until maturity of the loans in
April 2004.
In addition, Schering AG made research payments of $1.5 million in 1997 and
$2.0 million in 1998 and, provided that the collaboration is continued, will
make research payments of $2.0 million a year through 2001. All payments are
subject to some restrictions, including receipt of third-party consents. Upon
payment of termination fees to us, the research collaboration may be terminated
at Schering AG's option at any time.
Atugen GmbH Transaction. In 1998, we and other investors formed Atugen GmbH.
Financing for Atugen GmbH was accomplished through a combination of venture
capital, an investment by us and German government grants and loans. We
contributed $2.0 million in cash to Atugen GmbH. On March 31, 1999, we owned a
49.5% equity interest in Atugen GmbH. All five of our executive officers and
two of our employees received shares of Atugen GmbH's common stock in the
formation at no cost to them, for which we will receive a one-time compensation
expense of approximately $81,000. Currently, these seven people hold 5.5% of
Atugen GmbH's common stock.
As part of the formation, Atugen GmbH received exclusive royalty-free
licenses to our extensive patents and technologies for target validation and
discovery. We received a one-time $2.0 million upfront license payment in 1999.
We also will be compensated for providing management and other services to
Atugen GmbH under the terms of a services agreement.
Lilly Transaction. In March 1999, we entered into a research collaboration
with Lilly focusing on the development and commercialization of HEPTAZYME and
any other ribozyme drug for the treatment of Hepatitis C. Lilly purchased five
shares of our Series L preferred stock for $7.5 million in April 1999.
Separately, Lilly will provide funding for research of $1.7 million in three
equal installments through 1999. We could receive as much as $38 million from
Lilly under the collaboration prior to commercialization if development
milestones are met. All payments are subject to some restrictions. Upon payment
of termination fees to us, the research collaboration may be terminated at
Lilly's option at any time.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table summarizes information regarding the beneficial ownership
of our outstanding securities as of April 28, 1999 (which includes shares that
may be acquired on the exercise of stock options vested or warrants exercisable
through June 27, 1999), by:
. each person or group that we know owns more than 5% of the outstanding
shares of common stock,
. each of our directors,
. each Named Executive Officer listed in the Summary Compensation Table,
and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with rules of the SEC and
includes shares over which the indicated beneficial owner exercises voting
and/or investment power. Shares of common stock subject to options or warrants
currently exercisable or exercisable within 60 days are deemed outstanding for
computing the percentage ownership of the person holding the options but are
not deemed outstanding for computing the percentage ownership of any other
person. Except as otherwise indicated in the footnotes to this table, we
believe that each stockholder identified in the table has sole voting and
investment power with respect to all shares listed opposite their names. Unless
otherwise indicated, the following officers, directors and stockholders can be
reached at the principal offices of Ribozyme Pharmaceuticals.
<TABLE>
<CAPTION>
Percentage of
Shares Outstanding
----------------------
Number of Shares Before After
Name and Address Beneficially Owned Offering Offering
---------------- ------------------ --------- ---------
<S> <C> <C> <C>
Schering Berlin Venture
Corporation...................... 1,900,299(1) 18.3% 15.6%
3400 Change Bridge Road
Monteville, New Jersey 07045
Chiron Corporation................ 1,063,868(2) 11.0% 9.3%
4560 Horton Street
Emeryville, California 94608
International Biotechnology Trust
plc.............................. 1,012,633 11.0% 9.2%
c/o Rothschild Asset Management,
Ltd.
Five Arrows House
St. Swithin's Lane
London EC4N 8NR England
Ralph E. Christoffersen, Ph.D. ...
. 159,434(3) 1.7% 1.4%
Jeremy L. Curnock Cook............ 1,022,633(4) 11.1% 9.3%
Anthony B. Evnin, Ph.D. .......... 325,773(5) 3.5% 3.0%
David Ichikawa.................... 5,000(6) * *
David T. Morgenthaler............. 382,874(7) 4.2% 3.5%
Anders P. Wiklund................. 13,733(8) * *
Lawrence E. Bullock............... 29,606(9) * *
Alene Holzman..................... 15,799(10) * *
Thomas H. Rossing, M.D. .......... 9,899(11) * *
Nassim Usman, Ph.D................ 30,746(12) * *
Executive officers and directors
as a group (10 persons).......... 1,995,497(13) 21.3% 17.9%
</TABLE>
- --------
* Less than 1%.
51
<PAGE>
(1) Includes 1,222,416 shares convertible from outstanding debt assuming a
conversion price of $4.44 per share.
(2) Includes 444,444 shares issuable upon exercise of warrants.
(3) Includes options to purchase 69,706 shares.
(4) Includes options to purchase 10,000 shares and 1,012,633 shares held by
the International Biotechnology Trust plc, for which Rothschild Asset
Management, Ltd. ("Rothschild") acts as investment advisor. Mr. Cook is a
director of Rothschild but disclaims beneficial ownership of these shares.
(5) Includes options to purchase 10,000 shares, 218,022 shares held by Venrock
Associates and 97,751 shares held by Venrock Associates II, L.P. Mr. Evnin
is a general partner of both partnerships and disclaims beneficial
ownership of these shares except to the extent of his general partnership
interests.
(6) Excludes 1,063,868 shares held by Chiron. Mr. Ichikawa is employed by
Chiron and disclaims beneficial ownership of those shares. Includes
options to purchase 5,000 shares.
(7) Includes options to purchase 10,000 shares, 362,874 shares held by
Morgenthaler Venture Partners III and 10,000 shares held by Morgenthaler
Family Partnership. Mr. Morgenthaler is a general partner of both
partnerships and disclaims beneficial ownership of these shares except to
the extent of his general partnership interests.
(8) Includes options to purchase 13,733 shares.
(9) Includes options to purchase 21,180 shares.
(10) Includes options to purchase 12,000 shares.
(11) Includes options to purchase 9,000 shares.
(12) Includes options to purchase 28,265 shares and 532 shares owned by Dr.
Usman's spouse to which Dr. Usman disclaims beneficial ownership.
(13) Includes options to purchase 188,884 shares.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our Certificate of Incorporation provides for authorized capital stock of
25,000,000 consisting of 20,000,000 shares of common stock, par value $0.01 per
share, and 5,000,000 shares of preferred stock, par value $0.01 per share. The
following summary of material provisions of our common stock and preferred
stock is not complete and may not contain all the information you should
consider before investing in the common stock. You should carefully read our
Certificate of Incorporation which is filed as an exhibit to the registration
statement of which this prospectus is a part.
Common Stock
Holders of common stock are entitled to one vote per share in the election of
directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of common stock are not entitled to cumulative
voting rights. Therefore, holders of a majority of the shares voting for the
election of directors can elect all the directors. Subject to the terms of any
outstanding series of preferred stock, the holders of common stock are entitled
to dividends in amounts and at times as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." Upon
liquidation or dissolution, holders of common stock are entitled to share
ratably in all net assets available for distribution to stockholders after
payment of any liquidation preferences to holders of preferred stock. Holders
of common stock have no redemption, conversion or preemptive rights.
Warrants
As of April 28, 1999, we had warrants outstanding to purchase an aggregate of
487,458 shares (subject to adjustment) of common stock as follows:
<TABLE>
<CAPTION>
Shares Exercise Price Expiration Date
------ -------------- ---------------
<S> <C> <C>
9,523 $15.75 10-01-00
1,270 $15.75 N/A*
11,111 $40.50 12-28-01
16,666 $ 9.00 09-01-03
2,222 $22.50 12-29-05
444,444 $22.50 04-17-06
2,222 $22.50 04-17-06
</TABLE>
- --------
* These warrants are redeemable at our option at any time upon 15 days' notice
for an aggregate price of $200.
Preferred Stock
On April 30, 1999, we issued five shares of our Series L preferred stock to
Lilly. Each share:
. has a $1.5 million face value,
. has liquidation preference over our common stock,
. has no voting rights, except as may be required under Delaware law, and
. is convertible into shares of our common stock based upon milestones
related to the development and commercialization of HEPTAZYME.
The Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of our common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that we may issue in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible
53
<PAGE>
acquisitions and other corporate purposes, may have the effect of delaying,
deferring or preventing a change in control of Ribozyme Pharmaceuticals, may
discourage bids for our common stock at a premium over the market price of the
common stock and may adversely affect the market price of and the voting and
other rights of the holders of the common stock. We have no present plans to
issue additional shares of preferred stock.
Convertible Debt
As of April 28, 1999, there were 1,222,416 shares of common stock issuable
upon conversion of the outstanding notes payable to Schering AG, assuming
amounts of $5,427,529 and a conversion price of $4.44 per share based on the
closing price of our common stock on April 28, 1999. Schering AG may convert
the note into shares of common stock at any time.
Delaware Anti-Takeover Law and Charter Provisions
Provisions of our Certificate of Incorporation and Bylaws are intended to
enhance continuity and stability in our Board of Directors and in our policies,
but might have the effect of delaying or preventing a change in control of
Ribozyme Pharmaceuticals and may make more difficult the removal of incumbent
management even if the transactions could be beneficial to the interests of
stockholders. A summary description of these provisions is below:
Authority to Issue Preferred Stock. The Certificate of Incorporation
authorizes the Board, without stockholder approval, to establish and to
issue shares of one or more series of preferred stock, each series having
the voting rights, divided rates, liquidation, redemption, conversion and
other rights as may be fixed by the Board.
Stockholder Actions and Meetings. The Bylaws direct that special meetings
of the stockholders may only be called by a majority of the members of the
Board of Directors, the Chairman of the Board of Directors, the President
or the holders of not less than 10% of the total voting power of all shares
of our capital stock entitled to vote in the election of directors. The
Bylaws further provide that stockholders' nominations to the Board of
Directors and other stockholder business proposed to be transacted at
stockholder meetings must be timely received by us in a proper written form
which meets the prescribed content requirements.
Limitation of Director Liability. Section 102(b)(7) of the Delaware
General Corporation Law ("DGCL") authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty
of care. Although Section 102(b) does not change directors' duty of care it
enables corporations to limit available relief to equitable remedies such
as injunction or rescission. Our Certificate of Incorporation limits the
liability of directors to the company or its stockholders (in their
capacity as directors but not in their capacity as officers) to the fullest
extent permitted by Section 102(b). Specifically, our directors will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL, or
. for any transaction from which the director derived an improper
personal benefit.
Indemnification. To the maximum extent permitted by law, our Bylaws
provide for mandatory indemnification of directors and permit
indemnification of our officers, employees and agents against all expense,
liability and loss to which they may become subject or which they may incur
as a result of
54
<PAGE>
being or having been our director, officer, employee or agent. In addition,
we must advance or reimburse directors, and may advance or reimburse
officers, employees and agents for expenses incurred by them as a result of
indemnifiable claims.
Section 203 of the DGCL generally provides that a stockholder acquiring
more than 15% of the outstanding voting stock of a corporation subject to
the statute but less than 85% of the outstanding voting stock may not
engage in some business combinations with the corporation for a period of
three years after the date on which the stockholder became an interested
stockholder unless:
. prior to this date, the corporation's Board of Directors approved
either the business combination or the transaction in which the
stockholder became an interested stockholder, or
. the business combination is approved by the corporation's Board of
Directors and authorized at a stockholders' meeting by a vote of at
least two-thirds of the corporation's outstanding voting stock not
owned by the interested stockholder.
Under Section 203, these restrictions will not apply to some business
combinations proposed by an interested stockholder following the earlier of the
announcement or notification of a particular extraordinary transaction
involving the corporation and a person who was not an interested stockholder
during the previous three years or who became an interested stockholder with
the approval of the corporation's Board of Directors, if the extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors prior to any person becoming an interested stockholder during the
previous three years or were recommended for election or elected to succeed
those directors by a majority of those directors.
Section 203 defines the term "business combination" to encompass a wide
variety of transactions with or caused by an interested stockholder, including
transactions in which the interested stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders, such as
mergers, asset sales, issuances of additional shares to the interested
stockholder, transactions with the corporation which increase the proportionate
interest in the corporation directly or indirectly owned by the interested
stockholder or transactions in which the interested stockholder receives other
benefits.
The provisions of Section 203, together with the ability of our Board of
Directors to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
Ribozyme Pharmaceuticals. The provisions also could discourage, impede or
prevent a merger, tender offer or proxy contest, even if this event would be
favorable to the interests of stockholders. Our stockholders, by adopting an
amendment to the Certificate of Incorporation or Bylaws, may elect not to be
governed by Section 203 effective 12 months after adoption. Neither our
Certificate of Incorporation nor Bylaws currently exclude us from the
restrictions imposed by Section 203.
Registration Rights
As of April 28, 1999, the holder of approximately 677,883 shares of common
stock is entitled to rights with respect to the registration of its shares for
offer and sale to the public under the Securities Act. Under these provisions,
the holder of Registrable Shares may request that we file up to two
registration statements under the Securities Act to register such shares. The
holder of these shares has waived its right to register the shares for offer
and sale in this offering. We may also be required to effect an unlimited
number of registrations on Form S-3. Further, whenever we propose to register
any of our shares under the Securities Act, we must allow the holder to include
all Registrable Shares to be included in the registration, subject to
limitations. We are required to bear all expenses (except underwriting
discounts, selling commissions and stock transfer taxes) of all registrations.
Holders of warrants that are exercisable for 487,458 shares of our common
stock have the same registration rights for these shares when they are issued.
Transfer Agent
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, New York, New York.
55
<PAGE>
PLAN OF DISTRIBUTION
We will enter into a placement agency agreement with Hambrecht & Quist LLC,
pursuant to which Hambrecht & Quist LLC will agree to act as placement agent in
connection with the offering. Hambrecht & Quist LLC will use its best efforts
to introduce Ribozyme Pharmaceuticals to selected institutional and accredited
investors who will purchase the shares. Hambrecht & Quist LLC has no obligation
to buy from us any of the shares.
Hambrecht & Quist LLC will solicit indications of interest from investors for
the full amount of the offering. We will not request effectiveness until
Hambrecht & Quist LLC has informed us that it has received indications of
interest for the full amount of the offering. Investor funds will not be
accepted until the registration statement is declared effective.
All investor funds will be deposited into an escrow account set up at
Citibank, N.A. for the benefit of the investors. Citibank, N.A., acting as
escrow agent, will invest all funds it receives in accordance with Rule 15c2-4
under the Exchange Act of 1934, as amended. Any interest collected on the funds
will be returned to Ribozyme Pharmaceuticals and investors on the closing date.
Before the closing date, Citibank, N.A. will notify Ribozyme Pharmaceuticals
and Hambrecht & Quist LLC that all of the funds to pay for the shares have been
received. We will deposit the shares with the Depository Trust Company upon
receiving a notice from Citibank, N.A. The shares will then be credited to the
respective accounts of the investors.
If funds are not received for all of the shares being offered shortly after
pricing has occurred (typically within three to four days of pricing), then all
funds that were deposited into escrow will be returned to investors and the
offering will terminate.
We have agreed to indemnify Hambrecht & Quist LLC and other persons against
some liabilities under the Securities Act. Hambrecht & Quist LLC has informed
us that it will not engage in overallotment, stabilizing transactions or
syndicate covering transactions in connection with the offering.
We have agreed to pay Hambrecht & Quist LLC a fee equal to 8.0% of the
proceeds of this offering; provided, however, that we will not be obligated to
pay Hambrecht & Quist LLC a fee in respect of the sale of any shares offered
hereby to certain specified investors. We also agreed to reimburse Hambrecht &
Quist LLC for up to $150,000 for expenses that it incurs in connection with the
offering.
We have agreed not to issue, and our directors and officers have also agreed
that they will not, directly or indirectly, offer, sell or otherwise dispose of
or arrange to dispose of any shares of common stock or any securities
convertible into or exercisable for, or any rights to purchase or acquire, our
common stock, for a period of 90 days after the date of the prospectus without
Hambrecht & Quist LLC's prior consent.
For a period of 18 months from the date of this prospectus, we have granted
Hambrecht & Quist LLC (provided this offering is completed) the right to
provide us with investment banking services on an exclusive basis in all
matters for which we seek such services, with certain exceptions. Furthermore,
we have agreed that, if within 18 months after the termination of Hambrecht &
Quist LLC's engagement, we sell shares of our common stock to investors
previously identified and/or contacted by Hambrecht & Quist LLC, then we will
pay Hambrecht & Quist LLC, at the time of each such sale, an amount equal to
the placement agency fee described above with respect our gross proceeds from
each such sale.
Affiliates of Hambrecht & Quist LLC own 16,666 warrants to purchase our
common stock at an exercise price of $9.00.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for Ribozyme Pharmaceuticals by Rothgerber Johnson & Lyons, LLP, Denver,
Colorado. Legal matters in connection with this offering will be passed upon
for Hambrecht & Quist LLC by Stroock & Stroock & Lavan LLP, New York, New York.
56
<PAGE>
EXPERTS
The financial statements of Ribozyme Pharmaceuticals at December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
appearing in this prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Ribozyme Pharmaceuticals is subject to the informational requirements of the
Securities Exchange Act, and, accordingly, files reports, proxy statements and
other information with the SEC. These reports, proxy statements and other
information filed with the SEC are available for inspection and copying at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and at the SEC's Regional Offices: 500 West
Madison Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center, New
York, NY 10048. The public may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
site on the World Wide Web at "http://www.sec.gov" that contains reports, proxy
statements and other information regarding registrants that file electronically
with the SEC. In addition, these materials and other information concerning
Ribozyme Pharmaceuticals can be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC 20006.
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act to register with the SEC the securities we are offering with
this prospectus. This prospectus is a part of that registration statement. As
allowed by SEC rules, this prospectus does not contain all of the information
contained in the registration statement or the exhibits to that registration
statement. For further information with respect to Ribozyme Pharmaceuticals and
the common stock we are offering, you should refer to the registration
statement. Statements in this prospectus concerning the contents of any
contract or other document are not necessarily complete. You should refer to
the copy of the contract or other document filed with the SEC as an exhibit to
the registration statement. With respect to each document filed with the SEC as
an exhibit to the registration statement, you should refer to the exhibit for a
more complete description of the matter involved.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Ribozyme Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Ribozyme Pharmaceuticals,
Inc. ("the Company") as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity, and cashflows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ribozyme Pharmaceuticals, Inc.
at December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 16, 1999
F-2
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 March 31
-------------------------- -----------
1998 1997 1999
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 6,511,512 $ 15,302,775 $ 4,805,279
Securities available-for-sale........ -- 799,616 996,475
Restricted cash...................... -- 52,669 --
Accounts receivable.................. 1,163,388 8,044 2,131,728
Accounts receivable--related
parties............................. 2,735,193 -- 1,368,044
Notes receivable--related parties.... 118,466 127,341 125,466
Prepaid expenses and other........... 84,766 175,549 124,205
------------ ------------ -----------
Total current assets................. 10,613,325 16,465,994 9,551,197
Property, plant, and equipment:
Machinery and equipment.............. 6,478,223 5,673,115 6,729,328
Leasehold improvements............... 3,582,664 3,567,106 3,617,853
Office furniture and equipment....... 1,065,049 1,007,104 1,191,879
------------ ------------ -----------
11,125,936 10,247,325 11,539,060
Accumulated depreciation............. (6,903,742) (5,290,160) (7,294,591)
------------ ------------ -----------
4,222,194 4,957,165 4,244,469
Notes receivable--related parties.... 162,466 231,932 138,000
Deferred patent costs, net of
accumulated amortization (1998--
$271,328; 1997--$171,039)........... 2,905,575 2,510,705 2,926,696
Investment in Atugen Biotechnology
GmbH................................ 860,216 -- 365,592
Other assets......................... 460,515 684,245 457,590
------------ ------------ -----------
Total assets......................... $ 19,224,291 $ 24,850,041 $17,683,544
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade.............. $ 750,514 $ 904,681 $ 1,527,816
Accrued liabilities.................. 396,143 245,956 321,159
Deferred revenue, current portion--
related parties..................... 400,000 -- 400,000
Current portion of long-term debt.... 498,179 2,077,771 442,512
------------ ------------ -----------
Total current liabilities............ 2,044,836 3,228,408 2,691,487
Deferred revenue, long-term portion--
related parties..................... 1,600,000 -- 1,499,999
Long-term debt....................... 200,455 698,633 160,254
Convertible debt--related parties.... 4,344,612 2,052,889 5,427,529
Commitments
Stockholders' equity:
Voting convertible preferred stock,
$.01 par value; 5,000,000 shares
authorized; no shares outstanding... -- -- --
Common stock, $.01 par value;
20,000,000 shares authorized;
9,185,390, 9,181,455 and 8,607,022
shares issued and outstanding at
March 31, 1999 (unaudited), December
31, 1998 and 1997, respectively..... 91,815 86,070 91,854
Additional paid-in capital........... 84,434,213 81,424,341 84,439,192
Accumulated deficit.................. (73,422,491) (62,504,924) (76,557,485)
Unrealized loss on securities
available-for-sale.................. -- (5,064) (137)
Deferred compensation................ (69,149) (130,312) (69,149)
------------ ------------ -----------
Total stockholders' equity....... 11,034,388 18,870,111 7,904,275
------------ ------------ -----------
Total liabilities and stockholders'
equity.............................. $ 19,224,291 $ 24,850,041 $17,683,544
============ ============ ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31 March 31
---------------------------------------- ------------------------
1998 1997 1996 1999 1998
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative
agreements........... $ 8,962,813 $ 1,976,500 $ 759,122 $ 1,701,235 $ 740,000
Grant and other
income............... 25,045 6,642 13,981 -- 25,045
------------ ------------ ------------ ----------- -----------
Total revenues...... 8,987,858 1,983,142 773,103 1,701,235 765,045
Expenses:
Research and
development.......... 16,941,652 15,169,731 14,188,836 3,760,433 5,000,870
General and
administrative....... 1,812,860 1,886,108 1,943,583 559,296 467,205
------------ ------------ ------------ ----------- -----------
Total expenses...... 18,754,512 17,055,839 16,132,419 4,319,729 5,468,075
Operating loss.......... (9,766,654) (15,072,697) (15,359,316) (2,618,494) (4,703,030)
Other income (expense):
Interest income....... 634,569 794,968 936,397 90,215 212,329
Interest expense...... (703,711) (844,365) (844,661) (112,091) (169,637)
Equity in loss of
unconsolidated
affiliate............ (1,081,771) -- -- (494,624) --
------------ ------------ ------------ ----------- -----------
Total other income
(expense).......... (1,150,913) (49,397) 91,736 (516,500) 42,692
Net loss................ $(10,917,567) $(15,122,094) $(15,267,580) $(3,134,994) $(4,660,338)
============ ============ ============ =========== ===========
Net loss per share...... $ (1.22) $ (2.04) $ (2.61) $ (0.34) $ (0.54)
Shares used in computing
net loss per share..... 8,978,355 7,419,650 5,844,987 9,182,095 8,608,740
</TABLE>
See accompanying notes.
F-4
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Unrealized
------------------ -------------------- Paid-In Accumulated Loss on Deferred
Shares Amount Shares Amount Capital Deficit Securities Compensation Total
--------- ------- ---------- -------- ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............ 982,501 $ 9,825 2,231,960 $ 22,321 $40,725,061 $(32,115,250) $ -- $(163,989) $ 8,477,968
Conversion of
preferred stock
in connection
with initial
public
offering........ 2,231,960 22,321 (2,231,960) (22,321) -- -- -- -- --
Issuance of
common stock
relating to
certain
antidilution
rights in
connection with
initial public
offering........ 841,279 8,412 -- -- (8,412) -- -- -- --
Issuance of
common stock for
cash
- --initial public
offering, net of
issuance costs
of $816,990..... 2,300,000 23,000 -- -- 20,550,010 -- -- -- 20,573,010
Issuance of
common stock for
cash
- --other.......... 510,829 5,108 -- -- 3,762,048 -- -- -- 3,767,156
Payment on
warrants........ -- -- -- -- 1,800,000 -- -- -- 1,800,000
Issuance of
common stock for
employee bonus.. 18,810 188 -- -- 187,912 -- -- -- 188,100
Issuance of
common stock
under employee
stock purchase
plan............ 15,842 158 -- -- 131,172 -- -- -- 131,330
Compensation for
issuance of
common stock and
options......... -- -- -- -- 162,530 -- -- (24,913) 137,617
Issuance of
common stock for
services........ 2,083 21 -- -- 23,413 -- -- -- 23,434
Issuance of
common stock
relating to
certain royalty
agreements...... 45,000 450 -- -- 539,550 -- -- -- 540,000
Unrealized loss
on securities
available-for-
sale............ -- -- -- -- -- -- (9,214) -- (9,214)
Net loss......... -- -- -- -- -- (15,267,580) -- -- (15,267,580)
-----------
Comprehensive
income/(loss)... (15,276,794)
--------- ------- ---------- -------- ----------- ------------ ------ --------- -----------
Balance at
December 31,
1996............ 6,948,304 69,483 -- -- 67,873,284 (47,382,830) (9,214) (188,902) 20,361,821
Issuance of
common stock for
cash
- --public
offering, net of
issuance costs
of $634,796..... 1,400,000 14,000 -- -- 10,551,204 -- -- -- 10,565,204
Issuance of
common stock for
cash............ 212,766 2,128 -- -- 2,497,872 -- -- -- 2,500,000
Issuance of
common stock for
cash
- --under stock
option plan..... 30,001 300 -- -- 51,404 -- -- -- 51,704
Issuance of
common stock
under employee
stock purchase
plan............ 29,875 298 -- -- 310,303 -- -- -- 310,601
Issuance of
common stock
under 401(k)
plan-stock
match........... 19,409 194 -- -- 155,078 -- -- -- 155,272
Cancellation of
common stock
relating to
license
agreement....... (33,333) (333) -- -- 333 -- -- -- --
Compensation for
issuance of
common stock and
options......... -- -- -- -- (15,137) -- -- 58,590 43,453
Net loss......... -- -- -- -- -- (15,122,094) -- -- (15,122,094)
Change in
unrealized loss
on securities
available-for-
sale............ -- -- -- -- -- -- 4,150 -- 4,150
-----------
Comprehensive
income/(loss)... (15,117,944)
--------- ------- ---------- -------- ----------- ------------ ------ --------- -----------
Balance at
December 31,
1997............ 8,607,022 86,070 -- -- 81,424,341 (62,504,924) (5,064) (130,312) 18,870,111
Issuance of
common stock for
cash............ 465,117 4,651 -- -- 2,495,349 -- -- -- 2,500,000
Issuance of
common stock for
cash
- --under stock
option plan..... 21,689 217 -- -- 45,545 -- -- -- 45,762
Issuance of
common stock
under employee
stock purchase
plan............ 54,115 542 -- -- 307,608 -- -- -- 308,150
Issuance of
common stock
under 401(k)
plan-stock
match........... 33,512 335 -- -- 190,371 -- -- -- 190,706
Compensation for
issuance of
common stock and
options......... -- -- -- -- (29,001) -- -- 61,163 32,162
Change in
unrealized loss
on securities
available-for-
sale............ -- -- -- -- -- -- 5,064 -- 5,064
Net loss......... -- -- -- -- -- (10,917,567) -- -- (10,917,567)
-----------
Comprehensive
income/(loss)... (10,912,503)
--------- ------- ---------- -------- ----------- ------------ ------ --------- -----------
Balance at
December 31,
1998............ 9,181,455 91,815 -- -- 84,434,213 (73,422,491) -- (69,149) 11,034,388
Issuance of
common stock for
cash under stock
option plan..... 3,935 39 -- -- 4,979 -- -- -- 5,018
Change in
unrealized loss
on securities
available-for-
sale............ -- -- -- -- -- -- (137) -- (137)
Net loss......... -- -- -- -- -- (3,134,994) -- -- (3,134,994)
-----------
Comprehensive
income/(loss)... (3,135,131)
--------- ------- ---------- -------- ----------- ------------ ------ --------- -----------
Balance at March
31, 1999
(unaudited)..... 9,185,390 $91,854 -- $ -- $84,439,192 $(76,557,485) $ (137) $ (69,149) $ 7,904,275
========= ======= ========== ======== =========== ============ ====== ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31 March 31,
---------------------------------------- ------------------------
1998 1997 1996 1999 1998
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss............... $(10,917,567) $(15,122,094) $(15,267,580) $(3,134,994) $(4,660,338)
Adjustments to
reconcile net loss to
net cash used by
operating activities:
Depreciation.......... 1,670,825 1,665,044 1,648,435 390,849 440,346
Amortization.......... 92,107 74,051 40,747 25,800 9,679
Equity in loss of
unconsolidated
affiliate............ 1,081,771 -- -- 494,624 --
Write-off of deferred
patent costs......... 11,836 93,557 -- -- --
Compensation related
to common stock and
options.............. 278,150 280,177 889,151 -- --
Compensation related
to issuance of
affiliate's stock.... 81,000 -- -- -- --
Compensation for
forgiveness of notes
receivable--related
parties.............. 126,466 92,466 92,466 52,466 52,466
Loss on sale of
securities available-
for-sale............. -- -- 13,140 -- --
Gain on sale of
investment in
corporate partner.... (25,045) -- -- -- (25,045)
Loss (gain) on
disposal of
equipment............ 541 (1,126) -- -- --
Accrued interest
included in
convertible debt..... 291,723 52,889 -- 82,917 20,667
Changes in operating
assets and
liabilities:
Accounts
receivable......... (3,890,537) 65,978 (55,962) 398,809 544
Prepaid expenses and
other.............. 90,783 38,168 (55,882) (39,438) 49,255
Other assets........ (18,087) (277,807) (29,260) 2,925 (9,688)
Accounts payable--
trade.............. (154,167) 351,777 3,866 777,301 700,285
Accrued
liabilities........ 150,186 29,340 130,226 (74,984) (146,406)
Deferred revenue--
related parties.... 2,000,000 -- -- (100,001) --
Deferred gain....... -- (5,515) (27,130) -- --
------------ ------------ ------------ ----------- -----------
Net cash used by
operating activities... (9,130,015) (12,663,095) (12,617,783) (1,123,726) (3,568,235)
Investing activities
Additions to property,
plant, and equipment... (936,395) (2,213,311) (1,541,412) (413,124) (404,708)
Additions to deferred
patent costs........... (506,994) (660,581) (558,895) (46,921) (130,813)
Sale (purchase) of
investment in corporate
partner................ 275,045 -- (250,000) -- 275,045
Proceeds from sale of
equipment.............. -- 2,600 -- -- --
Net sales (purchases) of
securities available-
for-sale............... 804,680 3,748,005 (1,058,590) (996,611) (1,008,710)
Investment in
unconsolidated
affiliate.............. (2,022,987) -- -- -- --
Transfer of restricted
cash................... 52,669 242,733 914,528 -- 22,573
Loan repayments--related
parties................ 1,875 3,000 56,625 -- 1,875
Loan advances--related
parties................ (50,000) (175,000) (156,500) (35,000) --
------------ ------------ ------------ ----------- -----------
Net cash (used) provided
by investing
activities............. (2,382,107) 947,446 (2,594,244) (1,491,656) (1,244,738)
Financing activities
Net proceeds from sale
of shares of common
stock and warrants..... 2,798,630 13,346,056 26,271,496 5,018 7,136
Payments under loan fa-
cilities............... (2,077,771) (1,480,677) (1,316,027) (95,869) (334,662)
Borrowings under loan
facilities............. 2,000,000 2,254,460 1,162,242 1,000,000 1,000,000
Payments on capital
lease obligations...... -- (152,093) (768,014) -- --
------------ ------------ ------------ ----------- -----------
Net cash provided by
financing activities... 2,720,859 13,967,746 25,349,697 909,149 672,474
------------ ------------ ------------ ----------- -----------
Net (decrease) increase
in cash and cash
equivalents............ (8,791,263) 2,252,097 10,137,670 (1,706,233) (4,140,499)
Cash and cash
equivalents at
beginning of year...... 15,302,775 13,050,678 2,913,008 6,511,512 15,302,775
------------ ------------ ------------ ----------- -----------
Cash and cash
equivalents at end of
year................... $ 6,511,512 $ 15,302,775 $ 13,050,678 $ 4,805,279 $11,162,276
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(Information as of March 31, 1999 and for the three months ended March 31, 1999
and 1998 is unaudited)
1. Summary of Significant Accounting Policies
Description of Business
Ribozyme Pharmaceuticals, Inc. ("RPI" or the "Company") was founded in 1992
to capitalize on the broad potential of ribozymes for use in the development of
human therapeutics and therapeutic target validation services. To date, the
Company has engaged in the research and development of its ribozyme technology
and has experienced significant operating losses in each fiscal year since
inception. The Company has not generated any revenue from the commercialization
of its ribozyme technology and it expects to continue to incur significant
operating losses over at least the next several years.
During 1998, the Company formed Atugen Biotechnology GmbH ("Atugen"), a
German company located in Berlin. Atugen's primary goal is to utilize RPI's
proprietary ribozyme and related technologies and accelerate gene function
validation and discovery of human health therapeutic targets. Financing for
Atugen was accomplished through a combination of venture capital, an investment
by RPI and German government grants and loans. As part of the formation, Atugen
received exclusive licenses to RPI patents and technologies for target
validation and discovery. In addition, in 1998 Atugen acquired Transgenics
Berlin-Buch GmbH ("Transgenics") in exchange for Atugen common stock, which
allowed access to DNA "chip" technologies. As of December 31, 1998, the Company
owned 49.5% of the Atugen voting stock and accounts for its investment in
Atugen using the equity method. RPI plans to retain ownership in and have other
on-going business relationships with Atugen.
Capital Requirements and Management's Plans
The Company incurred a net loss of $10,917,567 for the year ended December
31, 1998 and has a accumulated deficit of $73,422,491 at December 31, 1998.
Development of the Company's products will require a commitment of
substantial additional funds to conduct the costly and time-consuming research,
preclinical and clinical testing necessary to bring its proposed products to
market and to establish manufacturing and marketing capabilities. The Company's
future capital requirements will depend on many factors, including, among
others, the progress of the Company's research, development and drug discovery
efforts, the ability of the Company to establish collaborative arrangements for
clinical testing, progress with preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved
in preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, competing technological and market developments, changes in the
Company's existing research relationships, determination as to the commercial
potential of the Company's potential products, effective commercialization
activities and arrangements, and the cost and availability of third-party
financing for capital expenditures.
Interim Financial Statements
The financial statements as of March 31, 1999 and for the three month periods
ended March 31, 1999 and 1998 are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair statement of the financial position as of such date and
the operating results and cash flows for such periods. Results for interim
periods are not necessarily indicative of results for the entire year.
F-7
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net Loss Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, Earnings per Share (SFAS 128). SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any potentially dilutive securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. No restatement of prior periods is necessary as the
potentially dilutive securities have been excluded from the computation as
their effect is antidilutive.
Prior to April 11, 1996, pursuant to Securities and Exchange Commission Staff
Accounting Bulletins and Staff Policy, all convertible securities issued prior
to the Company's initial public offering, even if antidilutive, have been
included in the basic loss per share calculation as if they were outstanding.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents. The Company's cash equivalents
are comprised of certificates of deposit, money market funds, and investment
securities with maturities of three months or less.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the assets. Useful
lives of laboratory equipment and furniture are estimated at five years and all
computer equipment is estimated at three years. Leasehold improvements and
equipment subject to financing obligations are amortized on a straight-line
basis over the shorter of their estimated useful lives or the term of the
lease.
Deferred Patent Costs
The Company capitalizes legal costs directly incurred in pursuing patent
applications as deferred patent costs. When such applications result in an
issued patent, the related costs are amortized over the remaining legal life of
the patents, using the straight-line method. On a quarterly basis, the Company
reviews its issued patents and pending patent applications, and if it
determines to abandon a patent application or that an issued patent no longer
has economic value, the unamortized balance in deferred patent costs relating
to that patent is immediately expensed.
It is possible the above estimates of future economic life of the Company's
commercialization revenues, the amount of anticipated future commercialization
revenues, or both, will be reduced significantly in the near term due to
alternative technologies developed by other biotechnology or pharmaceutical
companies. As a result, the carrying amount of deferred patent costs may be
reduced in the future.
Revenue Recognition and Accounts Receivable
Revenue from collaborative agreements typically consists of nonrefundable up-
front fees, ongoing research and development funding and milestone, license
fees and other payments. Revenue from nonrefundable up-front fees is recognized
upon signing of the agreement. Revenue from ongoing research
F-8
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and development funding is recorded as the expenses are incurred. Revenue from
milestone, license fees and other payments will be recognized as earned.
Payments received in advance under these agreements are recorded as deferred
revenue until earned. The Company's accounts receivable are predominately
collaborative agreement receivables, and to date, the Company has not
experienced any losses with respect to the collection of its accounts
receivables.
In 1998 and 1997, Schering AG accounted for approximately 22% and 76% of
collaborative revenues, respectively. In 1998, Chiron accounted for
approximately 70% of collaborative revenues. Revenues from Schering AG and
Chiron were for nonrefundable, ongoing research and development fees.
Research and Development Expenses
Research and development costs are expensed as incurred.
New Accounting Pronouncements
In 1997 the FASB issued Statement of Financial Accounting Standards No. 130
Reporting Comprehensive Income, and Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise and Related Information,
both of which were adopted by the Company during 1998. As a result of the
adoption of Statement 130, the Company has reported comprehensive income (loss)
as a component of the Statement of Stockholders' Equity. There was no change in
the Company's financial reporting as a result of the adoption of Statement 131.
Reclassifications
Certain amounts in the December 31, 1997 and 1996 financial statements were
reclassified to conform with the December 31, 1998 presentation. These
reclassifications had no impact on the reported results of operations.
2. Securities Available-for-Sale
Management has determined that at December 31, 1998 all marketable securities
held by the Company were cash and cash equivalents. At March 31, 1999
management determined that certain marketable securities held by the Company at
March 31, 1999 were available-for-sale. Securities available-for-sale are
carried at fair value, with unrealized gains and losses reported as a component
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other-than-temporary on securities
available-for-sale are included in investment income. Interest and dividends on
securities available-for-sale are included in investment income. The cost of
securities sold is based on the specific identification method. There were no
gross realized gains or losses on sales of securities available-for-sale in
1998 or 1997.
3. Long-Term Debt
Long-term debt as of December 31, 1998 and 1997, and March 31, 1999, consists
of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997 1999
---------- ---------- -----------
(unaudited)
---------- ---------- -----------
<S> <C> <C> <C>
Equipment loan (I)....................... $ -- $ 263,301 $ --
Tenant interest loan (II)................ -- 496,066 --
Tenant improvement and equipment loan
(II).................................... -- 972,703 --
Equipment loan (III)..................... 698,634 1,044,334 602,766
Convertible debt (IV).................... 4,344,612 2,052,889 5,427,529
---------- ---------- ----------
$5,043,246 $4,829,293 $6,030,295
========== ========== ==========
</TABLE>
F-9
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
I. During 1994, the Company obtained a tenant improvement loan of
$1,000,000 for leasehold improvements and an equipment loan to purchase up
to $1,500,000 of equipment. The interest rate on borrowings under these
loan facilities was 10.00% at December 31, 1997. The agreement required
monthly principal and interest payments through August 1998, at which time
the loan was paid in full.
II. In April 1995, the Company obtained a loan of $1,000,000
collateralized by its tenant interest and certain existing leasehold
improvements, and an additional loan to purchase up to $1,500,000 of
leasehold improvements and equipment. The terms of the agreement call for
fixed monthly principal and interest payments through October 1998,
assuming the Company exercised a prepayment option. In December 1998, the
Company exercised the prepayment option and paid off the loan at its
carrying amount.
III. In December 1995, the Company negotiated an additional equipment
credit facility of $2,000,000 with a financial institution. The facility
commitment was terminated on June 30, 1997. The agreement requires monthly
principal and interest payments through April 2000, at which time a final
payment of $283,328 is due in full. The interest rate on these borrowings
was 12% at December 31, 1998 and 1997.
IV. In April 1997, the Company entered into a collaboration agreement
with a corporate partner whereby, among other items, the Company may borrow
from the partner up to $2.0 million annually for each of the next five
years. The loans are collaterallized 50% by equipment purchases. The loans
carry an interest rate of 8% per annum and under certain circumstances are
convertible into equity at the option of the corporate partner. Principal
and interest payments on the loans are deferred until maturity of the loans
which is in April 2004. The collaboration and loan facility may be
terminated at the option of the partner any time.
Cash paid for interest for the years ended December 31, 1998, 1997 and 1996
was $411,988, $791,476 and $844,661, respectively. At December 31, 1998 the
carrying amounts of the Company's long-term debt approximates fair value as all
borrowings bear interest rates which are comparable to the current market rate
for such borrowings.
All assets acquired under the above loan facilities represent collateral for
the amounts outstanding. In addition, the Company was required to maintain
minimum cash balances in the form of certificates of deposit with a financial
institution, in the amount of $0 and $52,669 at December 31, 1998 and 1997,
respectively. These amounts are presented as restricted cash in the
accompanying balance sheets.
As of December 31, 1998, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
1999.............................................................. $ 498,179
2000.............................................................. 200,455
2001.............................................................. --
2002.............................................................. --
2003.............................................................. --
Thereafter........................................................ 4,344,612
----------
$5,043,246
==========
</TABLE>
4. Leases
The Company leases office space under a noncancelable operating lease which
was extended until June 2007. Total rent expense, including miscellaneous
laboratory equipment rentals, was $493,188, $443,796 and $496,774 in 1998, 1997
and 1996 respectively.
F-10
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's lease commitments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Lease
----------
<S> <C>
1999.............................................................. $ 478,516
2000.............................................................. 363,480
2001.............................................................. 363,480
2002.............................................................. 363,480
2003.............................................................. 363,480
2004 and thereafter............................................... 1,272,180
----------
$3,204,616
==========
</TABLE>
5. Stockholders' Equity
In April 1996, the Company completed an initial public offering of its common
stock, whereby 2,300,000 shares of the Company's common stock were sold at
$10.00 per share, resulting in net proceeds of approximately $20.6 million. As
a result of the Company's initial public offering, all preferred shares
outstanding were converted into an aggregate of 2,231,960 shares of common
stock.
Upon consummation of the initial public offering the Company sold 377,202
shares of common stock to Chiron Corporation ("Chiron") for $3,640,000.
Additionally, the Company received $1,800,000 from Chiron to complete the
purchase of warrants to purchase 444,444 shares of common stock, issued
concurrently with the IPO.
The Company adopted an Employee Stock Purchase Plan (the "Purchase Plan"),
authorizing the issuance of 300,000 shares pursuant to purchase rights granted
to employees of the Company. The Purchase Plan provides a means by which
employees purchase common stock of the Company through payroll deductions. The
Purchase Plan is implemented by offerings of rights to eligible employees.
Generally, each offering is twenty-four months' duration with purchases
occurring on each October 31 and April 30 during each offering (except that
April 30, 1996 was not a purchase date). Common stock is purchased for accounts
of employees participating in the Purchase Plan at a price per share equal to
the lower of (i) 85% of the fair market value of a share of common stock on the
date of commencement of participation in the offering or (ii) 85% of the fair
market value of a share of common stock on the date of purchase. Generally all
regular employees, including executive officers, may participate in the
Purchase Plan and may authorize payroll deduction of up to 15% of their base
compensation for the purchase of stock under the plan. The Company's Board of
Directors has the authority to terminate the Purchase Plan at its discretion.
Shares are deemed issued for accounting purposes in the year the shares are
purchased.
Pursuant to an antidilution agreement (the "Antidilution Agreement") with a
founder of the Company, the Company agreed to issue additional shares to this
individual so that he would maintain a 5% interest in the fully diluted equity
of the Company until the occurrence of one of several events, including the
Company's initial public offering. Accordingly, effective April 11, 1996,
115,506 shares were issued related to the Antidilution Agreement which
represented the founder's 5% interest in the Company. No additional rights
under the Antidilution Agreement exist.
F-11
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Below is a summary of common stock reserved by the Company at December 31,
1998 for issuance upon the exercise of the various options, warrants and the
401(k) and purchase plans.
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Stock option plans................................................. 1,479,173
Employee stock purchase plan....................................... 200,168
Employee 401(k) stock match........................................ 247,079
Warrants at $15.75 per share....................................... 10,793
Warrants at $40.50 per share....................................... 11,111
Warrants at $22.50 per share....................................... 465,554
---------
2,413,878
=========
</TABLE>
In connection with a loan payoff, in 1999 the Company repriced 16,666 of its
outstanding warrants. The exercise price on those warrants was reduced from
$22.50 per share to $9.00 per share. All warrants are immediately exercisable.
Expense related to this repricing was immaterial to the Company's results of
operations for the period ended March 31, 1999.
The Company's ability to pay dividends is restricted by the terms of its
tenant improvement and equipment loan facility agreements.
6. Stock Option Plans
The Company has established a Non-Qualified Stock Option Plan and an
Incentive Stock Option Plan (collectively, the "Plans"), under which it is
authorized to grant stock options to purchase up to 1,317,154 shares of the
Company's common stock to eligible employees, consultants, and other
individuals, as defined in the Plans. In May 1997, the Company's shareholders
approved an additional 350,000 shares of the Company's common stock to be
reserved for issuance pursuant to the Plans. Options to purchase the Company's
common stock are exercisable at a price as determined by the Board of Directors
at the time the option is granted, which shall not be less than 100% of the
fair market value (110% in the case of 10 percent shareholders) at the date of
grant. Vesting rights are determined by the Board of Directors at the time the
option is granted and generally the options become exercisable at twenty
percent at the end of each of years one through five. If not exercised, the
options expire after ten years. The Board of Directors has also granted certain
employees options vesting upon achievement of certain contingent milestone
events.
During the third quarter of 1998, the Company offered a repricing of existing
stock options to all of its current employees. Pursuant to the offer, all non-
executive employees were allowed to exchange each existing stock option for a
newly priced stock option one for one, with the new stock options having an
exercise price equal to the current market price of the underlying common
stock. If exchanged, the vesting term would start over beginning on the date of
exchange. A similar offer was given to all executives, except the options were
exchanged at a one for .75 ratio. As a result of the offer, 890,921 options
were canceled and 747,060 options were granted, effective September 18, 1998.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123), requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, if the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized. During 1998,
1997 and 1996,
F-12
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the Company recorded $32,162, $43,453 and $137,617, respectively, of
compensation relating to the grant of stock options and the Antidilution
Agreement, all of which relates to pre-IPO issuances which have been deferred
until vesting has been completed.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options under the fair value
method of SFAS 123. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996, respectively: risk-free
interest rates of 4.7%, 6.4% and 6.3%; a dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of .967,
.638 and .566; and a weighted-average expected life of the option of 6 years.
The weighted average fair value of stock options granted during 1998, 1997 and
1996 was $4.04, $5.88 and $6.59, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net loss................ $(11,948,280) $(16,153,548) $(15,554,890)
Pro forma loss per share.......... (1.33) (2.18) (2.66)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma net loss may not be
representative of that to be expected in future years.
Changes in stock options for the years ended December 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
Exercise
Options Price
---------- ---------------
<S> <C> <C>
Outstanding at December 31, 1995................ 367,838 $ .45--$ 5.40
Options granted................................. 508,652 $ 2.70--$ 19.00
Options exercised/canceled...................... (197,067) $ .45--$ 5.40
---------- ---------------
Outstanding at December 31, 1996................ 679,423 $ .45--$ 19.00
Options granted................................. 604,300 $ 7.50--$ 13.50
Options exercised/canceled...................... (64,833) $ .45--$ 19.00
---------- ---------------
Outstanding at December 31, 1997................ 1,218,890 $ .45--$ 15.25
Options granted................................. 1,174,560 $ 3.00--$ 8.13
Options exercised/canceled...................... (1,045,878) $ .45--$ 15.25
---------- ---------------
Outstanding at December 31, 1998................ 1,347,572 $ .45--$ 12.78
========== ===============
</TABLE>
The weighted average exercise price of options outstanding at December 31,
1998, 1997 and 1996 was $4.21 and $9.31 and $8.93, respectively.
F-13
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock options vest as follows:
<TABLE>
<CAPTION>
Options
---------
<S> <C>
Currently exercisable............................................. 258,279
1999.............................................................. 219,492
2000.............................................................. 176,592
2001.............................................................. 159,938
2002.............................................................. 149,583
2003 and thereafter............................................... 172,160
Contingent vesting................................................ 211,528
---------
Total............................................................. 1,347,572
=========
</TABLE>
During the three month period ending March 31, 1999, the Company granted
63,000 stock options to its employees at exercise prices ranging from $4.13 to
$5.13.
7. Collaborative Agreements
Parke-Davis
In April 1993, the Company entered into a research and development
collaboration agreement with the Parke-Davis division of the Warner-Lambert
Corporation ("Parke-Davis"), whereby Parke-Davis was to partially fund the
research and development costs incurred by the Company in developing and
commercializing ribozyme-based products for application to the treatment of
osteoarthritis and other diseases. Pursuant to the Parke-Davis agreement,
Parke-Davis purchased 100,100 shares of Series C preferred stock at a price of
$29.97 per share in 1993, 27,777 shares of Series C preferred stock at a price
of $36.00 per share in 1994, and 40,160 shares of Series F preferred stock at
$37.35 per share in 1995, for a total equity investment of $5,500,000. All
preferred shares were converted into 168,037 shares of common stock upon the
Company's initial public offering.
Also pursuant to the collaboration agreement, through December 31, 1996,
Parke-Davis provided $1,700,000 research and development funding to the
Company. As of June 30, 1997, the collaboration agreement has been completed.
In March 1998, the Company entered into a Target Validation agreement with
Parke-Davis. The agreement gives Parke-Davis access to the Company's
proprietary ribozyme technology which will assist Parke-Davis in determining
which genes are valid therapeutic targets. Under the terms of the contract, the
Company will design and synthesize ribozymes against target genes designated by
Parke-Davis and perform various studies to determine the level of gene
expression inhibition achieved. Parke-Davis will fund the research and may
provide milestone payments or success fees to the Company if Parke-Davis uses
the information to derive compounds to take into development.
Dow AgroSciences
In September 1993, the Company entered into a research and development study
with Dow AgroSciences (the "Feasibility Study") to demonstrate the stable
integration and the effective use of ribozymes to alter corn composition.
Pursuant to the terms of the Feasibility Study, Dow AgroSciences reimbursed the
Company for all of its expenses related to the Feasibility Study and, in 1994,
purchased 41,666 shares of Series D preferred stock at a price of $36.00 per
share, for a total equity investment of $1,500,000. All preferred shares were
converted into 41,666 shares of common stock upon completion of the Company's
initial public offering.
F-14
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Feasibility Study was completed in 1997 and the parties entered into a
long-term license agreement for the development and commercialization of
ribozymes to the targets of interest. As consideration for the long-term
license agreement, 41,666 shares of common stock held by Dow AgroSciences were
returned to the Company. The Company canceled 33,333 of the shares and reissued
the remaining 8,333 shares to CTI as a consideration of royalty, due to the
license transaction.
Chiron
In July 1994, the Company entered into a research and development
collaboration agreement with Chiron to research, develop and market products
directed towards five genetic targets, and all human clinical indications
associated with those targets. The Company and Chiron will share equally in the
costs and profits of any jointly developed products. In addition, Chiron may,
at its option, finance the Company's portion of its Phase II and Phase III drug
development costs for mutually approved programs. The Company retains the
option to reacquire its rights by reimbursing Chiron for such development costs
plus a predetermined risk premium. The term of the research program is five
years, with the terms of the agreement to be extended if products are jointly
developed. As part of this agreement, Chiron committed to make a $10,000,000
equity investment in the Company. The components of this investment are:
In 1994, Chiron purchased 100,000 shares of the Company's common stock at
a price of $3.60 per share, or $360,000; also in 1994 Chiron purchased
107,095 shares of Series E preferred stock at a price of $37.35 per share,
or $4,000,000. In 1996, the Company issued Chiron immediately upon the
closing of the Company's initial public offering a warrant to purchase
444,444 shares of the Company's common stock which is exercisable at a
price of $22.50 per share, for an aggregate purchase price of $4.50 per
warrant share. In 1994, Chiron paid the Company $0.45 per warrant share, or
$200,000. The balance of the warrant purchase price, $1,800,000, or $4.05
per warrant share, was paid to the Company upon completion of its initial
public offering. Further, Chiron purchased 377,202 common shares with an
aggregate value of $3,640,000 upon completion of the Company's initial
public offering, at the initial public offering price less one-half of the
underwriting discount. Chiron also has a designated Board member on the
Company's Board of Directors. All preferred shares were converted into
142,222 shares of common stock upon completion of the Company's initial
public offering.
In May 1996, the Company entered into a collaboration with Chiron for the use
of ribozymes to characterize gene function. The collaboration gives Chiron the
right to develop and commercialize products that result from the collaboration,
and would entitle RPI to receive product development milestone payments and
royalties on sales of any such commercial products. Chiron and RPI each pay a
portion of the research and development expenses of the collaboration, and the
Company provided Chiron $1,800,000 in 1996 for research funding related to the
collaboration.
In 1998, the Company received $5.0 million from Chiron related to the joint
product development of ANGIOZYME. The non recurring payment was a reimbursement
for 50% of past expenses incurred by the Company for the preclinical
development of ANGIOZYME. In addition, the Company recorded revenue from Chiron
of $1,048,138 for 50% of ANGIOZYME clinical development expenses incurred by
the Company during the fourth quarter of 1998. There are no future obligations
between the Company and Chiron related to these revenues which were fully
recognized in 1998.
Pharmacia Biotech AB
In November 1995, the Company and Pharmacia Biotech AB entered into a
collaboration and license agreement for the improvement of production scale
synthesis of RNA and chimeric oligonucleotides. The goal of the collaboration
is to reduce the cost of manufacturing ribozymes and other oligonucleotide
F-15
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
products. Pharmacia Biotech AB will provide research funding, synthesis support
and instrumentation, while RPI will receive royalties on the sales of modified
RNA oligonucleotides and non-DNA primer support. As of December 31, 1998, the
Company has received $731,500 in funding pursuant to the agreement.
Schering AG, Berlin
On April 9, 1997, the Company entered into a research collaboration with
Schering AG, Berlin, ("Schering AG") focusing on the use of ribozymes for
therapeutic target validation, as well as the development of ribozymes as
therapeutic agents. The collaboration will utilize the special selectivity of
ribozymes to validate new molecular therapeutic targets and to discover new
therapeutic agents based on those targets. The Company will provide its
expertise in ribozyme design, synthesis and delivery, and Berlex Laboratories,
Inc., a U.S. subsidiary of Schering AG ("Berlex") will provide candidate
targets, cell culture screens, animal models and development and
commercialization expertise to the collaboration. The Company anticipates that
hundreds of potential targets may be examined over a five year period with
Berlex having the option to commercialize products from any validated targets.
Schering AG made an equity investment in the Company in May 1997 of $2.5
million in exchange for 212,766 shares of common stock, and made an additional
equity investment of $2.5 million for 465,117 shares in April 1998. Separately,
Schering AG provided a loan of $2.0 million in 1997, and subsequently $2.0
million in 1998. Schering AG will continue to provide loans of up to $2.0
million annually for each of the next three years, provided that the
collaboration is continued in each of those years. Amounts not used in any
calendar year may be carried forward to future years. According to the terms of
the Company's agreement with Schering AG, 50% of any borrowings on the line of
credit must be collateralized by equipment purchases. The loans, which carry an
interest rate of 8% per annum, are convertible into equity at the option of
Schering AG under certain circumstances. At December 31, 1998, the outstanding
borrowings of $4.3 million were convertible into approximately 992,000 shares
of the Company's common stock. Principal and interest payments are deferred
until maturity of the loans which is in April 2004. In addition, Schering AG
made research payments of $2.0 million and $1.5 million in 1998 and 1997,
respectively. Provided that the collaboration is continued, Schering AG will
make research payments of $2 million a year for each year through April 2001.
The Company may earn success fees upon product development milestones and will
manufacture synthetic ribozyme products and receive royalties on sales of both
ribozyme and non-ribozyme products resulting from the collaboration. All such
payments are subject to some restrictions, including receipt of certain third
party consents. Upon payment of termination fees paid to the Company, the
research collaboration may be terminated at Schering AG's option any time.
Roche Bioscience
In May 1998, the Company entered into a Target Validation agreement with
Roche Bioscience. The agreement gives Roche Bioscience access to the Company's
proprietary ribozyme technology which will assist Roche Bioscience in
determining which genes are valid therapeutic targets. Under the terms of the
contract, the Company will design and synthesize ribozymes against target genes
designated by Roche Bioscience and perform various studies to determine the
level of gene expression inhibition achieved. Roche Bioscience will fund the
research and may provide milestone payments or success fees to the Company if
Roche Bioscience uses the information to derive compounds to take into
development.
8. Commitments and Contingency
At the core of the Company's technology are inventions and patents of the
University of Colorado ("CU") which were developed by Dr. Thomas R. Cech and
various associates of Dr. Cech. Pursuant to the policies of CU, these
inventions and the patents issued thereon, (the "Cech Technology") became the
F-16
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
property of CU. The Cech Technology was assigned to CU's affiliate, University
Research Corporation ("URC"), which in turn assigned the rights to license
certain of the Cech Technology to Competitive Technologies, Inc. ("CTI"),
formerly known as University Patents, Inc. United States Biochemical
Corporation ("USB") licensed the Cech Technology pursuant to two sublicenses.
One of these sublicenses was for the Cech Technology held by CTI. In November
1996, USB assigned to the Company its rights under the sublicense from CTI and
the Company entered into an amended and restated license with CTI. The Company
also has obtained a license from URC and a sublicense from USB for other Cech
Technology held by URC. The CTI license, URC license and USB sublicense
together grant the Company the exclusive (except for non-commercial academic
research) worldwide right, among other things, to make, use and sell RNA
enzymes covered by licensed patents and products incorporating them. The URC
license and USB sublicense are fully paid. The CTI license provides for the
payment of a royalty on sales of products incorporating RNA enzymes, covered by
licensed patents, and for certain minimum annual royalties. The Company may
grant sublicenses to the licensed technology subject to the payment to CTI of a
share of royalty income from such sublicenses or a royalty on sales from
sublicensed products, methods or services, depending on the particular licensed
patents involved. In addition, the Company must pay CTI a share of any option
fee, license fee, prepaid royalty or other "front-end" fee other than research
and development funding paid in connection with such sublicense. At the
Company's discretion, the payment may be in either cash or equity.
During 1993, the Company was granted the right of first refusal to license
any new inventions, improvements and patents related to ribozyme technology
developed by Dr. Cech or others at CU, in exchange for certain payments. In
order to maintain the right of first refusal, the Company agreed to fund
research at CU through an unrestricted grant of $750,000 payable in various
installments over a five year period commencing in September 1993. URC made an
investment of approximately $41,000 for 46,188 shares of the Company's common
stock upon entering into the agreement.
During 1996, the Company eliminated the royalty arrangement in exchange for
45,000 shares of its common stock. The Company recognized expense related to
the exchange of $540,000 during 1996. The Company's final payment under the
above unrestricted grant was $113,000, which was paid in 1998.
The Company is involved in legal proceedings which have arisen in the
ordinary course of business. In the opinion of management the outcome of these
legal proceedings will not have a material adverse impact on the Company's
financial position or operations.
9. Related Party Transactions
At December 31, 1998, 1997 and 1996, the Company had a total of $280,932,
$320,000, and $225,000, respectively, of non-interest bearing loans due from
officers. The balances may be forgiven by the Company under certain employment
agreement provisions. The loan balances are forgivable or payable to the
Company under various terms not to exceed 5 years. The Company forgave
$126,466, $80,000 and $85,000 of these loans during each of the years ending
December 31, 1998, 1997 and 1996, respectively.
10. Formation of Atugen, an unconsolidated German Affiliate
In 1998, the Company transferred its gene function and target validation
business and technology to Atugen, a separately funded German affiliate.
Financing for Atugen was accomplished through an equity investment of $2.0
million in cash from RPI in 1998, a venture capital investment of $7.0 million
and a commitment by the German government to provide grants and loans of up to
$10.0 million. As a result, at December 31, 1998, RPI retained a 49.5%
ownership in Atugen. In connection with its formation, Atugen
F-17
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
received exclusive royalty-free licenses to RPI patents and technologies for
target validation and discovery in exchange for a one-time $2.0 million payment
which was received by RPI in January 1999. The entire amount of this one-time
payment has been deferred as of December 31, 1998 and will be amortized over
the five-year term of the license agreement and reflected in the Company's
equity in earnings or loss of this unconsolidated affiliate.
According to a service agreement executed by both parties, RPI will provide
management support, technologies, facilities and reagents to Atugen for
reasonable fees. RPI will retain rights to develop ribozyme therapeutic agents
against targets validated by Atugen.
In 1998, RPI gave to its officers and certain other employees stock
representing a 5.5% interest in the newly formed Atugen at no personal cost to
the individuals. Atugen is a closely held private company, and accordingly, the
fair value of the share grants was by nature an estimate. The Company estimated
the fair market value of these share grants at the date of such grants to be
$81,000. As a result, the Company's 1998 Statement of Operations includes
$81,000 of compensation related to the share grants.
11. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes (SFAS 109).
Under the provisions of SFAS 109, a deferred tax liability or asset (net of a
valuation allowance) is provided in the financial statements by applying the
provisions of applicable tax laws to measure the deferred tax consequences of
temporary differences that will result in net taxable or deductible amounts in
future years as a result of events recognized in the financial statements in
the current or preceding years.
At December 31, 1998, the Company has the following net operating loss and
tax credit carryforwards for income tax purposes:
<TABLE>
<CAPTION>
Net Research and State
Operating Development Investment
Expiration Date Losses Credits Credits
--------------- ----------- ------------ ----------
<S> <C> <C> <C>
1999..................................... $ -- $ -- $14,000
2000..................................... -- -- 11,000
2001..................................... -- -- 6,000
2007..................................... 3,506,000 101,000 --
2008..................................... 7,363,000 185,000 --
2009..................................... 9,239,000 316,000 --
2010..................................... 11,953,000 139,000 --
2011..................................... 15,125,000 181,000 --
2012..................................... 15,291,000 297,000 --
2018..................................... 11,248,000 298,000 --
----------- ---------- -------
Total.................................... $73,725,000 $1,517,000 $31,000
=========== ========== =======
</TABLE>
The Tax Reform Act of 1986 contains provisions that limit the utilization of
net operating loss and tax credit carryforwards if there has been a "change of
ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carryforwards, and could have been triggered by the
Company's initial public offering or by subsequent sales of securities by the
Company or its shareholders.
F-18
<PAGE>
RIBOZYME PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred tax assets and liabilities as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 27,499,000 $ 23,324,000
Research and development and state investment
credit carryforwards........................ 1,548,000 1,102,000
Depreciation................................. 639,000 618,000
Other........................................ 30,000 12,000
------------ ------------
29,716,000 25,056,000
Valuation allowance.......................... (28,610,000) (24,097,000)
------------ ------------
Net deferred tax assets...................... 1,106,000 959,000
Deferred tax liabilities:
Deferred patent costs........................ 1,084,000 936,000
Other........................................ 22,000 23,000
------------ ------------
Total deferred tax liabilities............... 1,106,000 959,000
------------ ------------
$ -- $ --
============ ============
</TABLE>
11. Employee Savings Plan
The Company has a 401(k) plan which allows participants to contribute 1% to
15% of their salary, subject to eligibility requirements and annual limits. The
Board may, at its sole discretion, approve matching contributions with the
Company's common stock. In both 1998 and 1997, the Board approved a 50% common
stock match equal to total participant deferrals made in each respective year.
The Company stock match is subject to vesting restrictions.
12. Subsequent Event (unaudited)
In March 1999, the Company entered into a collaboration with Eli Lilly and
Company ("Lilly") to conduct research, development and commercialization of
HEPTAZYME, the Company's ribozyme for the treatment of Hepatitis C virus
infection. Under the terms of the agreement, the Company will receive
approximately $9.2 million in 1999, which includes, funding for research and
clinical trial expenses, and an equity investment. In April 1999, Lilly
purchased five shares of our Series L preferred stock for $7.5 million.
Separately, during 1999 Lilly will provide research revenue payments totaling
$1.7 million to be paid in three equal installments. In addition, the Company
may receive success fees related to various development milestones and
royalties on future sales of products developed related to the collaboration.
Lilly will receive the exclusive worldwide commercialization rights to products
that result from this collaboration, including the HEPTAZYME product. The
Company has retained certain rights to manufacture HEPTAZYME products resulting
from the collaboration.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,800,000 Shares
Common Stock
-----------
PROSPECTUS
-----------
HAMBRECHT & QUIST LLC
------------
, 1999
------------
You should rely only on information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution
The following table sets forth the various expenses in connection with the
distribution and sale of the securities being registered which will be paid by
us. All amounts are estimates except for the SEC registration fee:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 2,390
Printing and mailing expenses...................................... $ 40,000
Nasdaq listing fee................................................. $ 17,500
Legal fees and expenses............................................ $ 75,000
Accounting fees and expenses....................................... $ 40,000
--------
TOTAL.......................................................... $174,890
========
</TABLE>
Item 14. Indemnification Of Directors And Officers
Article XI of our Bylaws provides for indemnification of our directors to the
fullest extent permitted by law, as now in effect or later amended. Article XI
of our Bylaws also permits the indemnification to the same extent of our
officers, employees or agents if, and to the extent, authorized by the Board of
Directors. In addition, the Bylaws provide for indemnification against expenses
incurred by a director to be paid by us at reasonable intervals in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall be ultimately determined that he is not entitled to be indemnified by
us. The Bylaws further provide for a contractual cause of action on the part of
our directors for indemnification claims that have not been paid by us.
Article VI of our Certificate of Incorporation, as amended, limits under
certain circumstances the liability of our directors for a breach of their
fiduciary duty as directors. These provisions do not eliminate the liability of
a director (1) for a breach of the director's duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the General Corporate Law of the State of Delaware ("DGCL") (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the DGCL) or (4) for any transaction from which the director derived an
improper personal benefit.
Section 145 of the DGCL contains provisions regarding indemnification, among
others, of officers and directors. Section 145 of the DGCL provides in relevant
part:
(a) A corporation shall have power to 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,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person 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 the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person 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
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person 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 reasonable cause to believe that the person's conduct was
unlawful.
II-1
<PAGE>
(b) A corporation shall have power to indemnify any person 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 by reason of the fact that the person 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) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person 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 Court of Chancery or the 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.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
Delaware law also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director or officer against any liability
asserted against him and incurred by him in such capacity or arising out of his
status as such, whether or not the corporation has the power to indemnify him
against that liability under Section 145 of the DGCL.
We also have provided liability insurance for each director and officer for
losses arising from claims or charges made against them while acting in their
capacities as our directors or officers.
The above discussion of our corporate documents is not intended to be
exhaustive and is respectively qualified in its entirety by our corporate
documents.
Item 15. Recent Sale Of Unregistered Securities
The following table sets forth the Ribozyme Pharmaceuticals' sales of
unregistered securities for the past three years. All transactions listed below
involved the issuance of common stock, preferred stock convertible into shares
of common stock or options to acquire shares of common stock prior to
commencement of the offering described in the foregoing prospectus. No
underwriters were employed with respect to the sale of any of the securities
listed below. All shares were issued in reliance upon Section 4(2) and/or 3(b)
of the Securities Act.
<TABLE>
<CAPTION>
Securities Issued Purchaser Date Acquired Consideration
- ----------------- ----------- ------------- -------------
<S> <C> <C> <C>
212,776 shares of common stock......... Schering AG May 1997 $2,500,000
465,117 shares of common stock......... Schering AG May 1998 $2,500,000
5 shares of Series L preferred stock... Eli Lilly April 1999 $7,500,000
</TABLE>
II-2
<PAGE>
Item 16. Exhibits And Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1+ Form of Placement Agency Agreement dated , 1999, between Ribozyme
Pharmaceuticals and Hambrecht & Quist LLC
1.2+ Form of Escrow Agreement dated , 1999, between Ribozyme
Pharmaceuticals Hambrecht & Quist LLC and Citibank, N.A.
3.1 Amended and Restated Certificate of Incorporation of Ribozyme
Pharmaceuticals dated April 17, 1996(5)
3.2 Bylaws of Ribozyme Pharmaceuticals, as amended(1)
4.1 Specimen Stock Certificate(1)
4.2 Certificate of Designation, Preferences and Rights of Series L
Preferred Shares
5.1+ Opinion of Rothgerber Johnson & Lyons LLP
10.1 Form of Indemnity Agreement entered into between Ribozyme
Pharmaceuticals and its directors and officers, with related
schedule(1)
10.2 Ribozyme Pharmaceuticals' Incentive Stock Option Plan, including form
of Incentive Stock Option Agreement(1)
10.3 Ribozyme Pharmaceuticals' Non-Qualified Stock Option Plan, including
form of Non-Qualified Stock Option Agreement(1)
10.4 Ribozyme Pharmaceuticals' 1996 Stock Option Plan, including forms of
Incentive Stock Option and Nonstatutory Stock Option Agreements(1)
10.5 Ribozyme Pharmaceuticals' 1996 Employee Stock Purchase Plan(1)
10.6 Employment Agreement dated January 1, 1997, between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen(5)
10.7 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated December 23, 1992(1)
10.8 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated September 23, 1994(1)
10.9 Warrant Purchase Agreement dated March 15, 1995, between Ribozyme
Pharmaceuticals and Hambrecht & Quist Guaranty Finance(1)
10.10 Warrant to Purchase Common Stock dated March 15, 1995, issued to
Hambrecht & Quist Guaranty Finance(1)
10.11 Warrant to Purchase Common Stock dated February 22, 1993, issued to
LINC Scientific Leasing(1)
10.12 Warrant to Purchase Common Stock dated July 30, 1993, issued to
Douglas E. Olson(1)
10.13 Warrant to Purchase Common Stock dated July 30, 1993, issued to
Richard J. Warburg and Ruth P. Warburg(1)
10.14 Warrant to Purchase Common Stock dated December 28, 1994, issued to
Competitive Technologies, Inc.(1)
10.15 Warrant to Purchase Common Stock dated December 29, 1995, issued to
Silicon Valley Bank(1)
10.16 Warrant to Purchase Common Stock dated July 26, 1996, issued to
Silicon Valley Bank(1)
10.17 Warrant to Purchase Common Stock dated April 17, 1996, issued to
Chiron Corporation(1)
10.18 Collaborative Research, Development and Commercialization Agreement
dated July 15, 1994, between Ribozyme Pharmaceuticals and Chiron
Corporation(1)
10.19 Research Collaboration and Licensing Agreement dated November 1, 1995,
between Ribozyme Pharmaceuticals and Pharmacia Biotech, AB(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.20 Research and Development Collaboration Agreement dated April 19, 1993,
between Ribozyme Pharmaceuticals and Parke-Davis Division of Warner-
Lambert Company(1)
10.21 First Amendment to the Research and Development Collaboration
Agreement dated April 17, 1995, between Ribozyme Pharmaceuticals and
Parke-Davis Division of Warner-Lambert Company(1)
10.22 Second Amendment to the Research and Development Collaboration
Agreement dated February 8, 1996, between Ribozyme Pharmaceuticals
and Parke-Davis Division of Warner-Lambert Company(1)
10.23 Financing Agreement dated March 16, 1995, among Wilderness Place
Holdings L.L.C., Hambrecht & Quist Guaranty Finance, L.P. and
Ribozyme Pharmaceuticals(1)
10.24 Negotiable Promissory Note dated October 7, 1992, between Ribozyme
Pharmaceuticals and Ralph Christoffersen and Addendum dated June 25,
1993(1)
10.25 Employment Agreement dated January 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.26 Promissory Note dated February 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.27 Lease for Real Property dated May 20, 1992, between Aero-Tech
Investments and Ribozyme Pharmaceuticals(1)
10.28 Non-Disturbance and Attornment Agreement dated March 31, 1995, among
General American Life Insurance Company, Aero-Tech Investments,
Wilderness Place Holdings L.L.C. and Ribozyme Pharmaceuticals(1)
10.29 Master Lease Agreement dated September 2, 1992, between Ribozyme
Pharmaceuticals and LINC Scientific Leasing(1)
10.30 Loan and Security Agreement dated February 28, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.31 Loan Modification Agreement dated December 21, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.32 Loan and Security Agreement dated December 29, 1995, between Ribozyme
Pharmaceuticals and Silicon Valley Bank and MMC/GATX Partnership No.
1(1)
10.33 Warrant to Purchase Common Stock dated December 29, 1995, issued to
MMC/GATX Partnership No. 1(1)
10.34 Agreement dated February 29, 1996, between Ribozyme Pharmaceuticals
and Chiron Corporation relating to research and development funding(1)
10.35 Amendments to original Employment Agreements between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen, Lawrence E. Bullock and
Nassim Usman, pursuant to letters dated November 14, 1996, November
22, 1996, and December 15, 1996(3)
10.36 Promissory Note dated June 4, 1996, between Ribozyme Pharmaceuticals
and Nassim Usman(3)
10.37 Amendment to Lease for Real Property dated March 13, 1997, between
Aero-Tech Investments and Ribozyme Pharmaceuticals(3)
10.38 Employment Agreement dated May 2, 1996, between Ribozyme
Pharmaceuticals and Nassim Usman(2)
10.39 Collaboration Agreement Regarding Use of Ribozymes to Determine Gene
Function dated May 13, 1996, between Ribozyme Pharmaceuticals and
Chiron Corporation(2)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.40 Amended and Restated License Agreement dated November 20, 1996, between
Ribozyme Pharmaceuticals, University Research Corporation, University
of Colorado and United States Biochemical Corporation(3)*
10.41 Amended and Restated Sublicense Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals and United States Biochemical
Corporation(3)*
10.42 Amended and Restated License Agreement dated November 20, 1996, between
Ribozyme Pharmaceuticals and Competitive Technologies,
Incorporated(3)*
10.43 Memorandum of Understanding dated March 1, 1996, between Ribozyme
Pharmaceuticals and DowElanco(1)
10.44 Stock Subscription Agreement dated September 1996 between Ribozyme
Pharmaceuticals and University of Research Corporation(3)*
10.45 Stock Subscription Agreement dated November 20, 1996, between Ribozyme
Pharmaceuticals and United States Biochemical Corporation(3)*
10.46 Assignment of License and Restated License Agreement dated November 20,
1996, among Ribozyme Pharmaceuticals, United States Biochemical
Corporation and Competitive Technologies(3)*
10.47 Letter Agreement dated May 22, 1996, between Ribozyme Pharmaceuticals
and ALZA Corporation(3)*
10.48 Research and Development Collaboration Agreement dated December 2,
1996, between Ribozyme Pharmaceuticals and Protogene Laboratories(3)*
10.49 License Agreement dated February 14, 1997, between Ribozyme
Pharmaceuticals and IntelliGene, Ltd.(3)*
10.50 Subscription Agreement dated April 17, 1995, between Ribozyme
Pharmaceuticals and Parke-Davis Division of Warner-Lambert Company(1)
10.51 Stock Purchase Agreement dated June 28, 1995, among Ribozyme
Pharmaceuticals and investors(1)
10.52 Agreement dated March 1, 1996, between Ribozyme Pharmaceuticals and
DowElanco Corporation relating to the conversion of preferred stock(1)
10.53 Stock Subscription Agreement dated October 30, 1995, between Ribozyme
Pharmaceuticals and Gewestelijke Investeringsmaatschappij voor
Vlaanderon n.v.(1)
10.54 Research, License, Supply and Royalty Agreement between Schering
Aktiengesellschaft and Ribozyme Pharmaceuticals dated April 9,
1997(4)*
10.55 Purchase Agreement dated April 9, 1997, among Ribozyme Pharmaceuticals,
Schering Berlin Venture Corporation and Schering
Aktiengesellschaft(4)*
10.56 Employment Agreement dated February 27, 1997, between Ribozyme
Pharmaceuticals and Alene Holzman(5)
10.57 Employment Agreement dated July 5, 1997, between Ribozyme
Pharmaceuticals and Thomas Rossing(5)
10.58 Executive Bonus Plan dated March 27, 1998(6)
10.59 Research, Collaboration and License Agreement dated May 19, 1998,
between Ribozyme Pharmaceuticals and Roche Bioscience, a division of
Syntex (U.S.A.) Inc.(7)*
10.60 Employment Agreement dated September 8, 1998, between Ribozyme
Pharmaceuticals and Nassim Usman(8)
10.61 Participation Agreement dated August 31, 1998, as amended, and related
documents between Ribozyme Pharmaceuticals and Atugen Biotechnology
GmbH(9)**
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.62 Research Collaboration and License Agreement dated March 17, 1999,
between Ribozyme Pharmaceuticals and Eli Lilly and Company**
23.1+ Consent of Ernst & Young LLP, Independent Auditors
23.2+ Consent of Rothgerber Johnson & Lyons LLP (included in Exhibit 5.1)
24.1+ Power of attorney (included on the signature page of this
Registration Statement)
</TABLE>
- --------
+ Previously filed.
* Ribozyme Pharmaceuticals has applied for and received confidential
treatment with respect to portions of these exhibits.
** Ribozyme Pharmaceuticals has applied for confidential treatment with
respect to portions of these exhibits.
(1) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form SB-2 Registration Statement, File No. 333-1908-D.
(2) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-QSB for the quarter ended June 30, 1996.
(3) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-KSB for the year ended December 31, 1996.
(4) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K dated June 12, 1997.
(5) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form SB-2 Registration Statement, dated September 5, 1997,
File No. 333-34981.
(6) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-K for the year ended December 31, 1997.
(7) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-Q/A for the quarter ended June 30, 1998.
(8) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-Q for the quarter ended September 30, 1998.
(9) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K dated March 19, 1999.
(b) Financial Statement Schedules
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
II-6
<PAGE>
(iii) To include any material with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 provision described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-l and has duly caused this Amendment No. 2 to
Form S-1 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in Boulder, Colorado, on May 6, 1999.
Ribozyme Pharmaceuticals, Inc.
/s/ Ralph E. Christoffersen
By: _________________________________
Ralph E. Christoffersen, Ph.D.
Chief Executive Officer and
President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 2 to Form S-1 Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ralph E. Christoffersen Chief Executive Officer May 6, 1999
______________________________________ and President (Principal
Ralph E. Christoffersen, Ph.D. Executive Officer)
/s/ Lawrence E. Bullock Vice President, May 6, 1999
______________________________________ Administration Finance,
Lawrence E. Bullock Chief Financial Officer
and Secretary (Principal
Financial and Accounting
Officer)
/s/ David T. Morgenthaler* Chairman of the Board of May 6, 1999
______________________________________ Directors
David T. Morgenthaler
/s/ Jeremy C. Cook* Director May 6, 1999
______________________________________
Jeremy C. Cook
/s/ Anthony B. Evnin* Director May 6, 1999
______________________________________
Anthony B. Evnin, Ph.D.
/s/ David Ichikawa* Director May 6, 1999
______________________________________
David Ichikawa
/s/ Anders Wiklund* Director May 6, 1999
______________________________________
Anders Wiklund
*/s/ Lawrence E. Bullock
______________________________________
Lawrence E. Bullock
Attorney-in-fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1+ Form of Placement Agency Agreement dated , 1999, between Ribozyme
Pharmaceuticals and Hambrecht & Quist LLC
1.2+ Form of Escrow Agreement dated , 1999, between Ribozyme
Pharmaceuticals, Hambrecht & Quist LLC and Citibank N.A.
3.1 Amended and Restated Certificate of Incorporation of Ribozyme
Pharmaceuticals dated April 17, 1996(5)
3.2 Bylaws of Ribozyme Pharmaceuticals, as amended(1)
4.1 Specimen Stock Certificate(1)
4.2 Certificate of Designation, Preferences and Rights of Series L
Preferred Shares
5.1+ Opinion of Rothgerber Johnson & Lyons LLP
10.1 Form of Indemnity Agreement entered into between Ribozyme
Pharmaceuticals and its directors and officers, with related
schedule(1)
10.2 Ribozyme Pharmaceuticals' Incentive Stock Option Plan, including form
of Incentive Stock Option Agreement(1)
10.3 Ribozyme Pharmaceuticals' Non-Qualified Stock Option Plan, including
form of Non-Qualified Stock Option Agreement(1)
10.4 Ribozyme Pharmaceuticals' 1996 Stock Option Plan, including forms of
Incentive Stock Option and Nonstatutory Stock Option Agreements(1)
10.5 Ribozyme Pharmaceuticals' 1996 Employee Stock Purchase Plan(1)
10.6 Employment Agreement dated January 1, 1997, between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen(5)
10.7 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated December 23, 1992(1)
10.8 Incentive Stock Option Agreement between Ribozyme Pharmaceuticals and
Ralph E. Christoffersen dated September 23, 1994(1)
10.9 Warrant Purchase Agreement dated March 15, 1995, between Ribozyme
Pharmaceuticals and Hambrecht & Quist Guaranty Finance(1)
10.10 Warrant to Purchase Common Stock dated March 15, 1995, issued to
Hambrecht & Quist Guaranty Finance(1)
10.11 Warrant to Purchase Common Stock dated February 22, 1993, issued to
LINC Scientific Leasing(1)
10.12 Warrant to Purchase Common Stock dated July 30, 1993, issued to
Douglas E. Olson(1)
10.13 Warrant to Purchase Common Stock dated July 30, 1993, issued to
Richard J. Warburg and Ruth P. Warburg(1)
10.14 Warrant to Purchase Common Stock dated December 28, 1994, issued to
Competitive Technologies, Inc.(1)
10.15 Warrant to Purchase Common Stock dated December 29, 1995, issued to
Silicon Valley Bank(1)
10.16 Warrant to Purchase Common Stock dated July 26, 1996, issued to
Silicon Valley Bank(1)
10.17 Warrant to Purchase Common Stock dated April 17, 1996, issued to
Chiron Corporation(1)
10.18 Collaborative Research, Development and Commercialization Agreement
dated July 15, 1994, between Ribozyme Pharmaceuticals and Chiron
Corporation(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.19 Research Collaboration and Licensing Agreement dated November 1, 1995,
between Ribozyme Pharmaceuticals and Pharmacia Biotech, AB(1)
10.20 Research and Development Collaboration Agreement dated April 19, 1993,
between Ribozyme Pharmaceuticals and Parke-Davis Division of Warner-
Lambert Company(1)
10.21 First Amendment to the Research and Development Collaboration
Agreement dated April 17, 1995, between Ribozyme Pharmaceuticals and
Parke-Davis Division of Warner-Lambert Company(1)
10.22 Second Amendment to the Research and Development Collaboration
Agreement dated February 8, 1996, between Ribozyme Pharmaceuticals and
Parke-Davis Division of Warner-Lambert Company(1)
10.23 Financing Agreement dated March 16, 1995, among Wilderness Place
Holdings L.L.C., Hambrecht & Quist Guaranty Finance, L.P. and Ribozyme
Pharmaceuticals(1)
10.24 Negotiable Promissory Note dated October 7, 1992, between Ribozyme
Pharmaceuticals and Ralph Christoffersen and Addendum dated June 25,
1993(1)
10.25 Employment Agreement dated January 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.26 Promissory Note dated February 8, 1996, between Ribozyme
Pharmaceuticals and Lawrence E. Bullock(1)
10.27 Lease for Real Property dated May 20, 1992, between Aero-Tech
Investments and Ribozyme Pharmaceuticals(1)
10.28 Non-Disturbance and Attornment Agreement dated March 31, 1995, among
General American Life Insurance Company, Aero-Tech Investments,
Wilderness Place Holdings L.L.C. and Ribozyme Pharmaceuticals(1)
10.29 Master Lease Agreement dated September 2, 1992, between Ribozyme
Pharmaceuticals and LINC Scientific Leasing(1)
10.30 Loan and Security Agreement dated February 28, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.31 Loan Modification Agreement dated December 21, 1994, between Ribozyme
Pharmaceuticals and Silicon Valley Bank(1)
10.32 Loan and Security Agreement dated December 29, 1995, between Ribozyme
Pharmaceuticals and Silicon Valley Bank and MMC/GATX Partnership No.
1(1)
10.33 Warrant to Purchase Common Stock dated December 29, 1995, issued to
MMC/GATX Partnership No. 1(1)
10.34 Agreement dated February 29, 1996, between Ribozyme Pharmaceuticals
and Chiron Corporation relating to research and development funding(1)
10.35 Amendments to original Employment Agreements between Ribozyme
Pharmaceuticals and Ralph E. Christoffersen, Lawrence E. Bullock and
Nassim Usman, pursuant to letters dated November 14, 1996, November
22, 1996, and December 15, 1996(3)
10.36 Promissory Note dated June 4, 1996, between Ribozyme Pharmaceuticals
and Nassim Usman(3)
10.37 Amendment to Lease for Real Property dated March 13, 1997, between
Aero-Tech Investments and Ribozyme Pharmaceuticals(3)
10.38 Employment Agreement dated May 2, 1996, between Ribozyme
Pharmaceuticals and Nassim Usman(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.39 Collaboration Agreement Regarding Use of Ribozymes to Determine Gene
Function dated May 13, 1996, between Ribozyme Pharmaceuticals and
Chiron Corporation(2)
10.40 Amended and Restated License Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals, University Research Corporation,
University of Colorado and United States Biochemical Corporation(3)*
10.41 Amended and Restated Sublicense Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals and United States Biochemical
Corporation(3)*
10.42 Amended and Restated License Agreement dated November 20, 1996,
between Ribozyme Pharmaceuticals and Competitive Technologies,
Incorporated(3)*
10.43 Memorandum of Understanding dated March 1, 1996, between Ribozyme
Pharmaceuticals and DowElanco(1)
10.44 Stock Subscription Agreement dated September 1996 between Ribozyme
Pharmaceuticals and University of Research Corporation(3)*
10.45 Stock Subscription Agreement dated November 20, 1996, between Ribozyme
Pharmaceuticals and United States Biochemical Corporation(3)*
10.46 Assignment of License and Restated License Agreement dated November
20, 1996, among Ribozyme Pharmaceuticals, United States Biochemical
Corporation and Competitive Technologies(3)*
10.47 Letter Agreement dated May 22, 1996, between Ribozyme Pharmaceuticals
and ALZA Corporation(3)*
10.48 Research and Development Collaboration Agreement dated December 2,
1996, between Ribozyme Pharmaceuticals and Protogene Laboratories(3)*
10.49 License Agreement dated February 14, 1997, between Ribozyme
Pharmaceuticals and IntelliGene, Ltd.(3)*
10.50 Subscription Agreement dated April 17, 1995, between Ribozyme
Pharmaceuticals and Parke-Davis Division of Warner-Lambert Company(1)
10.51 Stock Purchase Agreement dated June 28, 1995, among Ribozyme
Pharmaceuticals and investors(1)
10.52 Agreement dated March 1, 1996, between Ribozyme Pharmaceuticals and
DowElanco Corporation relating to the conversion of preferred stock(1)
10.53 Stock Subscription Agreement dated October 30, 1995, between Ribozyme
Pharmaceuticals and Gewestelijke Investeringsmaatschappij voor
Vlaanderon n.v.(1)
10.54 Research, License, Supply and Royalty Agreement between Schering
Aktiengesellschaft and Ribozyme Pharmaceuticals dated April 9,
1997(4)*
10.55 Purchase Agreement dated April 9, 1997, among Ribozyme
Pharmaceuticals, Schering Berlin Venture Corporation and Schering
Aktiengesellschaft(4)*
10.56 Employment Agreement dated February 27, 1997, between Ribozyme
Pharmaceuticals and Alene Holzman(5)
10.57 Employment Agreement dated July 5, 1997, between Ribozyme
Pharmaceuticals and Thomas Rossing(5)
10.58 Executive Bonus Plan dated March 27, 1998(6)
10.59 Research, Collaboration and License Agreement dated May 19, 1998,
between Ribozyme Pharmaceuticals and Roche Bioscience, a division of
Syntex (U.S.A.) Inc.(7)*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.60 Employment Agreement dated September 8, 1998, between Ribozyme
Pharmaceuticals and Nassim Usman(7)
10.61 Participation Agreement dated August 31, 1998, as amended, and related
documents between Ribozyme Pharmaceuticals and Atugen Biotechnology
GmbH(9)**
10.62 Research Collaboration and License Agreement dated March 17, 1999,
between Ribozyme Pharmaceuticals and Eli Lilly and Company**
23.1+ Consent of Ernst & Young LLP, Independent Auditors
23.2+ Consent of Rothgerber Johnson & Lyons LLP (included in Exhibit 5.1)
24.1+ Power of attorney (included on the signature page of this Registration
Statement)
</TABLE>
- --------
+ Previously filed.
* Ribozyme Pharmaceuticals has applied for and received confidential treatment
with respect to portions of these exhibits.
** Ribozyme Pharmaceuticals has applied for confidential treatment with
respect to portions of these exhibits.
(1) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form SB-2 Registration Statement, File No. 333-1908-D.
(2) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-QSB for the quarter ended June 30, 1996.
(3) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-KSB for the year ended December 31, 1996.
(4) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K dated June 12, 1997.
(5) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form SB-2 Registration Statement, dated September 5,
1997, File No. 333-34981.
(6) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-K for the year ended December 31, 1997.
(7) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-Q/A for the quarter ended June 30, 1998.
(8) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 10-Q for the quarter ended September 30, 1998.
(9) Documents incorporated by reference herein to certain exhibits to Ribozyme
Pharmaceuticals' Form 8-K dated March 19, 1999.
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES L PREFERRED SHARES
of
RIBOZYME PHARMACEUTICALS, INC.
Ribozyme Pharmaceuticals, Inc., a company organized and existing under the
laws of the State of Delaware (the "Company"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as provided in the
Company's Certificate of Incorporation.
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of Ribozyme Pharmaceuticals Inc. (the "RPI") in accordance with
the provisions of its Certificate of Incorporation and Bylaws, each as amended
and restated through the date hereof, the Board of Directors hereby authorizes
the issuance of a series of RPI's previously authorized Preferred Shares, par
value $0.01 per share (the "Preferred Shares"), and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
Series L Preferred Shares:
A. Designation and Amount
The designation of this series, which consists of five (5) shares of
Preferred Shares, is the Series L Preferred Shares (the "Series L Preferred")
and the face amount shall be one million five hundred thousand Dollars
(US$1,500,000) per share.
B. Voting Rights.
Except as provided by law, the Series L Preferred shall have no voting
powers whatsoever, including but not limited to no right to vote as a class
with regard to any transaction or other business of RPI, and shall have no
voice in the management of RPI or in any proceedings requiring the affirmative
vote or consent of the stockholders and all rights to give consent of the
stockholders shall be vested in and exercised exclusively by the holders of
RPI 's common stock, $0.01 par value ("Common Stock"). When required to vote
by law, the holders of the Series L Preferred shares shall be entitled to one
(1) vote for each outstanding share owned. Eli Lilly and Company ("Lilly")
shall be the holder of the Series L Preferred shares ("Holder of the Series L
Preferred").
C. Dividend Rights.
The Series L Preferred will bear no dividends.
D. Liquidation Rights.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of RPI, then, before any distribution or payment shall be made to
or set apart for the holders of Common Stock, Holder of the Series L Preferred
shall be entitled to receive from the assets of RPI legally available for
distribution to holders of RPI's capital stock the sum of US$1,500,000 per
share in cash or property (such amount to be adjusted appropriately in the
event of any stock dividend, split or combination or similar recapitalization
affecting the Series L Preferred) (the "Series L Preferred Liquidation
Value").
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If the assets of RPI legally available for distribution to holders of RPI's
capital stock shall be insufficient to provide the payment in full to Holder of
the Series L Preferred of the Series L Preferred Liquidation Value, then the
entire assets of RPI so available shall be distributed among Holder of the
Series L Preferred.
After full payment of the Series L Preferred Liquidation Value to Holder of
the Series L Preferred, the remaining assets of RPI shall be distributed to
holders of any other Series of Preferred Stock having liquidation rights junior
to the holders of the Series L Preferred and to holders of Common Stock.
Any consolidation of RPI with, or merger of RPI into, another corporation
(other than a merger with a subsidiary of RPI in which RPI is the continuing
corporation and which does not result in any reclassification or change other
than a change in par value, from par value to no par value, from no par value
to par value or as a result of a subdivision or combination), and any sale or
conveyance to another corporation of the property of RPI as an entirety or
substantially as an entirety, shall not be deemed to be a liquidation,
dissolution or winding up of RPI for purposes of this paragraph D, if RPI, in
its sole discretion, prior to the consummation of any such consolidation,
merger or sale of the assets of RPI ("Acquisition Event"):
(1)causes it to be a condition of the consummation of the Acquisition Event
for the surviving entity in such Acquisition Event ("Surviving Entity") to
exchange the Series L Preferred Shares for shares of capital stock of the
Surviving Entity which capital stock has the same relative rights,
preferences, privileges, powers and restrictions as the Series L Preferred;
or
(2) elects to convert the Shares into Common Stock, by giving written
notice to Lilly, upon the following terms:
(a)If the Acquisition Event shall be consummated prior to the Phase II
Deadline (as defined below) and Lilly shall not have commenced Phase II
clinical studies for HeptazymeTM, the Series L Preferred shall be
converted into an aggregate of $7,500,000 of Common Stock, valued for
this purpose at the average closing price for such stock as reported on
the Nasdaq National Market (or such other market as the Common Stock
may then be trading)for the thirty (30) consecutive trading days prior
to the date of the notice given pursuant to this Section D;
(b) If the Acquisition Event shall be consummated prior to the Phase II
Deadline (as defined below) and Lilly shall have commenced Phase II
clinical studies for HeptazymeTM, the Series L Preferred shall be
converted into an aggregate of $2,500,000 of Common Stock, valued for
this purpose at the average closing price for such stock as reported on
the Nasdaq National Market (or such other market as the Common Stock
may then be trading)for the thirty (30) consecutive trading days prior
to the date of the notice given pursuant to this Section D;
(c) If the Acquisition Event shall be consummated after the Phase II
Deadline (as defined below), the Series L Preferred shall be converted
into Common Stock pursuant to the conversion provisions set forth in
Section E hereof.
E. Series L Preferred Conversion Rights.
The rights and obligations of Holder of the Series L Preferred to convert
such shares into Common Stock shall be as follows:
(1)Failure to Commence Phase II Clinical Studies for Technical Reasons--
US$7,500,000 Conversion. If Lilly shall fail to commence Phase II clinical
studies for HeptazymeTM by March 17, 2002 ("Phase II Deadline") due to
technical failure pursuant to the terms of the Research Collaboration and
License Agreement between Lilly and RPI dated March 17, 1999
("Collaboration Agreement"), Holder of Series L Preferred or RPI shall have
the right, upon written notice
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("Conversion Notice"; Exhibit B) to the other party, to convert each
share of Series L Preferred into Common Stock according to one of the
following two options, valued for this purpose at the average closing
price for such stock as reported on the Nasdaq National Market (or such
other market as the Common Stock may then be trading) for the thirty
(30) consecutive trading days prior to the Conversion Date, as
determined in accordance with Section E(5)(a) or E(5)(b) as the case may
be:
(a)convert each share of Series L Preferred into US$1,500,000 of common
stock; or
(b)convert each share of Series L Preferred into US$500,000 of common
stock and obtain a US$5,000,000 credit towards a new ribozyme product as
set-forth in the Collaboration Agreement.
(2)Failure to Commence Phase II Clinical Studies for Business Failure or
RPI Breach--US$7,500,000 Conversion. If Lilly shall fail to commence Phase
II clinical studies for Heptazyme TM on or before the Phase II Deadline due
to a breach attributable to RPI or business failure pursuant to the terms
of the Collaboration Agreement, Holder of Series L Preferred or RPI shall
have the right upon delivery of a Conversion Notice to the other party to
convert each share of Series L Preferred into Common Stock according to one
of the following two options, valued for this purpose at the average
closing price for such stock as reported on the Nasdaq National Market (or
such other market as the Common Stock may then be trading) for the thirty
(30) consecutive trading days prior to the Conversion Date, as determined
in accordance with Section E(5)(a) or E(5)(b) as the case may be:
(a)convert each share of Series L Preferred into US$1,500,000 of common
stock; or
(b)convert each share of Series L Preferred into US$500,000 of common
stock and obtain a US$5,000,000 credit towards a new ribozyme product as
set-forth in the Collaboration Agreement.
(3)Failure to Commence Phase II Clinical Studies for No Cause or Lilly
Breach--US$2,500,000 Conversion. If Lilly shall fail to commence Phase II
clinical studies for Heptazyme TM on or before the Phase II Deadline due to
a breach attributable to Lilly, or termination without cause or for any
other reason other than as set forth in Sections E(1) or E(2) herein,
Holder of Series L Preferred or RPI shall have the right upon delivery of a
Conversion Notice to the other party to convert each share of Series L
Preferred into US$500,000 of Common Stock, valued for this purpose at the
average closing price for such stock as reported on the Nasdaq National
Market (or such other market as the Common Stock may then be trading) for
the thirty (30) consecutive trading days prior to the Conversion Date, as
determined in accordance with Section E(5)(a) or E(5)(b) as the case may
be.
(4) Commencement of Phase II Clinical Studies--US$2,500,000 Conversion. If
Lilly should commence Phase II clinical studies for HeptazymeTM on or
before the Phase II Deadline pursuant to the terms of the Collaboration
Agreement, Holder of Series L Preferred or RPI shall, have the right upon
delivery of a Conversion Notice to the other party to convert each share of
Series L Preferred into US$500,000 of Common Stock, valued for this purpose
at the average closing price for such stock as reported on the Nasdaq
National Market (or such other market as the Common Stock may then be
trading) for the thirty (30) consecutive trading days prior to the
Conversion Date, as determined in accordance with Section E(5)(a) or
E(5)(b) as the case may be.
(5)Mechanics of Conversion.
(a)Conversion Election by RPI. Upon receipt of a Conversion Notice by
the holders of the Series L Preferred from RPI, Holder of the Series L
Preferred shall surrender the certificate or certificates therefor at
the office of RPI or the transfer agent for the Series L Preferred
within fifteen (15) days after the date of the Conversion Notice. The
"Conversion Date" shall be: (i)
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the date of surrender of the Series L Preferred certificates; or (ii)
the date fifteen (15) days after the date of the Conversion Notice if
the certificate or certificates representing Series L Preferred are not
surrendered by Holder of the Series L Preferred thereof by such date.
(b)Conversion Election by Holder of the Series L Preferred. Holder of
the Series L Preferred shall surrender the certificate or certificates
therefor at the office of RPI or the transfer agent for the Series L
Preferred within fifteen (15) days after the date of the Conversion
Notice sent to RPI by Holder of the Series L Preferred. A "Conversion
Notice" shall be deemed given upon the the earliest to occur of the
following events: (i) termination of the Collaboration Agreement; (ii)
initiation of Phase II studies; or (iii) the Phase II Deadline. The
"Conversion Date" shall be the same date as the "Conversion Notice".
(c)Issuance of Common Stock. Upon delivery to RPI of the certificate or
certificates representing the Series L Preferred, Holder of the Series
L Preferred shall state the name or names in which Holder of the Series
L Preferred wishes the certificate or certificates for shares of Common
Stock to be registered. RPI will, as soon as practicable thereafter,
issue and deliver at said office to the person for whose account such
surrender of shares of Series L Preferred was made or to such person's
nominee or nominees certificates for the number of full shares of
Common Stock to which such person shall be entitled as aforesaid
together with the cash payment to be made in respect of any fraction of
a share as herein provided. If certificate or certificates representing
the Series L Preferred have not been surrendered within fifteen (15)
days of the date of a Conversion Notice, the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on said date.
(d)The shares of Common Stock issued by RPI from time to time upon the
conversion of any shares of Series L Preferred shall be deemed fully
paid and nonassessable and not liable to any further call or assessment
thereon.
(e)All shares of Series L Preferred so converted shall be retired and
shall not be reissued. If at any time there are no shares of Series L
Preferred outstanding, then such class of Series L Preferred shall be
canceled and shall cease to exist as a class of authorized capital
stock of RPI.
(f) RPI shall at all times reserve and keep available, out of its
authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of Series L Preferred at the
time outstanding, 1,500,000 shares of Common Stock. RPI shall not, by
amendment of the Certificate of Designation filed with respect to the
Series L Preferred under the General Corporation Law of the State of
Delaware, or amendment to its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by RPI but shall at all
times in good faith assist in the carrying out of all the provisions of
this Article and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of Holder of
the Series L Preferred against impairment.
(g)No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any shares of Series L Preferred. All
shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series L Preferred by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If any
such conversion results in a fraction, an amount equal to such fraction
multiplied by the then-applicable Series L Preferred conversion price
shall be paid to such holder in cash by RPI.
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F. Notices of Record Dates. In the event of:
(1)any taking by RPI of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property or any other right; or
(2) any capital reorganization of RPI, any reclassification or
recapitalization of the capital stock of RPI, any merger or consolidation
of RPI or any sale, conveyance, transfer or other disposition of all or
substantially all of the assets of RPI; then, and in each such event, RPI
shall send by registered or certified mail, postage prepaid, to each holder
of Series L Preferred a notice specifying (a) the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, (b) the date on which any such reorganization, reclassification,
recapitalization, merger, consolidation, sale, conveyance, transfer or
other disposition is expected to become effective and (c) the time, if any,
that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Series L
Preferred for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, merger, consolidation,
sale, conveyance, transfer or other disposition. Such notice shall be
mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of
the Company this 30th day of April, 1999.
RIBOZYME PHARMACEUTICALS INC.
By: /s/ Ralph E. Christoffersen
-----------------------------------
Name: Ralph E. Christoffersen
Title: President & CEO
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Financial
Data", "Selected Financial Data" and "Experts" and to the use of our report
dated February 16, 1999, in Amendment No. 2 to the Registration Statement on
Form S-1 and related prospectus of Ribozyme Pharmaceuticals, Inc. for the
registration of 1,800,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Denver, Colorado
May 6, 1999
