<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------------
ALEXION PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13-3648318
(State or Other Jurisdiction (I.R.S. Employer
of Identification Number)
Incorporation or Organization)
</TABLE>
----------------------------------------
25 SCIENCE PARK
NEW HAVEN, CT 06511
(203) 776-1790
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
----------------------------------------
LEONARD BELL, M.D.
ALEXION PHARMACEUTICALS, INC.
25 SCIENCE PARK
NEW HAVEN, CT 06511
(203) 776-1790
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------------------------------
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
<TABLE>
<S> <C>
MERRILL M. KRAINES, ESQ. DAVID R. KING, ESQ.
LAWRENCE A. SPECTOR, ESQ. MICHAEL J. SHIM, ESQ.
FULBRIGHT & JAWORSKI L.L.P. MORGAN, LEWIS & BOCKIUS LLP
666 FIFTH AVENUE 1701 MARKET STREET
NEW YORK, NEW YORK 10103 PHILADELPHIA, PENNSYLVANIA 19103
(212) 318-3000 (215) 963-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plan, please check the following box: / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
----------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value per share 2,875,000 $13.1875(1) $37,914,062.50 $10,541.00
</TABLE>
(1) The price is estimated in accordance with Rule 457(c) under the Securities
Act of 1933, as amended, solely for the purpose of calculating the
registration fee and is $13.1875, the average of the high and low prices of
Alexion Pharmaceuticals, Inc.'s common stock as reported on The Nasdaq
National Market on October 18, 1999.
----------------------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT 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.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 20, 1999
PRELIMINARY PROSPECTUS
2,500,000 SHARES
ALEXION PHARMACEUTICALS, INC. [ALEXION LOGO]
COMMON STOCK
$ PER SHARE
- ----------------------------------------------------------------------
- - Alexion Pharmaceuticals, Inc. is offering 2,500,000 shares.
- - Trading symbol: Nasdaq National Market--ALXN
- - Closing price on October 18, 1999:
$13.06 per share.
------------------------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Alexion......................................... $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 375,000 ADDITIONAL
SHARES OF COMMON STOCK FROM US TO COVER OVER-ALLOTMENTS, IF ANY. THE
UNDERWRITERS EXPECT TO DELIVER THE SHARES TO PURCHASERS ON OR ABOUT ,
1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
U.S. BANCORP PIPER JAFFRAY HAMBRECHT & QUIST
<PAGE>
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Use of Proceeds............................................. 17
Price Range of Common Stock................................. 17
Dividend Policy............................................. 17
Forward-Looking Statements.................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 27
Management.................................................. 48
Certain Transactions........................................ 52
Principal Stockholders...................................... 53
Description of Capital Stock................................ 56
Underwriting................................................ 61
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find More Information......................... 62
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------------
You should rely only on the information contained in this prospectus and
incorporated by reference in this prospectus. We have not, and the underwriters
have not, authorized any other person to provide you with different information.
This prospectus is not an offer to sell, nor is it seeking an offer to buy,
these securities in any state where the offer or sale is not permitted. The
information in this prospectus is complete and accurate as of the date on the
front cover, but the information may have changed since that date.
i
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS, THE FINANCIAL
STATEMENTS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS. UNLESS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
BUSINESS OF ALEXION
We are engaged in the development of products for the treatment of
cardiovascular, autoimmune and neurologic diseases caused by undesired effects
of the human immune system. Our product development programs are based on
proprietary technologies which are designed to block selected components of the
human immune system in order to reduce undesired inflammation while allowing
other beneficial aspects of the immune system to remain functional. We are
currently conducting Phase II clinical trials of our two lead product
candidates, 5G1.1-SC for the treatment of acute inflammation caused by
cardiopulmonary bypass surgery and 5G1.1 for the chronic treatment of the
autoimmune diseases rheumatoid arthritis and membranous nephritis.
5G1.1-SC and 5G1.1 are C5 Complement Inhibitors designed to selectively block
the production of inflammation-causing proteins in a process of the human immune
system known as the complement cascade. We believe that selective suppression of
this immune response will provide a significant therapeutic advantage relative
to existing therapies.
We are currently developing 5G1.1-SC in collaboration with Procter & Gamble
Pharmaceuticals Inc. for the treatment of inflammation in patients undergoing
cardiopulmonary bypass surgery and patients suffering acute myocardial
infarction, or heart attack. In the initial Phase I/II and IIa clinical trials
treating 35 cardiopulmonary bypass patients, as compared to placebo, 5G1.1-SC:
- was safe and well tolerated in the study population; and
- produced statistically significant results in the following adverse
clinical effects of cardiopulmonary bypass surgery in the study
population:
- 40% less heart tissue damage;
- 80% less new cognitive deficits; and
- 400 ml. less blood loss.
In order to augment and extend previous findings regarding the safety and
efficacy of 5G1.1-SC, together with our partner Procter & Gamble, we:
- commenced in January 1999, a multi-center, double-blinded,
randomized, placebo-controlled Phase IIb clinical trial in which we
expect to enroll 1,000 cardiopulmonary bypass patients; and
- expect to file, in 1999, an investigational new drug application
for use of 5G1.1-SC in two Phase II clinical trials with
approximately 1,000 patients each for the treatment of acute
myocardial infarction.
The American Heart Association estimates that in the United States,
approximately 500,000 cardiopulmonary bypass operations were performed in 1996
and approximately 1.0 million people will have a heart attack in 1999.
1
<PAGE>
In January 1999, we entered into a collaboration with Procter & Gamble to
develop and commercialize 5G1.1-SC. Under this collaboration, we intend to
initially pursue the development of 5G1.1-SC for the treatment of inflammation
caused by cardiopulmonary bypass surgery, myocardial infarction and angioplasty.
Procter & Gamble has agreed to fund all clinical development and manufacturing
costs relating to 5G1.1-SC for these indications. In addition, under this
agreement, Procter & Gamble has agreed to pay us up to $95 million in license,
milestone and additional research and development fees. We will also receive
royalties on worldwide sales of 5G1.1-SC for all indications. We share
co-promotion rights with Procter & Gamble to sell, market and distribute
5G1.1-SC in the United States, and have granted Procter & Gamble the exclusive
rights to sell, market and distribute 5G1.1-SC outside of the United States.
We are currently developing 5G1.1 for the chronic treatment of autoimmune
diseases such as rheumatoid arthritis, lupus, and a kidney disease known as
membranous nephritis. In the initial Phase I/II clinical trial treating
rheumatoid arthritis patients and a Phase I clinical trial in lupus patients, a
single dose of 5G1.1:
- was safe and well tolerated in each study population as compared to
placebo;
- significantly reduced C-reactive protein, an objective measurement
of disease activity, in rheumatoid arthritis patients; and
- resulted in significantly lower incidence of proteinuria, a measure
of kidney disease, in lupus patients as compared to placebo.
In order to augment and extend previous findings regarding the safety and
efficacy of 5G1.1, we:
- commenced in August 1999, a multi-center, double-blinded,
randomized, placebo-controlled Phase II clinical trial in which we
expect to enroll 200 rheumatoid arthritis patients; and
- commenced in August 1999, a multi-center, double-blinded,
randomized, placebo-controlled Phase II clinical trial in which we
expect to enroll 150 membranous nephritis patients.
It is estimated that more than 2.0 million people are currently affected by
rheumatoid arthritis in the United States. We estimate that there are
approximately 100,000 to 300,000 people afflicted with membranous nephritis in
the United States.
We are also developing a second type of anti-inflammatory drug, known as
Apogens. In contrast to our C5 Complement Inhibitors, Apogens are designed to
affect disease-causing T-cells. We are currently conducting preclinical studies
of our first Apogen, known as MP4, targeting the treatment of patients with
multiple sclerosis.
In addition, we are developing methods of blocking the immune system which are
designed to permit the transplantation of cells from other species into humans,
known as xenotransplantation, that may be useful in treating several neurologic
diseases. Through a series of preclinical models, our scientists are currently
developing two xenotransplant product candidates, UniGraft-PD and UniGraft-SCI,
which are designed to permit the replacement of damaged human brain and other
neurologic cells with potentially genetically modified and proprietary porcine,
or pig, cells. Our UniGraft program is initially targeting the treatment of
patients with Parkinson's disease and patients with spinal cord injury.
2
<PAGE>
OFFICE LOCATION
Our principal executive offices are located at 25 Science Park, New Haven,
Connecticut 06511, and our telephone number is (203) 776-1790.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 2,500,000 shares
Common stock outstanding after the 13,829,660 shares
offering...................................
Offering price............................... $ per share
Use of proceeds.............................. We intend to use the proceeds from the
offering for the clinical and manufacturing
development of 5G1.1, preclinical research,
drug discovery, clinical and manufacturing
development in our other programs, and other
general corporate purposes.
Nasdaq National Market symbol................ ALXN
</TABLE>
The number of shares of our common stock outstanding after the offering does not
take into account, as of October 1, 1999:
- 2,317,887 shares of common stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of
$8.15 per share;
- 220,000 shares of common stock issuable upon the exercise of
outstanding warrants at an exercise price of $9.90 per share;
- 375,000 shares issuable upon the exercise of the underwriters'
over-allotment option; and
- 11,875 shares of our common stock held in treasury.
CORPORATE INFORMATION
We were incorporated in Delaware in January 1992.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA: 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Contract research revenues...................... $18,754 $ 5,037 $ 3,811 $ 2,640 $ 136
------- ------- ------- ------- -------
Operating expenses:
Research and development...................... 23,710 12,323 9,079 6,629 5,637
General and administrative.................... 2,953 2,666 2,827 1,843 1,592
------- ------- ------- ------- -------
Total operating expenses.................... 26,663 14,989 11,906 8,472 7,229
------- ------- ------- ------- -------
Operating loss.................................. (7,909) (9,952) (8,095) (5,832) (7,093)
Other income (expense), net..................... 1,514 2,087 843 397 (29)
------- ------- ------- ------- -------
Net loss........................................ (6,395) (7,865) (7,252) (5,435) (7,122)
Preferred stock dividends....................... -- (900) -- -- --
------- ------- ------- ------- -------
Net loss applicable to common shareholders...... $(6,395) $(8,765) $(7,252) $(5,435) $(7,122)
======= ======= ======= ======= =======
Net loss per common share, basic and diluted.... $ (0.57) $ (0.87) $ (0.97) $ (1.02) $ (2.02)
======= ======= ======= ======= =======
Shares used in computing net loss per common
share 11,265 10,056 7,451 5,351 3,528
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
-----------------------
<S> <C> <C>
AS ADJUSTED
CONSOLIDATED BALANCE SHEET DATA: ACTUAL (1)
------- -------
Cash, cash equivalents, and marketable securities........... $28,328 $58,650
Total current assets........................................ 35,622 65,944
Total assets................................................ 44,374 74,696
Notes payable, less current portion......................... 4,383 4,383
Total stockholders' equity.................................. 33,301 63,623
</TABLE>
- ---------------------------------------------
(1) Gives effect to the sale of 2,500,000 shares of our common stock offered by
this prospectus at an assumed public offering price of $13.06 per share,
less underwriting discounts and estimated offering expenses.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN THIS
PROSPECTUS AND INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IN
ADDITION, THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING ALEXION BECAUSE WE ARE ALSO SUBJECT TO ADDITIONAL RISKS AND UNCERTAINTIES
NOT PRESENTLY KNOWN TO US. IF ANY OF THESE RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION, OPERATING RESULTS OR CASH FLOWS COULD BE HARMED. THIS COULD
CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MAY LOSE PART OR
ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
IF WE CONTINUE TO INCUR OPERATING LOSSES, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
We have incurred losses since our inception. As of July 31, 1999, we had an
accumulated deficit of approximately $47.0 million. If we continue to incur
operating losses and fail to become profitable or are unable to sustain
profitability, we may be unable to continue our operations. Since we began our
operations in January 1992, we have been engaged primarily in the research and
development of potential drug products. We currently have no products that are
available for commercial sale. We expect to continue to operate at a net loss
for at least the next several years as we increase our research and development
efforts, continue to conduct clinical trials and develop manufacturing, sales,
marketing and distribution capabilities. Our future profitability depends on our
receiving regulatory approval of our product candidates and our ability to
successfully manufacture and market approved drugs, either by ourselves or
jointly with others. The extent of our future losses and the timing of our
profitability are highly uncertain.
IF WE FAIL TO OBTAIN REGULATORY APPROVAL OF OUR PRODUCT CANDIDATES, OR IF
REGULATORY APPROVAL IS DELAYED FOR ANY REASON, WE WILL BE UNABLE TO
COMMERCIALIZE AND SELL OUR PRODUCTS AS WE EXPECT.
WE MUST OBTAIN REGULATORY APPROVAL TO MARKET OUR PRODUCTS IN THE U.S. AND
FOREIGN JURISDICTIONS.
We must obtain regulatory approval before marketing or selling our products. In
the United States, we must obtain approval from the U.S. Food and Drug
Administration, or FDA, for each product that we intend to commercialize. The
FDA approval process is typically lengthy and expensive, and approval is highly
uncertain. Products distributed outside the United States are also subject to
foreign government regulation. None of our product candidates has received
regulatory approval to be commercially marketed and sold and we do not
anticipate receiving approval of any of our product candidates for at least the
next several years. If we fail to obtain regulatory approval we will be unable
to market and sell our future products. Because of the risks and uncertainties
in biopharmaceutical development, our product candidates could take a
significantly longer time to gain regulatory approval than we expect or may
never gain approval. If regulatory approval is delayed, the value of our company
and our results of operations may be harmed.
The process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and can vary substantially based upon
the type, complexity and novelty of the products involved. Furthermore, this
approval process is extremely expensive and uncertain. We cannot guarantee that
any of our products under development will be approved for marketing by the FDA.
Even if regulatory approval of a product is granted, we cannot be certain that
we will be able to obtain the labeling claims necessary or desirable for the
promotion of that product.
5
<PAGE>
WE MAY NEED TO CONDUCT ADDITIONAL PRECLINICAL STUDIES AND WILL NEED TO CONDUCT
COSTLY AND LENGTHY CLINICAL TRIALS BEFORE ANY OF OUR PRODUCT CANDIDATES CAN BE
COMMERCIALIZED; THE RESULTS OF THESE STUDIES AND TRIALS ARE HIGHLY UNCERTAIN.
Many of our product candidates are in an early stage of development. As part of
the regulatory approval process, we may need to conduct preclinical studies on
animals and will need to conduct clinical trials in humans with each product
candidate and for each clinical indication. We may need to perform multiple
preclinical studies using various doses and formulations both before and after
we have commenced clinical trials, which could result in delays in our ability
to market any of our product candidates. Furthermore, even if we obtain
favorable results in preclinical studies on animals, the results in humans may
be different.
After we have conducted preclinical studies in animals we must, among other
requirements, demonstrate that our product candidates are safe and effective for
use in humans suffering from targeted indications in order to receive regulatory
approval for commercial sale. Currently, only two of our product candidates are
being tested in clinical trials. Adverse or inconclusive preclinical or clinical
results could cause us to abandon a product development program.
The completion of clinical trials of our potential products may be delayed or
terminated by many other factors. One factor is the rate of enrollment of
patients, which can vary greatly. Enrollment depends on many factors, including:
- patient receptivity to participate in experimental clinical trials;
- the size of the patient population and the number of clinical trial
sites;
- the proximity of patients to clinical trial sites;
- the performance of the clinical trial sites;
- the eligibility criteria for the clinical trial;
- the existence of competing clinical trials;
- the emergence of newly improved competing products; and
- the performance and reliability of contract research organizations.
We cannot control the rate of patient enrollment. For example, we are conducting
clinical trials in patients with acute cardiovascular conditions, the timing and
frequency of which cannot be predicted. The rate of patient enrollment may not
be sufficient to enable our clinical trials to be completed as expected, if at
all. Further, we cannot be certain that clinical trial research results will be
analyzed or produced in a timely manner, if at all.
Additional factors that can cause delay or termination of our clinical trials
include:
- longer treatment time required to demonstrate efficacy;
- lack of sufficient supplies of the product candidate;
- adverse medical events or side effects in treated patients;
6
<PAGE>
- lack of effectiveness of the product candidate being tested; and
- lack of sufficient funds.
Typically, if a drug product is intended to treat a chronic disease, safety and
efficacy data must be gathered over an extended period of time. In addition,
clinical trials on humans are typically conducted in three phases. In the final
phase of clinical testing, the FDA generally requires two pivotal clinical
trials that demonstrate substantial evidence of safety and efficacy and
appropriate dosing in a broad patient population at multiple sites to support an
application for regulatory approval.
Results from initial clinical trials may not reflect results that are obtained
in later stage clinical trials. Further, clinical trials of our product
candidates may demonstrate that our product candidates are not sufficiently safe
or effective to obtain the requisite regulatory approvals. Ultimately, our
product candidates may not result in marketable products.
WE WILL NOT BE ABLE TO SELL OUR PRODUCTS IF WE OR OUR THIRD-PARTY MANUFACTURERS
FAIL TO COMPLY WITH MANUFACTURING REGULATIONS.
Before we can begin commercially manufacturing our products we must either
secure manufacturing in an approved manufacturing facility or obtain regulatory
approval of our own manufacturing facility and process. In addition, manufacture
of our drug products must comply with the FDA's current Good Manufacturing
Practices requirements, commonly known as cGMP. The cGMP requirements govern,
among other things, quality control and documentation policies and procedures.
Our manufacturing facilities are continuously subject to inspection by the FDA,
before and after product approval. We cannot guarantee that we, or any
third-party manufacturer of our drug products, will be able to comply with cGMP
requirements. Material changes to the manufacturing processes of our drug
products after approvals have been granted are also subject to review and
approval by the FDA or other regulatory agencies.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT PROGRAMS.
In the future, we will need to raise substantial additional capital to fund
operations and complete our product development programs. Funding, whether from
a public or private offering of debt or equity, a bank loan or a collaborative
agreement, may not be available when needed or on favorable terms. If we raise
additional funds by selling stock, the percentage ownership of our then current
stockholders will be reduced. If we cannot raise adequate funds to satisfy our
capital requirements, we may have to limit, delay, scale-back or eliminate our
research and development activities or future operations. We might be forced to
license our technology or to commercialize our products with the help of others
when it would be more profitable or strategically important for us to not take
these actions. Any of these actions may harm our business.
We expect to continue to spend substantial amounts of capital for our operations
for the foreseeable future, including funds for:
- research and development programs;
- preclinical studies and clinical trials;
- regulatory approval processes;
7
<PAGE>
- production of product candidates for clinical trials;
- establishment of commercial scale manufacturing capabilities; and
- establishment of sales and marketing capabilities.
The amount of capital we may need depends on many factors, including:
- the progress, timing and scope of our research and development
programs;
- the progress, timing and scope of our preclinical studies and
clinical trials;
- the time and cost necessary to obtain regulatory approvals;
- the time and cost necessary to further develop manufacturing
processes, arrange for contract manufacturing or build
manufacturing facilities and obtain the necessary regulatory
approvals for those facilities;
- the time and cost necessary to respond to technological and market
developments;
- the time and cost necessary to develop sales, marketing and
distribution capabilities;
- any changes made or new developments in our existing collaborative,
licensing and other commercial relationships; and
- any new collaborative, licensing and other commercial relationships
that we may establish.
We believe that the net proceeds of the offering, together with our available
cash, cash equivalents, marketable securities and investment income, may not be
sufficient to meet our operating and capital requirements beyond the next
36 months. This estimate is based on current assumptions made by management that
may prove to be wrong. As a result, we may need additional financing prior to
that time.
IF OUR COLLABORATION WITH PROCTER & GAMBLE IS TERMINATED, WE MAY BE UNABLE TO
COMMERCIALIZE 5G1.1-SC IN THE TIME EXPECTED, IF AT ALL.
We rely exclusively on Procter & Gamble to provide funding and additional
resources for the development and commercialization of 5G1.1-SC. These include
funds and resources for:
- clinical development and manufacturing;
- obtaining regulatory approvals; and
- sales, marketing and distribution efforts worldwide.
We cannot guarantee that Procter & Gamble will devote the resources necessary to
successfully develop and commercialize 5G1.1-SC. Either party may terminate the
agreement for specified reasons, including if the other party is in material
breach of the agreement or has experienced a change of control. In addition,
pursuant to the collaboration agreement, Procter & Gamble has the right to
develop 5G1.1-SC
8
<PAGE>
for any other indication, including those that we may be pursuing independently
with other product candidates.
If our agreement with Procter & Gamble is terminated, we will need to fund the
development and commercialization of 5G1.1-SC on our own or identify a new
development partner, either of which would cause significant delays and result
in additional development costs. A termination may also require us to repeat
development stages already completed with Procter & Gamble, which could result
in significant additional delay or costs.
IF WE ARE UNABLE TO ENGAGE AND RETAIN THIRD-PARTY COLLABORATORS, OUR RESEARCH
AND DEVELOPMENT EFFORTS MAY BE DELAYED.
We depend upon third-party collaborators, including manufacturers, to assist us
in the development of our product candidates. If any of our collaborators
breaches or terminates its agreement with us or otherwise fails to conduct its
collaborative activities in a timely manner, we may experience significant
delays in the development or commercialization of the product candidate or the
research program covered by the agreement. In addition, we may be required to
devote additional funds or other resources to these activities or to terminate
them.
Our continued success will depend in large part upon the efforts of outside
parties. For the research, development, manufacture and commercialization of our
products, we will likely enter into various arrangements with other
corporations, licensors, licensees, outside researchers, consultants and others.
However, we cannot assure you that:
- we will be able to negotiate acceptable collaborative arrangements
to develop or commercialize our products;
- any arrangements with third parties will be successful; or
- current or potential collaborators will not pursue treatments for
other diseases or seek alternative means of developing treatments
for the diseases targeted by our programs.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
Our ability to secure patent protection and the extent of protection can be very
limited. Patent protection only currently lasts approximately 17 to 20 years
depending on the time of filing and, sometimes, the time required for FDA
approval. However, it can take many more years than offered by patent protection
to transform a drug discovery through testing and development into a
commercially-viable product. Moreover, once a drug has hit the marketplace, it
is often forced to compete not only with different drugs treating the same
ailments, but also with "copy-cat" drug products or even generic versions of the
same drug if the drug has lost its patent protection. Consequently, protection
of our patents and trade secrets and those of our licensors, is very important
to our ability to commercially succeed. Other pharmaceutical companies are
similarly very focused on protecting their patents and technology, so it is also
very important for us to avoid infringing the rights of others while developing
our own drug discoveries.
Patent applications filed by us or on our behalf may not result in patents being
issued to us. Even if a patent is issued, the patent may not afford protection
against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any of our technology.
It is possible that before any of our potential product candidates can be
commercialized, their related patents may expire, or remain in existence for
only a short period following commercialization, thus
9
<PAGE>
reducing any advantage of the patent. Moreover, composition of matter patent
protection, which gives patent protection for a compound or a composition per
se, may not be available for some of our product candidates.
Our processes and potential product candidates may conflict with patents that
have been or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands, more patents are issued. Thus, the risk
increases that our processes and potential product candidates may give rise to
claims that they infringe the patents of others. These other patent holders
could bring legal actions against us claiming damages and seeking to prevent
clinical testing, manufacturing and marketing of the affected product or
process. If any of these actions are successful, in addition to any potential
liability for damages, we could be required to obtain a license in order to
continue to conduct clinical tests, manufacture or market the affected product
or use the affected process. Required licenses may not be available on
acceptable terms, if at all. Moreover, if we become involved in litigation or
legal disputes, it could consume a substantial portion of our financial
resources and the efforts of our personnel for uncertain results. In addition,
we may have to expend resources to protect our interests from possible
infringement by others.
We are aware of broad patents owned by third parties relating to the
manufacture, use and sale of recombinant humanized antibodies, recombinant
humanized single chain antibodies and genetically engineered animals. We have
received notice from certain of these parties regarding the existence of certain
of these patents which the owners claim may be relevant to the development and
commercialization of certain of our proposed product candidates. We have
acquired licenses with respect to certain of these patents, which we believe are
relevant for the timely development and commercialization of certain of our
product candidates. With regard to certain other patents, we have either
determined in our judgment that:
- our products do not infringe the patents;
- we do not believe the patents are valid; and/or
- we have identified and are testing various modifications which we
believe should not infringe the patents and which should permit
commercialization of our product candidates.
However, owners of these patents might still seek to enforce their patents
against our so-modified commercial products or against the development
activities related to the non-modified products. If we are unable to obtain
necessary licenses on commercially reasonable terms, we could encounter delays
in product market introductions while we attempt to design around such patent or
could find that the development, manufacture or sale of products requiring such
a license could be nearly impossible. Further, owners of patents that we do not
believe are relevant to our product development and commercialization might seek
to enforce their patents against us. Such action could result in litigation
which would be costly and time consuming.
In addition, our business requires using sensitive technology, techniques,
proprietary compounds, as well as cultivating relationships with outside
parties, including suppliers, outside scientists and potential customers and
sources of funding. Moreover, since we are a small pharmaceutical company with
no commercial products and limited resources, we rely heavily on collaboration
with other companies and other scientists in our research and development
efforts and expect to continue to do so since collaboration is important for
scientific research. Unfortunately, such arrangements and relationships carry
with them a strong risk of exposing our trade secrets often to the scrutiny of
others. As a result, we are susceptible to the loss of our trade secrets.
10
<PAGE>
We cannot assure you that:
- others will not independently develop substantially equivalent
proprietary information and techniques;
- others will not gain access to our trade secrets;
- our trade secrets will not be disclosed; or
- we can effectively protect our rights to unpatented trade secrets.
IF THE TESTING OR USE OF OUR PRODUCTS HARMS PEOPLE, WE MAY BE SUBJECT TO COSTLY
AND DAMAGING PRODUCT LIABILITY CLAIMS.
Our business exposes us to product liability risks that are inherent in the
testing, manufacturing, marketing and sale of drugs for use in humans, including
but not limited to, unacceptable side effects. Such side effects and other risks
could give rise to product liability claims against us or force us to recall our
products, if any, from the marketplace. Some of these risks are unknown at this
time. For example, little is known about the potential long-term health risks of
transplanting non-human tissue into humans, a goal of our UniGraft program.
In addition to product liability risks associated with sales of products, we may
be liable to the claims of individuals who participate in clinical trials of our
products. A number of patients who participate in such trials are already
critically ill when they enter a study. We cannot assure you that any waivers we
may obtain will protect us from liability or the costs of product liability
litigation. Our product liability insurance may not provide adequate protection
against potential liabilities. Moreover, we may not be able to maintain our
insurance on acceptable terms. As a result of these factors, a product liability
claim, even if successfully defended, could have a material adverse effect on
our business, financial condition and results of operations.
IF WE ARE UNABLE TO MANUFACTURE OUR DRUG PRODUCTS IN SUFFICIENT QUANTITIES AND
AT ACCEPTABLE COST, WE MAY BE UNABLE TO MEET DEMAND FOR OUR PRODUCTS WHICH WOULD
RESULT IN A LOSS OF POTENTIAL REVENUES.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. Our unproven manufacturing process may
not meet initial expectations as to schedule, reproducibility, yields, purity,
costs, quality, and other measurements of performance. Improvements in
manufacturing processes typically are very difficult to achieve and are often
very expensive. We cannot know with any certainty how long it might take to make
improvements if it became necessary to do so. If we contract for manufacturing
services with an unproven process, our, contractor is subject to the same
uncertainties, high standards and regulatory controls. If we are unable to
establish and maintain commercial scale manufacturing within our planned time
and cost parameters, sales of our products and our financial performance will be
adversely affected.
We may encounter problems with any of the following if we attempt to increase
the scale, process or size of manufacturing:
- design, construction and qualification of manufacturing facilities
that meet regulatory requirements;
- production yields from the manufacturing process;
11
<PAGE>
- purity of our drug products;
- quality control and assurance;
- shortages of qualified personnel; and
- compliance with FDA regulations.
IF WE ARE UNABLE TO ESTABLISH SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
TO ENTER INTO AGREEMENTS WITH THIRD PARTIES TO DO SO, WE MAY BE UNABLE TO
SUCCESSFULLY MARKET AND SELL ANY FUTURE DRUG PRODUCTS.
We currently have no sales, marketing or distribution capabilities. If we are
unable to establish sales, marketing or distribution capabilities either by
developing our own sales, marketing and distribution organization or by entering
into agreements with others, we may be unable to successfully sell our products.
If we are unable to effectively sell our drug products, our ability to generate
revenues will be harmed. We cannot guarantee that we will be able to hire in a
timely manner, the qualified sales and marketing personnel we need, if at all.
In addition, we cannot guarantee that we will be able to enter into any
marketing or distribution agreements on acceptable terms, if at all. If we
cannot establish sales, marketing and distribution capabilities as we intend,
either by developing our own capabilities or entering into agreements with third
parties, sales of our future drug products may be harmed.
We have recently entered into a collaboration with Procter & Gamble relating to
5G1.1-SC. Under the agreement, Procter & Gamble will be responsible for selling,
marketing and distributing 5G1.1-SC. We cannot guarantee Procter & Gamble or any
future collaborators will successfully sell any of our future drug products.
EVEN IF OUR PRODUCT CANDIDATES RECEIVE REGULATORY APPROVAL, WE MAY STILL FACE
DEVELOPMENT AND REGULATORY DIFFICULTIES RELATING TO THE DRUG PRODUCTS IN THE
FUTURE.
If we receive regulatory approval of any of our product candidates, the FDA or a
comparable foreign regulatory agency may, nevertheless, limit the indicated uses
of the product candidate. In addition, a marketed product, its manufacturer and
the manufacturer's facilities are subject to continual review and periodic
inspections by regulatory agencies. The discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
The failure to comply with applicable regulatory requirements can, among other
things, result in:
- warning letters;
- fines and other civil penalties;
- suspended regulatory approvals;
- refusal to approve pending applications or supplements to approved
applications;
- refusal to permit exports from the United States;
- product recalls;
- seizure of products;
12
<PAGE>
- injunctions;
- operating restrictions;
- total or partial suspension of production; and/or
- criminal prosecutions.
Even if we obtain regulatory approval, we may be required to undertake
post-marketing trials. In addition, identification of side effects after a drug
is on the market or the occurrence of manufacturing problems could result in
withdrawal of approval, or require reformulation of the drug, additional
preclinical testing or clinical trials, changes in labeling of the product,
and/or additional marketing applications.
If we receive regulatory approval, we will also be subject to ongoing FDA
obligations and continued regulatory review. In particular, we or our
third-party manufacturers will be required to adhere to requirements pertaining
to cGMP. Under cGMP, we are required to manufacture our products and maintain
our records in a prescribed manner with respect to manufacturing, testing and
quality control activities. Furthermore, we or our third-party manufacturers
must pass a preapproval inspection of manufacturing facilities by the FDA before
the product can obtain marketing approval. We will also be subject to ongoing
FDA requirements for submission of safety and other post-market information.
We have not made significant investments in the development of commercial
manufacturing, marketing, distribution or sales capabilities. Moreover, we have
insufficient capacity to manufacture more than one product candidate at a time
or to manufacture our product candidates for later stage clinical development or
commercialization. If we are unable to find an acceptable outside manufacturer
on reasonable terms, we will have to divert resources. As a result, our ability
to conduct human clinical testing would be materially adversely affected,
resulting in delays in the submission of products for regulatory approval and in
the initiation of new development programs. Our competitive position and our
prospects for achieving profitability could be materially and adversely
affected.
In addition, as our product development efforts progress, we may need to hire
additional personnel skilled in, or enter into collaborations with corporate
partners for, clinical testing, regulatory compliance and, if we develop
products with commercial potential, manufacturing, marketing and sales. We
cannot assure you that we will be able to acquire, or establish third-party
relationships to provide, any or all of these resources on a timely or
economically feasible basis, if at all.
IF WE ARE UNABLE TO OBTAIN ADEQUATE REIMBURSEMENT FROM GOVERNMENT HEALTH
ADMINISTRATION AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER ORGANIZATIONS, OUR
FUTURE BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE HARMED.
Our ability to commercialize our products successfully may depend in part on the
extent to which reimbursement for the cost of such products and related
treatments will be available from government authorities, private health
insurers and other organizations. Third-party payors are attempting to control
costs by limiting coverage of products and treatments and the level of
reimbursement for medical products and services. Significant uncertainty exists
as to the reimbursement status of newly approved healthcare products. If we
succeed in bringing any products to market, these products may not be considered
cost-effective and reimbursement may not be available. If reimbursement becomes
available, the payor's reimbursement policies may affect the market for our
product, thus materially adversely affecting the profitability of our products.
13
<PAGE>
XENOTRANSPLANTATION IS AN UNPROVEN TECHNOLOGY AND MAY ACHIEVE LIMITED MARKET
ACCEPTANCE DUE TO ETHICAL CONCERNS.
Our UniGraft Program may never result in the development of any therapeutic
products. Xenotransplantation technology is subject to extensive clinical
testing. We are not aware of any xenotransplantation technology that has been
approved for sale by the FDA or comparable foreign regulatory authorities. In
addition, there is currently very little regulatory guidance for how to conduct
research or use products developed in this area since the FDA has only issued
interim guidelines.
Xenotransplantation also poses a risk that viruses, prions or other animal
pathogens may be unintentionally transmitted not only to a human patient
recipient, but other human beings. While these viruses have not been shown to
cause any disease in pigs or humans, it is not known what effect, if any, such
viruses might have on humans. Recent scientific publications by others
demonstrate, under laboratory conditions, that porcine retroviruses have the
potential to infect human cells. The introduction of previously
non-transmittable viruses to the human species poses ethical concerns. Further
detection of infection of porcine virus in our preclinical and clinical testing
or the testing by our competitors in this field could adversely affect the
commercial acceptability of this research and our future ability to secure
research dollars.
Consequently, even if we succeed in developing xenotransplantation products, our
products may not be widely accepted by the medical community or third-party
payors until more facts are established and ethical consensus is reached. In
addition, such concerns may also create additional regulatory hurdles for FDA
approval or for consideration in use of our products by hospital ethics
committees. If accepted, the degree of acceptance may limit the size of the
market for our products. Moreover, due to the controversial nature of
xenotransplantation, our stock price may be subject to increased volatility.
IF WE FAIL TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS, OUR REVENUES AND
OPERATING RESULTS WILL BE HARMED.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours, or simply market their products more
successfully to patients or doctors. They may also obtain regulatory approvals
faster than we can obtain them or commercialize products before we do. These
companies also compete with us to attract qualified personnel and parties for
acquisitions, joint ventures or other collaborations. They also compete with us
to attract academic research institutions as partners and to license these
institutions' proprietary technology. If our competitors successfully enter into
such arrangements with academic institutions, we will then be precluded from
pursuing those specific unique opportunities and may not be able to find
equivalent opportunities elsewhere. In addition, products or treatments
developed in the future by third parties may adversely affect the marketability
of our products by rendering them less competitive or obsolete. For example, the
recent development of tumor necrosis factor inhibitors for rheumatoid arthritis
may render obsolete a number of current drugs used for treating such ailment
from the marketplace.
IF WE FAIL TO RECRUIT AND RETAIN PERSONNEL, OUR RESEARCH AND PRODUCT DEVELOPMENT
PROGRAMS MAY BE DELAYED.
We are highly dependent upon the efforts of our senior management and scientific
personnel. There is intense competition for qualified scientific and technical
personnel. Since our business is very science-oriented and specialized, we need
to continue to attract and retain such people. We may not be able to continue to
attract and retain the qualified personnel necessary for developing our
business. If we lose the services of, or fail to recruit, key scientific and
technical personnel, our research and product development programs would be
significantly and detrimentally affected.
14
<PAGE>
In particular, we highly value the services of Dr. Leonard Bell, our President
and Chief Executive Officer. The loss of his services could materially and
adversely affect our ability to achieve our development objectives.
IF WE EXPERIENCE ANY PROBLEMS WITH YEAR 2000 COMPLIANCE, OUR OPERATIONS MAY BE
DISRUPTED.
Beginning in the year 2000, the date fields coded in certain software products
and computer systems will need to accept four-digit entries in order to
distinguish 21(st) century dates from 20(th) century dates, commonly known as
the year 2000 problem. It is not clear what potential problems may arise as the
biotechnology industry, and other industries, try to resolve this year 2000
problem.
It is possible that our currently installed computer systems, software
applications or other business systems, or those of our suppliers or service
providers, working either alone or in conjunction with other software or
systems, will not accept input of, store, manipulate and output dates for the
years 1999, 2000 or subsequent years without error or interruption. We have
formed a team to review and resolve those aspects of the year 2000 problem that
are within our direct control and adjust to or influence those aspects that are
not within our direct control. The team has reviewed our software applications,
including those under development, and determined that most of our software
applications do not use date data and are year 2000 compliant or will be by
December 31, 1999. Our product candidates do not have any year 2000 exposure.
Based on representations from our vendors, the team has reviewed the year 2000
compliance status of our major internal information technology programs and
systems used for administrative requirements and determined that they are or are
expected to be year 2000 compliant by December 31, 1999. However, a number of
our vendors have not been able to guarantee such timely compliance.
Some risks associated with the year 2000 problem are beyond our ability to
control, including the extent to which our suppliers and service providers can
address the year 2000 problem. The failure by a third party to adequately
address the year 2000 issue could have an adverse effect on their operations,
which could have an adverse effect on us. We are assessing the possible effects
on our operations of the possible failure of our key suppliers and providers,
contractors and collaborators to identify and remedy potential year 2000
problems.
RISKS RELATED TO THE OFFERING
OUR COMMON STOCK PRICE MAY CONTINUE TO BE HIGHLY VOLATILE.
The market prices for our common stock and for securities of many biotechnology
companies have been volatile. The following factors may have a significant
impact on the market price of our common stock:
- announcements of technical innovations or new commercial products
by us or our competitors;
- government regulation;
- public concern as to the safety or other implications of
biotechnology products;
- patent or proprietary rights development;
- results of preclinical studies or clinical trials;
- positive or negative developments related to our collaborators;
15
<PAGE>
- conditions affecting the biotechnology industry; and/or
- stock market conditions.
FUTURE ACQUISITIONS OF OUR COMPANY MAY BE DISCOURAGED DUE TO ANTI-TAKEOVER
MEASURES ADOPTED BY OUR BOARD OF DIRECTORS, PROVISIONS OF DELAWARE LAW AND
FUTURE ISSUANCES OF PREFERRED STOCK.
Anyone seeking to acquire control of our company may encounter difficulties as a
result of our anti-takeover measures. Our board of directors has adopted a
shareholder rights plan, or "poison pill," which enables our board of directors
to issue preferred stock purchase rights triggered by an acquisition of 20% or
more of the outstanding shares of our common stock. In addition, our board of
directors is authorized to issue one or more series of preferred stock with
those preferences and rights that it may designate. These provisions and
specific provisions of Delaware Law relating to business combinations with
interested stockholders are intended to encourage any person interested in
acquiring us to negotiate with and obtain the approval of our board of directors
in connection with an acquisition or merger. However, these provisions could
have an opposite effect of delaying, deterring or preventing a merger or change
in control. Some of these provisions may discourage a future acquisition of our
company even if stockholders would receive an attractive value for their shares
or if a significant number of our stockholders believed such a proposed
transaction to be in their best interest. As a result, stockholders who desire
to participate in such a transaction may not have the opportunity to do so.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our existing shareholders or holders of securities exercisable for our common
stock sell a substantial number of these shares in the public market during a
relatively short period, our stock price may be depressed. Following the
offering, 13,829,660 shares of our common stock will be outstanding. If the
underwriters exercise their entire over-allotment option, we will have
14,204,660 shares of our common stock outstanding. All the shares sold in the
offering will be freely tradable, except for any shares purchased by an
affiliate of ours, which would be subject to the limitations of Rule 144 under
the Securities Act of 1933. In addition, our directors and officers have agreed
not to sell their shares for 90 days following the offering.
As of October 1, 1999, we have granted options to purchase an aggregate of
approximately 2,317,887 shares of our common stock under our stock option plans.
Warrants to purchase an aggregate of 220,000 shares of our common stock are also
outstanding under previous financing arrangements and other transactions. Many
of these options have exercise prices below the current market price of our
common stock. If the exercise prices of these options and warrants are less than
the net tangible book value of our common stock at the time these options and
warrants are exercised, our stockholders will experience an immediate dilution
in the net tangible book value of their investment. Many of the shares not
currently available for sale are subject to vesting restrictions and the holding
period, volume and other restrictions of Rule 144 under the Securities Act.
These restrictions have the effect of staggering the dates on which the shares
become available for sale and the number of shares that become available for
sale.
In addition, we may issue additional stock, warrants and/or options to raise
capital in the future or compensate employees or third parties. We regularly
examine opportunities to expand our technology base through means such as
licenses, joint ventures and acquisition of assets or ongoing businesses and may
issue securities in connection with these transactions. We may also issue
additional securities in connection with our stock option plans.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,500,000 shares of
common stock offered by us, at an assumed offering price of $13.06 per share,
and after deducting underwriting discounts and commissions and other estimated
offering expenses, will be approximately $30.3 million ($34.9 million if the
underwriters' over-allotment option is exercised in full).
We intend to use the proceeds from the offering for the clinical and
manufacturing development of 5G1.1, preclinical research, drug discovery,
clinical and manufacturing development in our other programs, and other general
corporate purposes. Our management will retain broad discretion in the
allocation of the net proceeds of the offering. Pending such uses, we intend to
invest the net proceeds in short-term, investment grade, interest-bearing
securities.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on The Nasdaq National Market under the symbol
"ALXN." The following table sets forth the range of high and low sales prices
for our common stock on The Nasdaq National Market for the periods indicated
since August 1, 1997.
<TABLE>
<CAPTION>
COMMON
STOCK PRICE
-------------------
FISCAL YEAR ENDED JULY 31, 1998 HIGH LOW
- ------------------------------- -------- --------
<S> <C> <C>
First Quarter (August 1, 1997 to October 31, 1997).......... $16.00 $ 9.25
Second Quarter (November 1, 1997 to January 31, 1998)....... $14.88 $ 9.88
Third Quarter (February 1, 1998 to April 30, 1998).......... $15.00 $12.13
Fourth Quarter (May 1, 1998 to July 31, 1998)............... $13.75 $ 8.00
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1999
- -------------------------------
<S> <C> <C>
First Quarter (August 1, 1998 to October 31, 1998).......... $10.25 $ 5.50
Second Quarter (November 1, 1998 to January 31, 1999)....... $17.75 $ 8.38
Third Quarter (February 1, 1999 to April 30, 1999).......... $14.25 $ 8.38
Fourth Quarter (May 1, 1999 to July 31, 1999)............... $12.75 $ 8.75
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 2000
- -------------------------------
<S> <C> <C>
First Quarter (August 1, 1999 to October 18, 1999).......... $16.25 $10.00
</TABLE>
As of October 1, 1999, we had 158 stockholders of record of our common stock and
an estimated 2,500 beneficial owners. The closing sale price of our common stock
on October 18, 1999 was $13.06 per share.
DIVIDEND POLICY
We have never paid cash dividends. We do not expect to declare or pay any
dividends on our common stock in the foreseeable future. We intend to retain all
earnings, if any, to invest in our operations. The payment of future dividends
is within the discretion of our board of directors and will depend upon our
future earnings, if any, our capital requirements, financial condition and other
relevant factors.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 and information relating to us
that are based on the beliefs of our management, as well as assumptions made by
and information currently available to our management. When used in this
prospectus, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect our current views with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in these
forward-looking statements, including those risks discussed in this prospectus.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on this prospectus. We have no
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date of this prospectus or to
reflect the occurrence of unanticipated events.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of July 31, 1999 (1) on an
actual basis and (2) on an as adjusted basis to reflect the sale of 2,500,000
shares of our common stock in the offering at an assumed offering price of
$13.06 per share and the receipt of the estimated net proceeds of $30.3 million
from the sale, after deducting the underwriting discount and estimated offering
expenses payable by us. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Notes payable, less current portion......................... $ 4,383 $ 4,383
Stockholders' equity:
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding, actual and
as adjusted; 120,000 shares preferred stock designated
as junior participating cumulative preferred stock,
$1.00 par value; no shares issued and outstanding,
actual and as adjusted.................................. -- --
Common stock, $.0001 par value; 25,000,000 shares
authorized; 11,303,574 shares issued and 11,291,699
shares outstanding, actual; 13,803,574 shares issued, as
adjusted; 13,791,699 shares outstanding, as adjusted.... 1 1
Additional paid in capital.................................. 80,287 110,609
Accumulated deficit......................................... (46,987) (46,987)
Treasury stock, at cost, 11,875 shares...................... -- --
-------- --------
Total stockholders' equity................................ $ 33,301 $ 63,623
-------- --------
Total capitalization.................................... $ 37,684 $ 68,006
======== ========
</TABLE>
This table is based on the number of outstanding shares as of July 31, 1999 and
does not include the following:
- 2,348,587 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of
$8.10 per share; and
- 220,000 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $9.90.
As of October 1, 1999, there were 2,317,887 shares of common stock issuable upon
the exercise of outstanding stock options at a weighted average exercise price
of $8.15 per share.
19
<PAGE>
DILUTION
Our net tangible book value as of July 31, 1999 was approximately $33,035,000 or
$2.93 per share of common stock. Net tangible book value per share is determined
by dividing our net tangible book value, which consists of tangible assets less
total liabilities, by the number of shares of common stock outstanding at that
date. Without taking into account any other changes in the net tangible book
value after July 31, 1999, other than to give effect to our receipt of the
estimated net proceeds from the sale of the 2,500,000 shares of common stock
from the offering at an assumed public offering price of $13.06 per share, less
underwriting discounts and estimated offering expenses, our net tangible book
value as of July 31, 1999 after giving effect to the items above would have been
$63,357,000 or $4.59 per share. This represents an immediate increase in the net
tangible book value per share of $1.66 per share to existing stockholders and an
immediate dilution of $8.47 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $13.06
Net tangible book value per share......................... 2.93
Increase in net tangible book value per share after the
offering................................................ 1.66
----
Net tangible book value per share after the offering........ 4.59
------
Dilution per share to new investors......................... $ 8.47
======
</TABLE>
This table is based on the number of outstanding shares as of July 31, 1999 and
does not include the following:
- 2,348,587 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of
$8.10 per share; and
- 220,000 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $9.90.
As of October 1, 1999, there were 2,317,887 shares of common stock issuable upon
the exercise of outstanding stock options at a weighted average exercise price
of $8.15 per share.
If the underwriters' over-allotment option is exercised in full, the net
tangible book value per share of our common stock as of July 31, 1999 after
giving effect to the assumed sale of 2,875,000 shares of common stock in the
offering price of $13.06 per share, less underwriting discounts and estimated
offering expenses, would have been $67,961,000 or $4.80 per share, representing
an immediate dilution of $8.26 per share to new investors purchasing the shares
of common stock in the offering and an immediate increase in net tangible book
value per share of our common stock of $1.87 per share to existing stockholders.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for the periods ended
July 31, 1995 through July 31, 1999 are derived from our consolidated financial
statements, which statements have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
or incorporated by reference in this prospectus. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere or
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Contract research revenues...................... $18,754 $ 5,037 $ 3,811 $ 2,640 $ 136
------- ------- ------- ------- -------
Operating expenses:
Research and development...................... 23,710 12,323 9,079 6,629 5,637
General and administrative.................... 2,953 2,666 2,827 1,843 1,592
------- ------- ------- ------- -------
Total operating expenses........................ 26,663 14,989 11,906 8,472 7,229
------- ------- ------- ------- -------
Operating loss.................................. (7,909) (9,952) (8,095) (5,832) (7,093)
Other income (expense), net..................... 1,514 2,087 843 397 (29)
------- ------- ------- ------- -------
Net loss........................................ (6,395) (7,865) (7,252) (5,435) (7,122)
Preferred stock dividends....................... -- (900) -- -- --
------- ------- ------- ------- -------
Net loss applicable to common shareholders...... $(6,395) $(8,765) $(7,252) $(5,435) $(7,122)
======= ======= ======= ======= =======
Net loss per common share, basic and diluted.... $ (0.57) $ (0.87) $ (0.97) $ (1.02) $ (2.02)
======= ======= ======= ======= =======
Shares used in computing net loss per common
share......................................... 11,265 10,056 7,451 5,351 3,528
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995
------- ------- ------- ------- ------
Cash, cash equivalents, and marketable
securities.................................... $28,328 $37,494 $22,749 $18,598 $5,701
Total current assets............................ 35,662 37,840 22,981 19,064 5,874
Total assets.................................... 44,374 42,085 24,260 20,454 7,927
Notes payable, less current portion............. 4,383 832 -- 128 456
Total stockholders' equity...................... 33,301 39,190 21,846 18,285 5,119
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since our inception in January 1992, we have devoted substantially all of our
resources to drug discovery, research and product development. In 1998, we began
to focus more of our resources to clinical testing and trials. We are conducting
clinical trials of our two lead product candidates, 5G1.1-SC for the treatment
of inflammation caused by cardiopulmonary bypass surgery and 5G1.1 for the
chronic treatment of rheumatoid arthritis and membranous nephritis. To date, we
have not received any revenues from the sale of products. We have incurred
operating losses since our inception. As of July 31, 1999, we had an accumulated
deficit of $47.0 million. We expect to incur substantial and increasing
operating losses for the next several years due to expenses associated with:
- product research and development;
- preclinical studies and clinical testing;
- regulatory activities;
- manufacturing development and scale-up; and
- developing a sales and marketing force.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JULY 31, 1999, 1998 AND 1997
We earned contract research revenues of $18.8 million for the fiscal year ended
July 31, 1999, $5.0 million for the fiscal year ended July 31, 1998, and
$3.8 million for the fiscal year ended July 31, 1997. The increase in the fiscal
year ended July 31, 1999 as compared to the fiscal year ended July 31, 1998 was
primarily due to a non-refundable license fee of $10.0 million which we received
from Procter & Gamble in February 1999 in exchange for rights to sell, market
and distribute 5G1.1-SC. Additionally, during fiscal year ended July 31, 1999,
we received $7.8 million in contract revenues from Procter & Gamble under our
collaborative research and development agreement. The increase in the fiscal
year ended July 31, 1998 as compared to the fiscal year ended July 31, 1997 was
primarily due to revenues of $3.5 million which we received from United States
Surgical Corporation in exchange for licensing rights and other
xenotransplantation manufacturing assets. The revenues in the fiscal year ended
July 31, 1997 consisted principally of contract revenues of $1.8 million from
US Surgical and $1.1 million from Genetic Therapy, Inc., a subsidiary of
Novartis.
During the fiscal year ended July 31, 1999, we incurred expenses of
$23.7 million, on research and development activities. In the fiscal year ended
July 31, 1998, we incurred expenses of $12.3 million, and in the fiscal year
ended July 31, 1997 we incurred expenses of $9.1 million in research and
development activities.
Our increase in research and development expenses in the fiscal year ended
July 31, 1999 as compared to the fiscal year ended July 31, 1998 was primarily
attributable to an expansion of the clinical trials of our lead C5 Inhibitor
product candidates and process manufacturing development for our C5 Inhibitor
product candidates. In the fiscal year ended July 31, 1998, research and
development expenses increased $3.2 million as compared to the fiscal year ended
July 31, 1997 due principally to expanded preclinical
22
<PAGE>
development of our research programs and process development for our C5
Inhibitor and Apogen product candidates.
Our general and administrative expenses were $3.0 million for the fiscal year
ended July 31, 1999, $2.7 million for the fiscal year ended July 31, 1998, and
$2.8 million for the fiscal year ended July 31, 1997. The increase in general
and administrative expenses in the fiscal year ended July 31, 1999 was primarily
related to higher recruiting expenses, legal expenses related to business
development and patent costs in the fiscal year ended July 31, 1999 as compared
to the fiscal year ended July 31, 1998. The decrease in general and
administrative expenses in the fiscal year ended July 31, 1998 was primarily
related to lower legal and patent costs in the fiscal year ended July 31, 1998
as compared to the fiscal year ended July 31, 1997.
Other income (expense), net, representing primarily net investment income, was
$1.5 million for the fiscal year ended July 31, 1999, $2.1 million for the
fiscal year ended July 31, 1998, and $843,000 for the fiscal year ended
July 31, 1997. The decrease in the fiscal year ended July 31, 1999 was due to
lower cash balances available for investment as compared to the fiscal year
ended July 31, 1998. The increase in the fiscal year ended July 31, 1998 was due
to higher cash balances available for investment as compared to the fiscal year
ended July 31, 1997.
As a result of the above factors, we had incurred net losses of $6.4 million for
the fiscal year ended July 31, 1999, $7.9 million for the fiscal year ended
July 31, 1998, and $7.3 million for the fiscal year ended July 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in January 1992, we have financed our operations and capital
expenditures principally through private placements of our common and preferred
stock, an initial public offering of our common stock, equipment and leasehold
improvements financing, other debt financing and payments under corporate
collaborations.
In the fiscal year ended July 31, 1998, we financed the purchase of laboratory
and process development equipment and leasehold improvements through a
$1.2 million secured term loan from a commercial bank. Principal payments of
$92,000 are payable quarterly through August 2001. As of July 31, 1999, the
outstanding balance on this term loan was $831,000. Principal is due with
interest at a variable rate which is reset quarterly. As of July 31, 1999, the
annualized interest rate was 7.1%. The term loan agreement requires us to
maintain a restricted cash balance equal to 115.0% of the outstanding loan
balance plus accrued interest in an interest earning money market account as
security for the note.
In February 1999, we acquired the manufacturing assets, principally land,
buildings and laboratory equipment, for the xenotransplantation program
developed by US Surgical. We financed the purchase of the manufacturing assets
through a $3.9 million term note payable to US Surgical. Interest is 6.0% per
annum and is payable quarterly. The principal balance under the note is due in
May 2005. Security for this term note is the manufacturing assets that we
purchased.
As of July 31, 1999, our cash, cash equivalents, and marketable securities
totaled $28.3 million. At July 31, 1999, our cash and cash equivalents consisted
of $24.2 million of cash we hold in short-term highly liquid investments with
original maturities of less than three months. As of July 31, 1999, we have
invested $10.8 million in property and equipment to support our research and
development efforts. We anticipate our research and development expense will
increase significantly for the foreseeable future to support our clinical and
manufacturing development of our product candidates.
23
<PAGE>
We lease our administrative office and research and development facilities under
three operating leases which expired in December 1997, June 1998 and
March 1999. We are currently continuing the leases on a month-to-month basis
while participating in ongoing discussions for new leases of our current
facilities.
Procter & Gamble has agreed to fund all clinical testing of our C5 Inhibitor,
5G1.1-SC, initially for use in cardiopulmonary bypass surgery, myocardial
infarction and angioplasty. The Procter & Gamble collaboration does not involve
any of our other product candidates.
We anticipate that our existing available capital resources and interest earned
on available cash and marketable securities should be sufficient to fund our
operating expenses and capital requirements as currently planned for at least
the next 18 months and, with the net proceeds from the offering, for at least
the next 36 months. While we currently have no material commitments for capital
expenditures, our future capital requirements will depend on many factors,
including:
- progress of our research and development programs;
- progress and results of clinical trials;
- time and costs involved in obtaining regulatory approvals;
- costs involved in obtaining and enforcing patents and any necessary
licenses;
- our ability to establish development and commercialization
relationships; and
- costs of manufacturing scale-up.
We expect to incur substantial additional costs, for:
- research;
- preclinical studies and clinical testing;
- manufacturing process development;
- additional capital expenditures related to personnel, and
facilities expansion; and
- manufacturing requirements.
In addition to funds we may receive from our collaboration with Procter &
Gamble, we will need to raise or generate substantial additional funding in
order to complete the development and commercialization of our product
candidates. In addition, if and when we achieve contractual milestones related
to product development and product license applications and approvals,
additional payments would be required if we elect to continue and maintain our
licenses with our licensors, aggregating up to a maximum of $2.0 million. Our
additional financing may include public or private debt or equity offerings,
bank loans and/or collaborative research and development arrangements with
corporate partners.
For tax reporting purposes, as of July 31, 1999, we had approximately
$44.1 million of federal net operating loss carryforwards which expire through
2019 and $2.2 million of tax credit carryforwards which expire commencing in
fiscal 2008. Provisions of the Tax Reform Act of 1986 may limit our ability
24
<PAGE>
to utilize net operating loss and tax credit carry forwards in any given year if
certain events occur, including a provision relating to cumulative changes in
ownership interests in excess of 50% over a three-year period. We cannot assure
you that our ability to utilize the net operating loss and tax credit carry
forwards in future years will not be limited as a result of a change in
ownership.
YEAR 2000
The Year 2000 issue, or Y2K, refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits. On January 1, 2000, any clock or date
recording mechanism incorporating date sensitive software which uses only two
digits to represent the year may recognize a date using "00" as the Year 1900
rather than the Year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, perform laboratory analyses, or
engage in similar business activities.
We are a biotechnology company and our proposed product candidates are not
software or computer based. Therefore, our proposed products are not directly
impacted by the Y2K problem. Our exposure to potential risks from this problem
involves computer and information technology systems, and other systems which
include embedded technology using date sensitive programs such as for:
- heating, ventilation, air conditioning, or HVAC;
- scientific instrumentation; and
- laboratory facilities.
Our internal information systems consist of off-the-shelf accounting and e-mail
systems, off-the-shelf application programs such as spreadsheet, word
processing, graphics, database management, and presentation software, and
certain instrumentation/data acquisition software. Non-informational technology
systems consist of HVAC and telecommunications.
We have taken actions to minimize the impact of the Y2K problem on our systems
and operations, excluding a systemic failure outside our control, such as a
prolonged loss of electrical or telephone service. We have inventoried and
reviewed our systems, scientific instrumentation, and laboratory facilities,
including querying third parties that have a material relationship with us, to
ascertain Y2K compliance. Our review included examining information from our
equipment and software vendors, literature supplied with software, and test
evaluations of our systems. Based upon our work and knowledge to date, which
included updating various software programs, we believe that the risk is minimal
that our internal systems, scientific instrumentation, and laboratory facilities
will be materially impacted by Y2K non-compliance disruptions. Most of our
existing systems, scientific instrumentation, and laboratory facilities are Y2K
compliant or are expected to be Y2K compliant by December 31, 1999.
Vendors for our off-the-shelf applications, including our accounting and e-mail
systems, have informed us that their products are Y2K compliant. To date, our
review has not disclosed otherwise. We have no reason to believe that these
applications are not Y2K compliant. If these applications are not Y2K compliant,
we expect, but cannot be certain, that the vendors will make appropriate
upgrades available to all of their customers at no cost or at minimal cost. We
believe that if it were necessary to replace our off-the-shelf software
applications, such software could be replaced at reasonable costs. For example,
the approximate replacement cost of our e-mail system would be $10,000.
25
<PAGE>
We have identified a Y2K problem in our HVAC system. We have engaged an outside
contractor to correct the Y2K problem. We believe that the cost of correcting
this problem will be approximately $20,000 and expect the problem to be
corrected in December 1999 during a regularly scheduled maintenance cycle. As a
result of our personnel expansion, we upgraded our telecommunication system,
whether or not it had a Y2K problem. The cost of this upgrade, which is Y2K
compliant, was approximately $35,000 and also provided for future enhancements.
With regard to third-party risks, we continue to assess Y2K risks. Third parties
include research suppliers and partners, manufacturers, research organizations
and clinical study administrators. Our vendors and suppliers have indicated that
they will make every effort to be Y2K compliant before December 31, 1999, but
that no guarantees can be given. We have, for example, been informed by our
outside payroll processor that their payroll system is Y2K compliant. We expect
third parties to honor their contractual obligations.
The majority of our material third-party contracts relate to sites for clinical
trials of our product candidates, research and development, and our
collaboration with Procter & Gamble. We believe that there is no readily
available replacement for our collaboration agreement with Procter & Gamble. We
further believe that it would be difficult, time consuming, and costly to find
alternative clinical sites and research arrangements. We will continue to work
with third parties to identify and resolve any problems with Y2K compliance.
In a worst case scenario, we could experience delays in receiving research and
development and manufacturing supplies as well as managing and accessing data on
patients enrolled in clinical studies. These delays could slow clinical
development and research and development programs, or impact our ability to
effectively manage and monitor these programs. These delays could also have an
adverse impact on our stock price. Based on the information and assessments to
date, no contingency plans have been developed.
Any Y2K compliance problems which arise could materially and adversely affect
our business, results of operations, or cash flow. We will continue to identify
all Y2K problems that could materially adversely affect our business operations.
However, it is not possible to determine with complete certainty that all Y2K
problems affecting us or third parties which have a material relationship with
us, have been identified. It is not possible to insure economically against all
conceivable risks.
To date, we have incurred less than $5,000 in costs associated with our Y2K
program. This excludes the costs of older computer and scientific
instrumentation that have been replaced in the ordinary course as such systems
are upgraded or expanded. We believe that the costs associated with repairs or
upgrades and verification of our internal systems to become Y2K compliant will
not be more than $50,000. We believe that all such repairs or upgrades and
verification will be complete in December 1999 with the repair and upgrade to
our HVAC system discussed above. We expect to fund all these expenses from
working capital.
26
<PAGE>
BUSINESS
OVERVIEW
We are engaged in the development of products for the treatment of
cardiovascular, autoimmune and neurologic diseases caused by undesired effects
of the human immune system. Our product development programs are based on
proprietary technologies which are designed to block selected components of the
human immune system in order to reduce undesired inflammation while allowing
other beneficial aspects of the immune system to remain functional. Our two lead
product candidates are:
- 5G1.1-SC, in Phase II trials for the treatment of acute
inflammation caused by cardiopulmonary bypass surgery, which is
being developed in collaboration with Procter & Gamble; and
- 5G1.1, in Phase II trials for the chronic treatment of rheumatoid
arthritis and membranous nephritis, which we are developing
ourselves.
In addition, we are developing our Apogen and UniGraft technologies in
preclinical studies. We are targeting our first Apogen product candidate, known
as MP4, for the treatment of patients with multiple sclerosis. We are also
developing our two UniGraft xenotransplantation product candidates, UniGraft-PD
and UniGraft-SCI, for the treatment of Parkinson's disease and spinal cord
injury.
THE IMMUNE SYSTEM
The human immune system defends the body from attack or invasion by infectious
agents or pathogens. This is accomplished through a complex system of proteins
and cells, primarily complement proteins, antibodies and white blood cells, each
with a specialized function. Under normal circumstances, complement proteins,
together with antibodies and white blood cells, act to protect the body by
removing:
- harmful microorganisms;
- cells containing foreign proteins known as antigens; and
- disease-causing combinations of antigens and antibodies known as
immune complexes.
When activated by stimuli, the immune system triggers a series of enzymatic and
biochemical reactions called the complement cascade that results in an
inflammatory response. This inflammatory response is one of the immune system's
weapons against foreign pathogens or otherwise diseased tissue. However, under
certain circumstances, the complement cascade may be activated inappropriately
to direct an inflammatory response at healthy tissue, which may result in acute
and chronic inflammatory conditions.
Common heart diseases and procedures in which the complement cascade is
activated include:
- cardiopulmonary bypass surgery;
- myocardial infarction;
- unstable angina;
- angioplasty; and
27
<PAGE>
- stroke and other peripheral vascular diseases.
Common autoimmune diseases in which the complement cascade is activated include:
- rheumatoid arthritis;
- kidney diseases;
- lupus;
- inflammatory bowel diseases;
- inflammatory skin disorders; and
- multiple sclerosis.
T-cells, a type of white blood cell, play a critical role in the normal immune
response by recognizing cells containing antigens and initiating the immune
response. This response results in T-cells:
- attacking the antigen-containing tissue; and
- directing the production of antibodies by white blood cells to
eliminate the antigen-bearing foreign organism.
In autoimmune diseases, T-cells may mistakenly attack healthy host tissue and
may cause an inflammatory response resulting in tissue destruction. In the case
of multiple sclerosis, this may cause paralysis due to destruction of nerve
fibers in the brain.
PRODUCT DEVELOPMENT PROGRAMS
We have focused our product development programs on anti-inflammatory
therapeutics for diseases for which we believe current treatments are either
non-existent or inadequate. Currently available drugs for certain autoimmune,
cardiovascular and neurologic diseases, in which the immune system attacks the
patient's own tissue, broadly suppress the entire immune system, and may also
cause potentially severe side effects. Our lead product candidates, known as C5
Complement Inhibitors, are designed to selectively block the production of
inflammation-causing proteins in the complement cascade. We believe that
selective suppression of this immune response will provide a significant
therapeutic advantage relative to existing therapies.
Additionally, we are developing selective T-cell inhibitors known as Apogens and
UniGraft xenotransplants for neurologic disorders.
C5 COMPLEMENT INHIBITORS
Complement proteins are a series of inactive proteins circulating in the blood.
When activated by stimuli, including those associated with both acute and
chronic inflammatory disorders, these inactive complement proteins are split by
enzymes known as convertases into activated byproducts through the complement
cascade.
28
<PAGE>
Some of these byproducts, notably C3b, are helpful in fighting infections and
inhibiting autoimmune disorders. However, the byproducts generated by the
cleavage of C5, known as C5a and C5b-9, generally cause harmful inflammation.
The inflammatory byproducts of C5 cause:
- activation of white blood cells;
- attraction of white blood cells;
- production of injurious cytokines including tumor necrosis
factor-alpha;
- activation of blood vessel-lining cells called endothelial cells,
allowing leakage of white blood cells into tissue; and
- activation of blood-clotting cells called platelets.
The following diagram describes the complement cascade:
[LOGO]
Because of the generally beneficial effects of the components of the complement
cascade prior to C5 and the greater inflammatory disease-promoting effects of
the cleavage products of C5, we have identified C5 as a potentially effective
anti-inflammatory drug target. Our first two C5 Inhibitors specifically and
tightly bind to C5 blocking its cleavage into harmful byproducts and are
designed to inhibit subsequent damage from the inflammatory response.
In laboratory and animal models of human disease, we have shown that the
administration of C5 Inhibitor, as compared to placebo, is effective in:
- preventing inflammation during cardiopulmonary bypass;
- reducing heart tissue damage during myocardial infarction;
- reducing brain damage in cerebral ischemia;
- enhancing survival in a model of lupus; and
29
<PAGE>
- preserving kidney function in nephritis.
In addition, in initial human clinical trials, we have shown that C5 Inhibitors
can reduce:
- inflammation during cardiopulmonary bypass surgery;
- heart tissue damage during cardiopulmonary bypass surgery;
- new cognitive deficits after cardiopulmonary bypass surgery;
- an objective measure of disease activity in rheumatoid arthritis
patients; and
- the incidence of proteinuria in lupus patients.
Our product candidates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRODUCT CANDIDATE TECHNOLOGY INDICATION STATUS
- ----------------- ------------------------ ------------------------ -----------------
5G1.1-SC C5 Complement Inhibitor Cardiopulmonary bypass Phase IIb ongoing
(single chain antibody) Myocardial infarction Preparing IND
(1) Thrombolysis to commence
(2) PTCA Phase II
5G1.1 C5 Complement Inhibitor Rheumatoid arthritis Phase II ongoing
(antibody) Membranous nephritis Phase II ongoing
Lupus Completed Phase I
MP4 Apogen Multiple sclerosis Preclinical
UniGraft-SCI Cell replacement Spinal cord injury Preclinical
UniGraft-PD Cell replacement Parkinson's disease Preclinical
</TABLE>
C5 INHIBITOR IMMUNOTHERAPEUTIC PRODUCT CANDIDATES
We are developing one of our two lead C5 Inhibitor product candidates, 5G1.1-SC,
for the treatment of inflammation related to acute cardiovascular diseases and
procedures. Our initial indications for 5G1.1-SC are cardiopulmonary bypass
surgery and myocardial infarction. We are developing our other C5 Inhibitor
product candidate, 5G1.1, for the treatment of inflammation related to chronic
autoimmune disorders. Our initial indications for 5G1.1 are rheumatoid arthritis
and membranous nephritis. We have selected these four initial indications
because we believe each represents a clinical condition which is:
- closely tied to the production of activated complement byproducts;
- characterized by clear development pathways;
- inadequately treated by current therapies;
- associated with substantial health care costs; and
- a significant market opportunity.
30
<PAGE>
To date, 5G1.1-SC and 5G1.1 have been observed to be safe and well tolerated in
completed and ongoing controlled clinical trials in over 250 individuals treated
with either C5 Inhibitor or placebo.
5G1.1-SC
5G1.1-SC is a humanized, single chain antibody that has been shown to block
complement activity for up to 20 hours at doses tested and is designed for the
treatment of acute inflammatory conditions. In January 1999, we entered into a
collaboration with Procter & Gamble to develop and commercialize 5G1.1-SC. Under
this collaboration, we will initially pursue the development of 5G1.1-SC for the
treatment of inflammation caused by various acute cardiovascular indications and
procedures such as cardiopulmonary bypass surgery, myocardial infarction and
angioplasty. Procter & Gamble has agreed to fund all clinical development and
manufacturing costs relating to 5G1.1-SC for these indications.
CARDIOPULMONARY BYPASS SURGERY
In cardiopulmonary bypass surgery, blood is diverted from a patient's heart and
lungs to a cardiopulmonary, heart-lung, bypass machine in the operating room.
The machine adds oxygen to the blood and circulates the oxygenated blood to the
organs in the patient's body. Significant side effects of cardiopulmonary bypass
surgery include tissue damage and excessive bleeding during and after the
procedure. We believe these side effects may result from activation of the
complement cascade when the patient's blood comes into contact with the plastic
lining of the machine, when insufficient blood flows through the heart as a
result of the procedure and after blood flow through the heart is reintroduced
following completion of the procedure. Activated complement byproducts may be
increased by over 1,000% in patients undergoing cardiopulmonary bypass surgery.
The inflammation is also characterized by activation of leukocytes, a type of
white blood cell, and platelets, cells responsible for clotting. We believe that
this leukocyte activation is associated with impaired lung, heart, brain and
kidney function. We further believe that platelet activation and subsequent
platelet dysfunction during the procedure impair a patient's ability to stop the
bleeding that occurs after extensive surgery.
5G1.1-SC is designed to rapidly penetrate the patient's tissues and to inhibit
complement activation in patients immediately before, during and after
cardiopulmonary bypass in order to reduce the cardiovascular and brain tissue
damage and bleeding complications. We believe inhibition of the inflammatory
response might reduce:
- incidence of death;
- incidence of heart tissue damage;
- incidence of stroke;
- post-operative complications;
- the time spent by patients in the intensive care unit;
- the scope of required treatments associated with cardiopulmonary
bypass; and
- the need for blood transfusions.
31
<PAGE>
The American Heart Association estimates that in 1996, approximately 500,000
cardiopulmonary bypass operations were performed in the United States.
Currently, products utilized in patients undergoing cardiopulmonary bypass are
designed to enhance the coagulation of blood so as to reduce the need for blood
transfusions. However, we believe these products have little beneficial effect
on the heart and brain inflammatory complications associated with the surgery.
Our preclinical studies indicated that C5 Inhibitors can prevent activation of
platelets and leukocytes and the subsequent inflammatory response that occurs
during circulation of human blood in a closed-loop cardiopulmonary bypass
machine. These preclinical studies additionally indicated that administration of
a C5 Inhibitor reduces cardiac damage associated with reduced heart blood flow.
CLINICAL TRIALS
In March 1996, we filed an investigational new drug application, or IND, with
the FDA for 5G1.1-SC, targeting the treatment of patients undergoing
cardiopulmonary bypass surgery. To date, we have initiated and completed four
human clinical trials of 5G1.1-SC administered intravenously. Although we
designed these early clinical studies primarily to assess dosing and safety, we
also collected biological and clinical results. These trials are described
below.
- In June 1996, we commenced a Phase I clinical trial in 33 healthy
volunteers receiving a single bolus administration of 0.5 to 2.0
mg/kg of 5G1.1-SC or placebo. In this trial, 5G1.1-SC:
- was safe and well tolerated in this study population as
compared to placebo; and
- showed dose-dependent reduction in complement activity in study
subjects.
- In October 1998, we commenced a Phase I clinical trial in 49
healthy volunteers receiving a single bolus dose, double bolus
dose, and single bolus dose followed by continuous infusion
administration of up to 6.8 mg/kg of 5G1.1-SC or placebo. In this
trial, 5G1.1-SC:
- was safe and well tolerated in this study population as
compared to placebo; and
- showed dose-dependent reduction in complement activity in study
subjects.
- In October 1996, we commenced a Phase I/II clinical trial in 17
patients undergoing cardiopulmonary bypass surgery receiving a
single bolus administration of 0.5 to
2.0 mg/kg of 5G1.1-SC or placebo. In this trial, 5G1.1-SC:
- was safe and well tolerated in this study population as
compared to placebo; and
- showed a dose-dependent reduction in the more than ten-fold
increase in activated complement byproducts experienced by
placebo-treated patients.
- In August 1997, we commenced a Phase IIa clinical trial in 18
patients undergoing cardiopulmonary bypass surgery receiving a
single bolus administration of 1.0 or 2.0 mg/kg of 5G1.1-SC or
placebo. In this trial, 5G1.1-SC:
- was safe and well tolerated in this study population as
compared to placebo; and
- showed dose-dependent reductions in activated complement
byproducts.
In April 1998, we announced the combined results of our Phase I/II and
Phase IIa trials in cardiopulmonary bypass surgery patients. The results for
patients treated with either a 2.0 mg/kg bolus of 5G1.1-SC or placebo are shown
in the table below.
32
<PAGE>
CLINICAL RESULTS OF A SINGLE 2.0 MG/KG DOSE OF 5G1.1-SC
IN PATIENTS UNDERGOING CARDIOPULMONARY BYPASS
<TABLE>
<CAPTION>
BIOLOGICAL AND CLINICAL MEASUREMENTS 5G1.1-SC VS. PLACEBO
- ------------------------------------ --------------------
<S> <C>
C5 complement activation 100% less*
C3 complement activation No difference
Leukocyte activation 60% to 70% less*+
Heart tissue damage 40% less*
New cognitive deficits 80% less*
Blood loss 400 ml less*
</TABLE>
-----------------------------------------
* P less than or equal to .05 vs. placebo
+ Includes both patients treated with 1.0 mg/kg 5G1.1-SC and
patients treated with 2.0 mg/kg 5G1.1-SC
In January 1999, we announced that we had commenced dosing patients undergoing
coronary artery bypass graft surgery with or without accompanying valve surgery
during cardiopulmonary bypass in a Phase IIb clinical trial with 5G1.1-SC. This
multi-center, double-blinded, randomized, placebo-controlled study is expected
to enroll approximately 1,000 patients and is designed to gather clinical data
to augment and extend previous findings regarding the safety profile and
pharmacokinetics of 5G1.1-SC and its efficacy in reducing the life-threatening
inflammatory complications, such as mortality, myocardial infarction, heart
failure and stroke, that can be triggered by cardiopulmonary bypass procedures.
ACUTE MYOCARDIAL INFARCTION
Myocardial infarction is an acute cardiovascular disorder in which the coronary
arteries, the blood vessels that supply nutrients to the heart muscle, are
blocked to such an extent that the flow of blood is insufficient to supply
enough oxygen and nutrients to keep the heart muscle alive. With insufficient
supply of blood, oxygen, and nutrients, the heart muscle may subsequently
infarct or die. Upon the reduction in flow in the coronary artery, a complex
cascade of inflammatory events involving complement proteins, platelets and
leukocytes and their secreted factors, and endothelial cells commences within
the blood vessel. In patients suffering a myocardial infarction, activated
complement byproducts are significantly elevated. This severe inflammatory
response targeting the area of insufficient blood flow to cardiac muscle is
associated with subsequent death of heart muscle. Restoration of blood flow is
also associated with an additional inflammatory reaction with concomitant
production of activated complement byproducts. In addition to the high incidence
of sudden cardiac death at the onset, severe complications associated with the
initial survival of an acute myocardial infarction include congestive heart
failure, stroke, and death. The American Heart Association estimates that
approximately 1.0 million people in the United States will have a heart attack
in 1999.
We are developing 5G1.1-SC to inhibit inflammation associated with complement
activation in order to reduce the extent of death of heart muscle in patients
suffering an acute myocardial infarction. In contrast, most drugs currently
being developed or on the market to treat myocardial infarction are designed to
improve blood flow through the heart, rather than treating the damaging effects
of inflammation caused by myocardial infarction. We and our scientific
collaborators have performed preclinical studies in rodents which have
demonstrated that administration of a C5 Inhibitor during periods of
insufficient supply of blood to the heart muscle and prior to restoration of
normal flow to the heart muscle significantly reduced the extent of subsequent
death of heart muscle compared to
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control animal studies. Additionally, administration of a C5 Inhibitor
significantly reduced the extent of cardiac damage associated with reduced heart
blood flow without subsequent restoration of blood flow. The results of these
preclinical studies are shown in the table below.
PRECLINICAL RESULTS WITH C5 INHIBITOR ADMINISTRATION
IN ANIMAL MODELS OF MYOCARDIAL INFARCTION
<TABLE>
<CAPTION>
BIOLOGICAL AND CLINICAL MEASUREMENTS C5 INHIBITOR VS. PLACEBO
- ------------------------------------ ------------------------
<S> <C>
Complement activity 100% less*
Leukocyte activation greater than 90% less*
Heart tissue damage 50% less*
</TABLE>
-----------------------------------------
* P less than or equal to .05 vs. placebo
CLINICAL TRIALS
In October 1998, we commenced dosing subjects in a Phase I clinical trial in
healthy individuals that was designed to evaluate dosing regimens for subsequent
cardiopulmonary bypass and myocardial infarction clinical trials. We have used
the results of this trial to select dosing regimens for subsequent clinical
trials in acute myocardial infarction patients. The results of this trial
indicated that 5G1.1-SC was well tolerated at doses more than three times as
high as had been previously administered. Together with our collaborator
Procter & Gamble, we expect to file in 1999 an IND for use of 5G1.1-SC in two
Phase II trials with approximately 1,000 patients each for the treatment of
acute myocardial infarction.
5G1.1
5G1.1 is a humanized, monoclonal antibody that blocks complement activity for
one to two weeks at doses tested and is designed for the chronic treatment of
autoimmune diseases such as rheumatoid arthritis and nephritis. 5G1.1 is not
included in the collaboration with Procter & Gamble, and we have retained full
rights to 5G1.1.
RHEUMATOID ARTHRITIS
Rheumatoid arthritis is an autoimmune disease directed at various organ and
tissue linings, including the lining of the joints, causing inflammation and
joint destruction. Clinical signs and symptoms of the disease include weight
loss, joint pain, morning stiffness and fatigue. Further, the joint destruction
can progress to redness, swelling and pain with frequent and severe joint
deformity. Diagnostic procedures, which may include obtaining a sample of joint
fluid, routinely demonstrate substantial elevations in the levels of activated
complement byproducts in the joint fluid of affected rheumatoid arthritis
patients. Rheumatoid arthritis is generally believed to be caused by different
types of white blood cells, including T-cells, which both directly attack the
patient's joints and also activate B-cells to produce antibodies which activate
complement proteins in the joint leading to inflammation with subsequent tissue
and joint destruction. It is estimated that more than 2.0 million people are
currently affected by rheumatoid arthritis in the United States.
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We are developing 5G1.1 for the treatment of patients with chronic inflammatory
diseases, including rheumatoid arthritis. We have performed preclinical studies
in rodent models of rheumatoid arthritis which have shown that C5 Inhibitor
administration, as compared to placebo-treated subjects:
- reduced the swelling in joints;
- prevented the onset of erosion of joints;
- reduced the inflammatory white blood cell infiltration into the
joints;
- prevented the spread of disease to additional joints;
- blocked the onset of clinical signs of rheumatoid arthritis; and
- ameliorated established disease.
Currently, there are a large number of anti-inflammatory drugs under development
or on the market for the treatment of patients with rheumatoid arthritis. These
drugs include non-steroidal anti-inflammatory drugs, and their more recent
analog the COX-2 inhibitors, which generally treat the symptoms of the disease,
but do not alter disease progression. There are also several currently available
drugs that are disease-modifying agents, but these are associated with
undesirable side effects. More recently, tumor necrosis factor, or TNF,
inhibitors have been approved or are under development to reduce the
inflammatory response. TNF is one of the many injurious substances that may be
generated downstream of the complement cascade. In contrast to these single
agent inhibitors like TNF inhibitors, by acting at C5 of the complement cascade,
we expect 5G1.1 both to block complement activation and reduce the production of
many of these downstream harmful substances. Because of this dual action, we
believe that 5G1.1 may provide a more potent anti-inflammatory effect.
CLINICAL TRIALS
In December 1997, we filed an IND with the FDA for 5G1.1 in the treatment of
rheumatoid arthritis patients.
- In July 1998, we commenced a Phase I/II multi-center, clinical
trial in 42 rheumatoid arthritis patients receiving a single bolus
administration of 0.1 to 8.0 mg/kg of 5G1.1. In this trial, 5G1.1:
-- was safe and well tolerated in this study population as
compared to placebo;
-- showed dose-dependent reduction in complement activity in
study subjects; and
-- at 8.0 mg/kg, showed a reduction in C-reactive protein blood
levels in study subjects.
C-reactive protein is considered by many physicians to be the most objective
component of the American College of Rheumatology's definition of efficacy
criteria for rheumatoid arthritis drug trials. Although this initial clinical
trial was designed to primarily assess dosing and safety, biological and
clinical results were collected. These results in the patients treated with a
8.0 mg/kg bolus of 5G1.1, announced in April 1999, are shown in the table below.
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CLINICAL RESULTS OF A SINGLE 8.0 MG/KG DOSE OF 5G1.1
IN PATIENTS WITH RHEUMATOID ARTHRITIS
<TABLE>
<CAPTION>
AFTER 5G1.1 TREATMENT VS.
BIOLOGICAL AND CLINICAL MEASUREMENTS BEFORE 5G1.1 TREATMENT
- ------------------------------------ -------------------------
<S> <C>
Complement activity 100% reduction*
C-reactive protein blood level 30% decrease*
</TABLE>
-----------------------------------------
* P less than or equal to .05 vs. before treatment
In August 1999, we initiated a Phase II multi-center, double-blinded,
randomized, placebo-controlled clinical safety and efficacy trial with multiple
doses of 5G1.1 at one to four week dosing intervals that is intended to enroll
200 rheumatoid arthritis patients.
MEMBRANOUS NEPHRITIS
The kidneys are responsible for filtering blood to remove toxic metabolites and
maintaining the minerals and proteins in the blood that are required for normal
metabolism. Each kidney consists of millions of individual filtering units, or
glomeruli. When glomeruli are damaged, the kidney can no longer adequately
maintain its normal filtering function. This may result in the build-up of
toxins in the blood and the loss of valuable minerals and proteins in the urine.
Clinically severe nephritis, or kidney inflammation, is found in many patients
suffering from lupus and other autoimmune diseases. This condition occurs when
more than 90% of the kidney is destroyed by disease. Kidney failure is
frequently associated with:
- hypertension;
- strokes;
- infections;
- anemia;
- heart, lung and joint inflammation;
- coma; and
- death.
Many forms of damage to the glomeruli are mediated by the immune system,
particularly by antibodies and activated complement proteins. Membranous
nephritis is a form of kidney inflammation that is believed to be caused by a
chronic autoimmune disorder that targets the kidney. We estimate that there are
approximately 100,000 to 300,000 people currently afflicted with membranous
nephritis in the United States.
Membranous nephritis is characterized by kidney inflammation and dysfunction
that may eventually progress to kidney failure. Diagnostic criteria for
membranous nephritis include kidney biopsies that may demonstrate the presence
of antibodies and activated complement byproducts in the kidneys of affected
patients. The subsequent kidney inflammation leads to the abnormal loss of
substantial amounts of protein in the patient's urine; this condition is known
as proteinuria and is recognized as an objective measurement of kidney disease.
Loss of protein in the urine disturbs the normal control of water in the blood
vessels and also is believed to directly further injure the kidney. Moreover,
clinical studies by others have shown that the degree of proteinuria is
associated with the incidence of subsequent kidney failure. Additional clinical
signs associated with proteinuria may include:
- abnormally low levels of protein in the blood;
- a propensity for abnormal clotting;
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<PAGE>
- abnormal lipid elevations; and
- substantial swelling in the abdomen and under the skin.
Current therapies for membranous nephritis include potentially toxic drugs more
frequently used in other indications such as cancer. These drugs generally act
to suppress broadly the proliferation of many types of cells, including white
blood cells. We believe that the use of such therapies is generally limited due
to their unfavorable side effects. Even with current therapies, in such a severe
disease population more than 30% of the patients are expected to progress to
renal failure, which may require dialysis or transplantation. In contrast, 5G1.1
directly targets the inhibition of deleterious complement activation. We believe
5G1.1 may exert more selective and effective anti-inflammatory activity without
the adverse effects associated with current therapies.
We have performed preclinical studies in rodent models of nephritis and observed
that C5 Inhibitor administration, as compared to placebo-treated subjects,
substantially reduced:
- scarring of the kidney;
- breakdown of kidney tissue into the urine;
- clogging of the kidney filtering units; and
- proteinuria.
CLINICAL TRIALS
We are developing 5G1.1 for a family of kidney and kidney-related chronic
autoimmune disorders, which include membranous nephritis, lupus nephritis, and
lupus. Our strategy is to develop 5G1.1 in kidney disease by initially obtaining
safety data in the more readily available lupus patient population and then to
commence efficacy trials in patients with a kidney disorder known as membranous
nephritis. We are initially starting efficacy trials with 5G1.1 for the
treatment of membranous nephritis patients because of the more uniform clinical
presentations of membranous nephritis patients as compared to lupus patients. We
then intend to expand our efforts to conduct advanced clinical trials in other
kidney diseases and lupus.
The results of our initial clinical trial in lupus patients are described below.
- In July 1998, we commenced a Phase I single-center, clinical study
in 24 lupus patients receiving a single bolus administration of 0.1
to 8.0 mg/kg of 5G1.1 or placebo. In this trial, 5G1.1:
-- was safe and well tolerated in this study population as
compared to placebo;
-- showed dose-dependent reduction in complement activity in
study subjects; and
-- at 8.0 mg/kg, resulted in significantly lower incidence of
proteinuria in study subjects as compared to placebo.
Although we designed this initial clinical trial to assess primarily dosing and
safety, we also collected biological and clinical results. These results in the
patients treated with a 8.0 mg/kg bolus of 5G1.1, announced in June 1999, are
shown in the table below.
37
<PAGE>
CLINICAL RESULTS OF A SINGLE 8.0 MG/KG DOSE
OF 5G1.1 IN PATIENTS WITH LUPUS
<TABLE>
<CAPTION>
BIOLOGICAL AND CLINICAL MEASUREMENTS 5G1.1 VS. PLACEBO
- ------------------------------------ -----------------
<S> <C>
Complement activity 100% less*
Incidence of proteinuria 100% less*
</TABLE>
-----------------------------------------
* P less than or equal to .05 vs. placebo
In August 1999, we commenced a Phase II multi-center, double-blinded,
randomized, placebo-controlled clinical safety and efficacy trial with multiple
doses of 5G1.1 at two to four week dosing intervals that is intended to enroll
150 membranous nephritis patients.
LUPUS
Lupus is an autoimmune disorder that damages the brain, lungs, heart, joints and
especially the kidneys. In lupus, antibodies deposit within particular organs
causing complement activation, inflammation and tissue destruction. For decades,
clinical studies by others have demonstrated the presence of complement
activation in lupus patients undergoing flares. Studies have further shown an
abundant deposition of activated complement proteins with localized inflammation
in tissue biopsies from kidney or other tissues in lupus patients. The Lupus
Foundation estimates that approximately 1.4 million people in the United States
have lupus. Further, an estimated 70% of individuals afflicted with lupus have
nephritis. Although lupus may affect people of either sex, women are 10 to 15
times more likely to suffer from the disease than men.
Patients with active lupus may have a broad range of symptoms related to the
antibody and activated complement deposition and inflammation. Inflammation of
the brain may cause seizures and other neurologic abnormalities. Inflammation of
the heart may cause heart failure or sudden death. Lung inflammation causes
shortness of breath. Lupus may also cause the swollen joints and arthritis. One
of the most common complications associated with lupus, however, is kidney
disease, which often leads to kidney failure requiring dialysis or
transplantation.
Current therapies generally act to suppress broadly the proliferation of many
types of cells, including white blood cells. In contrast, 5G1.1 directly targets
the inhibition of deleterious complement activation. We believe 5G1.1 may exert
more selective and effective anti-inflammatory activity without the adverse
effects associated with current therapies.
We are developing 5G1.1 for the prevention and treatment of inflammation in
lupus patients. We have performed preclinical studies in a rodent model of
lupus. In this chronic rodent model that spontaneously develops a disease
similar to lupus, substantially more animals treated with a C5 Inhibitor
survived as compared to untreated control animals.
CLINICAL TRIALS
We filed an IND with the FDA in late December 1997 for 5G1.1 in the treatment of
patients suffering from lupus and began a Phase I clinical trial in lupus
patients in July 1998. As discussed above, in the Clinical Trials section of
Membranous Nephritis, we announced results of a 24 patient, placebo-controlled
clinical study in June 1999. This trial showed that a single dose of 5G1.1 was
safe and well tolerated, reduced complement activity in a dose-dependent manner,
and a single 8.0 mg/kg dose significantly lowered incidence of proteinuria.
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<PAGE>
APOGEN T-CELL IMMUNOTHERAPEUTIC PRODUCT CANDIDATES
MP4
MP4 is a recombinant protein consisting of two brain-derived proteins. These two
proteins are believed to be major targets of disease-causing T-cells in patients
with multiple sclerosis. MP4 is designed to bind specifically to, and induce
cell suicide in, the small population of T-cells in multiple sclerosis patients
which are responsible for attacking the patient's brain cells, while leaving the
vast majority of uninvolved T-cells unaffected. In addition, MP4 is designed to
induce other white blood cells to suppress other inflammatory cells.
MULTIPLE SCLEROSIS
Multiple sclerosis is an autoimmune disease of the central nervous system which
hinders the ability of the brain and spinal cord to control movement, speech and
vision. Multiple sclerosis can be severely debilitating; long-term disability is
a common outcome. In severe cases, reduced motor strength may confine the
patient to a wheelchair. Multiple sclerosis is widely believed to be caused by
the attack of a patient's antigen-specific T-cells on the protective myelin
sheath surrounding nerve cells in the central nervous system. According to the
National Multiple Sclerosis Society, there are approximately 250,000 reported
cases of multiple sclerosis in the United States.
Preclinical animal studies which we performed in an experimental rodent model of
multiple sclerosis have demonstrated that administration of our proprietary
Apogen multiple sclerosis drug candidate, MP4, at the time of disease induction,
effectively prevents the development of severe neurologic disease. These studies
also demonstrated that administration of MP4 after the onset of disease
ameliorates established disease by both eliminating disease-causing T-cells and
by inducing other T-cells to further suppress inflammation.
In February 1998, we filed an IND with the FDA for MP4 for the treatment of
patients suffering from multiple sclerosis. After completion of additional
preclinical studies and amendment of the clinical protocol in line with the
preferred route of administration, we may initiate a Phase I/II clinical trial
in multiple sclerosis patients.
THE UNIGRAFT XENOTRANSPLANTATION PROGRAM
Most transplant procedures today are whole organ transplants. We believe that
there is a far greater number of patients with medical disorders, such as
Parkinson's disease and spinal cord injury, that are caused by the functional
loss of highly specialized cells. The number of these patients is likely to grow
due to both the aging of the population, with subsequent increase in the
incidence of degenerative diseases, as well as the increasing incidence of
trauma. Therefore, cell transplantation could be an important benefit to a large
number of previously untreated, or severely under-treated patients suffering
from severe medical disorders. However, since there are no human donors of such
specialized cells, there is currently no available supply of such cells for
replacement therapy. Further, the immune system prevents the transplantation of
cells from other species, known as xenografts, as they are recognized by the
immune system as foreign and they are rejected. We are developing a portfolio of
UniGraft immunoregulatory technologies designed to permit the therapeutic
transplantation of such cells without rejection.
Although approximately 20,000 people received whole organ transplants in the
United States in 1998, there are many times that number of patients who have
disorders that may be amenable to cell or tissue transplantation. It is
estimated that this broader population includes approximately 200,000 patients
suffering from spinal cord injury and 1.0 million individuals with Parkinson's
disease. In particular, we
39
<PAGE>
believe that use of a safe and effective cell transplantation therapy for
patients with spinal cord injury or Parkinson's disease would represent major
therapeutic advances.
In February 1999, we terminated our collaboration agreement with US Surgical
under which we were jointly developing a xenotransplantation program. As part of
the termination, we obtained the exclusive rights to that program. We also
acquired manufacturing assets that had been developed by US Surgical in
connection with the program. We financed the purchase of the manufacturing
assets through a $3.9 million term note payable to US Surgical. Interest is 6.0%
per year and is payable quarterly. The principal balance under the note is due
in May 2005. Security for this term note is the manufacturing assets that we
purchased.
NEUROLOGIC CELL TRANSPLANTATION
We have developed methods of blocking the immune system which are designed to
permit the replacement of damaged human brain and other neurologic cells with
potentially highly therapeutic genetically modified porcine cells.
Rejection of non-human tissue by patients is generally believed to occur in two
stages:
- hyperacute phase, which is very rapid, extending from minutes to
hours; and
- acute phase, which is somewhat less rapid, extending from days to
months.
Hyperacute rejection is generally believed to be mediated by naturally-occurring
antibodies in the patient, most of which target a sugar antigen uniquely present
on the surface of non-human tissue but not on the patient's own tissue. After
binding to the foreign tissue, these antibodies stimulate the activation of the
recipient's inactive complement proteins on the surface of the donor tissue with
subsequent destruction of the donor tissue. Subsequently, acute rejection of
xenografts is generally believed to be mediated by white blood cells.
We are designing UniGraft cell products to resist complement/antibody-mediated
hyperacute rejection. We have commenced preclinical studies employing the
UniGraft technologies during transplantation of genetically modified and
proprietary porcine cells that are resistant to destruction by human complement
proteins. We are currently focusing our immunoregulatory and molecular
engineering technologies primarily on the development of UniGraft cells to treat
Parkinson's disease and injuries to the spinal cord.
SPINAL CORD INJURY
In spinal cord injury patients, conduction of nerve signals between the brain
and those nerve cells below the injury site in the spinal cord is blocked. These
patients experience impaired or loss of normal bodily functions, including the
sense of touch and the ability to move. Since the level of injury differs
between patients, the degree and type of impairment also differs. Motor vehicle
crashes are the leading cause of spinal cord injury in the U.S. Additionally,
patients may develop spinal cord injury following traumatic injuries or, less
commonly, following an autoimmune disorder known as transverse myelitis.
According to the National Spinal Cord Injury Association, approximately 200,000
individuals in the United States suffer from debilitating spinal cord injury.
Steroids are the most common therapy for patients with spinal cord injury. If
administered to a patient within a very short time following the injury,
steroids are believed to limit initial swelling in the area of the injury.
However, steroid administration is not believed to allow nerve cells to
regenerate nor is it believed to reverse existing clinical disability.
40
<PAGE>
Our UniGraft spinal cord injury cell therapy candidate, UniGraft-SCI, consists
of genetically modified pig cells. In preclinical rodent models of spinal cord
injury, these cells have been shown to:
- engraft at sites of spinal cord injury;
- ensheath damaged nerve cells with a protective myelin sheath; and
- restore conduction following partial cutting of the spinal cord.
We are currently performing additional preclinical studies in this program and
optimizing manufacturing methods.
PARKINSON'S DISEASE
Parkinson's disease is a progressive neurological disorder that is characterized
by a decrease in spontaneous movements and an increase in tremor. Nerve cells in
the brain which produce dopamine degenerate in these patients. Dopamine is an
important messenger in the brain without which normal neurological activities
are impaired. According to the National Parkinson Foundation, Parkinson's
disease is currently believed to affect over 1.0 million Americans.
The current drugs for Parkinson's disease act to non-specifically increase
dopamine throughout the body but can cause harmful side effects. We believe that
these therapies are unable to adequately restore levels of dopamine specifically
in damaged areas of the brain.
Our UniGraft Parkinson's disease cell therapy candidate, UniGraft-PD, consists
of genetically modified pig cells that, after transplant into rodents with
Parkinson's disease-like lesions:
- engraft into the brain;
- extend and make connections with the damaged areas of the brain;
- locally produce enzymes to restore dopamine levels; and
- restore brain function.
We are currently performing additional preclinical studies in this program and
optimizing manufacturing methods.
STRATEGIC ALLIANCE WITH PROCTER & GAMBLE
In January 1999, we entered into an exclusive collaboration with Procter &
Gamble to develop and commercialize 5G1.1-SC. Under this collaboration, we will
initially pursue the development of 5G1.1-SC for the treatment of inflammation
caused by cardiopulmonary bypass surgery, myocardial infarction and angioplasty.
Procter & Gamble has agreed to fund all clinical development and manufacturing
costs relating to 5G1.1-SC for these indications. In addition, under this
agreement, Procter & Gamble has agreed to pay us up to $95 million in payments,
which include a non-refundable upfront license fee, as well as milestone and
research and development support payments. In addition, we will receive
royalties on worldwide sales of 5G1.1-SC for all indications. We also have a
preferred position relative to third-party manufacturers to manufacture 5G1.1-SC
worldwide. We share co-promotion rights with Procter & Gamble to sell, market
and distribute 5G1.1-SC in the United States, and have granted Procter & Gamble
the exclusive rights to sell, market and distribute 5G1.1-SC outside of the
United States. Through July 31, 1999, we received $17.8 million from Procter &
Gamble, including a non-refundable upfront license fee of $10.0 million and
$7.8 million in research and development support payments. Our collaboration
with Procter & Gamble does not involve any of our other product candidates.
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<PAGE>
GRANTS FROM ADVANCED TECHNOLOGY PROGRAM AND NATIONAL INSTITUTE OF STANDARDS AND
TECHNOLOGY
In August 1995, we were awarded cost-shared funding from the U.S. Commerce
Department's National Institute of Standards and Technology under its Advanced
Technology Program. Through the program, we may receive up to approximately
$2.0 million over three years to support our UniGraft cell, tissue, and organ
transplantation programs. Through July 31, 1999, we have received approximately
$1.9 million under this award. In September 1998, the three-year period was
amended to extend to September 1999.
In November 1997, both ourselves and US Surgical were awarded a three-year
$2.0 million cooperative agreement from NIST under its Advanced Technology
Program for funding a joint xenotransplantation project. In February 1999, this
funding was amended to a single company award to us with our reacquisition of
the rights to all aspects of our xenotransplantation program from US Surgical
which had been acquired by Tyco International Ltd. Through July 31, 1999, we had
received approximately $322,000 under this award.
In October 1998, we were granted our third award under this program, a
three-year grant supporting product development within our neurologic disorder
transplantation program. Through the program, we may receive up to approximately
$2.0 million over three years to support our UniGraft program to develop a
spinal cord injury product within our neurologic disorder xenotransplantation
program.
In October 1999, we were granted our fourth award under this program, a
three-year grant supporting product development within our UniGraft program.
Through the program, we may receive up to approximately $2.0 million over three
years to support our production of UniGraft products.
MANUFACTURING
We obtain drug product to meet our requirements for preclinical studies using
both internal and third-party contract manufacturing capabilities. At our
headquarters in New Haven, Connecticut, we have pilot manufacturing facilities
suitable for the fermentation and purification of certain of our recombinant
compounds for clinical studies. Our pilot plant has the capacity to manufacture
under cGMP regulations. We have also secured the production of clinical supplies
of certain other recombinant products through third-party manufacturers. In each
case, we have contracted product finishing, vial filling, and packaging through
third parties.
To date, we have not invested in the development of commercial manufacturing
capabilities. Although we have established a pilot manufacturing facility for
the production of material for clinical trials for certain of our potential
products, we do not have sufficient capacity to manufacture more than one drug
candidate at a time or to manufacture our drug candidates for later stage
clinical development or commercialization. In the longer term, we may contract
the manufacture of our products for commercial sale or may develop large-scale
manufacturing capabilities for the commercialization of some of our products.
The key factors which will be given consideration when making the determination
of which products will be manufactured internally and which through contractual
arrangements will include the availability and expense of contracting this
activity, control issues and the expertise and level of resources required for
us to manufacture products. If we are unable to develop or contract for
additional manufacturing capabilities on acceptable terms, our ability to
conduct human clinical testing will be materially adversely affected, resulting
in delays in the submission of products for regulatory approval and in the
initiation of new development programs, which could have a material adverse
effect on our competitive position and our prospects for achieving
profitability. In addition, as our product development efforts progress, we will
need to hire additional personnel skilled in product testing and regulatory
compliance.
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<PAGE>
SALES AND MARKETING
We currently have no sales, marketing, or distribution capabilities. We will
need to establish or contract these capabilities to commercialize successfully
any of our drug candidates. We may promote our products in collaboration with
marketing partners or rely on relationships with one or more companies with
established distribution systems and direct sales forces. Under our
collaboration agreement, Procter & Gamble is obligated to sell, market and
distribute worldwide 5G1.1-SC for all approved indications. We share with
Procter & Gamble co-promotion rights for 5G1.1-SC in the United States. For
other future drug products, as well as for 5G1.1-SC in the United States, we may
elect to establish our own specialized sales force and marketing organization to
market our products.
PATENTS AND PROPRIETARY RIGHTS
We believe that patents and other proprietary rights are important to our
business. Our policy is to file patent applications to protect technology,
inventions and improvements to our technologies that are considered important to
the development of our business. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position.
We have filed several U.S. patent applications and international counterparts of
certain of these applications. In addition, we have exclusively licensed several
additional U.S. patents and patent applications. Of our owned and exclusively
licensed patents and patent applications as of July 31, 1999, 13 relate to
technologies or products in the C5 Inhibitor program, seven relate to the Apogen
program, and 21 relate to the UniGraft program.
Our success will depend in part on our ability to obtain United States and
foreign patent protection for our products, to preserve our trade secrets and
proprietary rights, and to operate without infringing on the proprietary rights
of third parties or having third parties circumvent our rights. Because of the
length of time and expense associated with bringing new products through
development and regulatory approval to the marketplace, the health care industry
has traditionally placed considerable importance on obtaining patent and trade
secret protection for significant new technologies, products and processes.
We are aware of broad patents owned by third parties relating to the
manufacture, use, and sale of recombinant humanized antibodies, recombinant
humanized single-chain antibodies and genetically engineered animals. We have
received notice from certain of these parties regarding the existence of certain
of these patents which the owners claim may be relevant to the development and
commercialization of certain of our proposed products. With respect to certain
of these patents which we believe are relevant for the expeditious development
and commercialization of certain of our products as currently contemplated, we
have acquired licenses. With regard to certain other patents, we have either
determined in our judgment that our products do not infringe the patents or have
identified and are testing various approaches which we believe should not
infringe the patents and which should permit commercialization of our products.
It is our policy to require our employees, consultants, members of our
scientific advisory board, and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or collaborations with us. These agreements provide that all
confidential information developed or made known during the course of
relationship with us is to be kept confidential and not to be disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
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GOVERNMENT REGULATION
The preclinical studies and clinical testing, manufacture, labeling, storage,
record keeping, advertising, promotion, export, and marketing, among other
things, of our proposed products are subject to extensive regulation by
governmental authorities in the United States and other countries. In the United
States, pharmaceutical products are regulated by the FDA under the Federal Food,
Drug, and Cosmetic Act and other laws, including, in the case of biologics, the
Public Health Service Act. At the present time, we believe that our products
will be regulated by the FDA as biologics.
The steps required before a novel biologic may be approved for marketing in the
United States generally include:
(1) preclinical laboratory tests and IN VIVO preclinical studies;
(2) the submission to the FDA of an IND for human clinical testing, which
must become effective before human clinical trials may commence;
(3) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product;
(4) the submission to the FDA of a biologics license application or BLA; and
(5) FDA review and approval of such application.
The testing and approval process requires substantial time, effort and financial
resources. We cannot be certain that any approval will be granted on a timely
basis, if at all. Prior to and following approval, if granted, the establishment
or establishments where the product is manufactured are subject to inspection by
the FDA and must comply with cGMP requirements enforced by the FDA through its
facilities inspection program. Manufacturers of biological materials also may be
subject to state regulation.
Preclinical studies include animal studies to evaluate the mechanism of action
of the product, as well as animal studies to assess the potential safety and
efficacy of the product. Compounds must be produced according to applicable cGMP
requirements and preclinical safety tests must be conducted in compliance with
FDA regulations regarding good laboratory practices. The results of the
preclinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an IND, which must become effective before
human clinical trials may be commenced. The IND will automatically become
effective 30 days after receipt by the FDA, unless the FDA before that time
requests an extension to review or raises concerns about the conduct of the
trials as outlined in the application. In such latter case, the sponsor of the
application and the FDA must resolve any outstanding concerns before clinical
trials can proceed. We cannot assure you that submission of an IND will result
in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational product to
healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail many items, including:
- 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. Further, each
clinical study must be reviewed and approved by an independent institutional
review board, prior to the recruitment of subjects.
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Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is tested for safety and, as appropriate, for absorption,
metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics.
Phase II usually involves studies in a limited patient population to:
- evaluate preliminarily the efficacy of the drug for specific,
targeted indications;
- determine dosage tolerance and optimal dosage; and
- identify possible adverse effects and safety risks.
Phase III trials are undertaken to further evaluate clinical efficacy and to
test further for safety within an expanded patient population at geographically
dispersed clinical study sites. Phase I, Phase II or Phase III testing may not
be completed successfully within any specific time period, if at all, with
respect to any products being tested by a sponsor. Furthermore, the FDA may
suspend clinical trials at any time on various grounds, including a finding that
the subjects or patients are being exposed to an unacceptable health risk.
The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA as part of a BLA requesting approval for the marketing of
the product. The FDA may deny approval of the application if applicable
regulatory criteria are not satisfied, or if additional testing or information
is required. Post-marketing testing and surveillance to monitor the safety or
efficacy of a product may be required. FDA approval of any application may
include many delays or never be granted. Moreover, if regulatory approval of a
product is granted, such approval may entail limitations on the indicated uses
for which it may be marketed. Finally, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if safety or
manufacturing problems occur following initial marketing. Among the conditions
for approval is the requirement that the prospective manufacturer's quality
control and manufacturing procedures conform to cGMP requirements. These
requirements must be followed at all times in the manufacture of the approved
product. In complying with these requirements, manufacturers must continue to
expend time, monies and effort in the area of production and quality control to
ensure full compliance.
Both before and after the FDA approves a product, the manufacturer and the
holder or holders of the BLA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the preclinical and clinical testing process, the review process, or
at any time afterward, including after approval, may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or the license
holder. In addition, later discovery of previously unknown problems may result
in restrictions on a product, its manufacturer, or the license holder, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development.
For clinical investigation and marketing outside the United States, we are also
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for drugs. The foreign regulatory approval process includes
all of the risks associated with FDA approval set forth above as well as
country-specific regulations.
No xenotransplantation-based therapeutic product has been approved for sale by
the FDA. The FDA has not yet established definitive regulatory guidelines for
xenotransplantation, but has proposed interim guidelines in an attempt to reduce
the risk of contamination of transplanted organ and cellular products with
infectious agents. Definitive guidelines in the United States may never be
issued, if at all. Current
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companies involved in this field, including ourselves, may not be able to comply
with any federal final definitive guidelines that may be issued.
COMPETITION
Currently, many companies, including major pharmaceutical and chemical companies
as well as specialized biotechnology companies, are engaged in activities
similar to our activities. Universities, governmental agencies and other public
and private research organizations also conduct research and may market
commercial products on their own or through joint ventures. Many of these
entities may have:
- substantially greater financial and other resources;
- larger research and development staffs;
- in the case of universities, lower labor costs; and/or
- more extensive marketing and manufacturing organizations.
Many of these companies have significant experience in preclinical testing,
human clinical trials, product manufacturing, marketing and distribution and
other regulatory approval procedures. They may also have a greater number of
significant patents and greater legal resources to seek remedies for cases of
alleged infringement of their patents by us to block, delay, or co-opt our own
drug development process.
We compete with large pharmaceutical companies that produce and market synthetic
compounds and with specialized biotechnology firms in the United States, Europe
and elsewhere, as well as a growing number of large pharmaceutical companies
that are applying biotechnology to their operations. Many biotechnology
companies have focused their developmental efforts in the human therapeutics
area, and many major pharmaceutical companies have developed or acquired
internal biotechnology capabilities or have made commercial arrangements with
other biotechnology companies. A number of biotechnology and pharmaceutical
companies are developing new products for the treatment of the same diseases
being targeted by us; in some instances these products have already entered
clinical trials. Other companies are engaged in research and development based
on complement proteins, T-cell therapeutics, gene therapy and
xenotransplantation.
Each of Avant Immunotherapeutics, Inc., Leukosite Inc., Abbott Laboratories,
Gliatech Inc. and Biocryst Pharmaceuticals Inc. has publicly announced
intentions to develop complement inhibitors to treat diseases related to trauma,
inflammation or certain brain or nervous system disorders. Avant has initiated
clinical trials for a proposed complement inhibitor to treat acute respiratory
distress syndrome, myocardial infarction, and lung transplantation. We are aware
that Pfizer, Inc., SmithKline Beecham Plc, and Merck & Co., Inc. are also
attempting to develop complement inhibitor therapies. We believe that our
potential C5 Inhibitors differ substantially from those of our competitors due
to our compounds' demonstrated ability to specifically intervene in the
complement cascade at what we believe to be the optimal point so that the
disease-causing actions of complement proteins generally are inhibited while the
normal disease-preventing functions of complement proteins generally remain
intact as do other aspects of immune function.
We further believe that, under conditions of inflammation, a complement
inhibitor compound which only indirectly addresses the harmful activity of
complement may be bypassed by pathologic mechanisms present in the inflamed
tissue. Each of Bayer AG, Immunex Corp., Pharmacia & Upjohn Inc. and
Rhone-Poulenc SA sells a product which is used clinically to reduce surgical
bleeding during cardiopulmonary bypass surgery, but has little beneficial effect
on other significant inflammatory morbidities associated with cardiopulmonary
bypass surgery. We believe that each of these drugs does not significantly
prevent complement activation and subsequent inflammation that lead to organ
damage and blood loss during cardiopulmonary bypass surgery, but instead each
drug attempts to reduce blood
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loss by shifting the normal blood thinning/blood clotting balance in the blood
towards enhanced blood clotting.
Nextran Inc., a subsidiary of Baxter International Inc., and Imutran Ltd., a
wholly-owned subsidiary of Novartis Pharma AG, are seeking to develop pig cell
xenograft technology. Novartis Pharma AG is also collaborating with
Biotransplant Inc. to commercially develop xenograft organs. We are aware that
Diacrin Inc. and Genzyme Tissue Repair, Inc. are working in this field.
FACILITIES
Our headquarters, research and development facility, and pilot manufacturing
facility are located in New Haven, Connecticut, within close proximity to Yale
University. At this facility, we lease and occupy a total of approximately
60,000 square feet of space, which includes approximately 30,000 square feet of
research laboratories and 10,000 square feet of space dedicated to the pilot
manufacturing facility. We lease our facilities under three operating leases
which expired in December 1997, June 1998, and March 1999. We are currently
continuing the leases on a month-to-month basis while lease extensions are under
discussion. Current monthly rental on the facilities is approximately $36,000.
Our pilot manufacturing plant is currently being utilized for producing
compounds for our current clinical trials. We believe the laboratory space will
be adequate for our current research and development activities. In addition
through a wholly-owned subsidiary, we own a transgenic manufacturing facility
located in the Northeast.
EMPLOYEES
As of October 1, 1999, we had 90 full-time employees, of which 81 were engaged
in research, development, manufacturing, and clinical development, and nine in
administration and finance. Doctorates are held by 28 of our employees. Each of
our employees has signed a confidentiality agreement.
LEGAL PROCEEDINGS
We are not a party to any material legal proceeding.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is certain information regarding our executive officers,
directors and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH ALEXION
- ---- -------- ---------------------
<S> <C> <C>
John H. Fried, Ph.D.(1) .................. 70 Chairman of the Board of Directors
Leonard Bell, M.D.(1) .................... 41 President, Chief Executive Officer,
Secretary, Treasurer, Director
David W. Keiser........................... 48 Executive Vice President, Chief Operating
Officer
Louis A. Matis, M.D. ..................... 49 Senior Vice President, Chief Scientific
Officer
Stephen P. Squinto, Ph.D. ................ 43 Senior Vice President, Chief Technology
Officer
Barry P. Luke............................. 41 Vice President of Finance and
Administration, Assistant Secretary
Nancy Motola, Ph.D. ...................... 47 Vice President of Regulatory Affairs and
Quality Assurance
James A. Wilkins, Ph.D. .................. 47 Vice President of Process Sciences and
Manufacturing
William Fodor, Ph.D.(2) .................. 41 Senior Director of Xenotransplantation
Christopher F. Mojcik, M.D., Ph.D.(2) .... 39 Senior Director of Clinical Development
Scott A. Rollins, Ph.D.(2) ............... 36 Senior Director of Project Management and
Drug Development
Jerry T. Jackson.......................... 58 Director
Max Link, Ph.D.(1)(3) .................... 59 Director
Joseph A. Madri, Ph.D., M.D. ............. 53 Director
Leonard Marks, Jr., Ph.D.(3) ............. 78 Director
Eileen M. More............................ 53 Director
R. Douglas Norby.......................... 64 Director
Alvin S. Parven(3)........................ 59 Director
</TABLE>
- ------------------------------------
(1) Member of our nominating committee.
(2) Key employee.
(3) Member of our audit committee and our compensation committee.
Each director will hold office until the next annual meeting of stockholders and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. Each officer serves at the discretion of the board of
directors. Each of our executive officers is a party to an employment agreement
with us.
JOHN H. FRIED, PH.D. has been the Chairman of our board of directors of Alexion
since April 1992. Since 1992, Dr. Fried has been President of Fried &
Co., Inc., a health technology venture firm. Dr. Fried was a director of Syntex
Corp., a life sciences and health care company, from 1982 to 1994 and he served
as Vice Chairman of Syntex from 1985 to January 1993 and President of the Syntex
Research Division from 1976 to 1992. Dr. Fried has originated more than 200 U.S.
Patents and has authored more than 80 scientific publications. Dr. Fried
received his B.S. in Chemistry and Ph.D. in Organic Chemistry from Cornell
University.
LEONARD BELL, M.D. is the principal founder of Alexion, and has been a director
of Alexion since February 1992 and the Company's President and Chief Executive
Officer, Secretary and Treasurer since January 1992. From 1991 to 1992,
Dr. Bell was an Assistant Professor of Medicine and Pathology and
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co-Director of the Program in Vascular Biology at the Yale University School of
Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the Yale-New
Haven Hospital and an Assistant Professor in the Department of Internal Medicine
at the Yale University School of Medicine. Dr. Bell was the recipient of the
Physician Scientist Award from the National Institutes of Health and
Grant-in-Aid from the American Heart Association as well as various honors and
awards from academic and professional organizations. His work has resulted in
more than 20 scientific publications and three patent applications. Dr. Bell is
a director of the Connecticut Technology Council and Connecticut United for
Research Excellence, Inc. He also served as a director of the Biotechnology
Research and Development Corporation from 1993 to 1997. Dr. Bell received his
A.B. from Brown University and M.D. from Yale University School of Medicine.
Dr. Bell is currently an Adjunct Assistant Professor of Medicine and Pathology
at Yale University School of Medicine.
DAVID W. KEISER has been Executive Vice President and Chief Operating Officer of
Alexion since July 1992. From 1990 to 1992, Mr. Keiser was Senior Director of
Asia Pacific Operations for G.D. Searle & Company Limited, a manufacturer of
pharmaceutical products. From 1986 to 1990, Mr. Keiser was successively
Licensing Manager, Director of Product Licensing and Senior Director of Product
Licensing for Searle. From 1984 to 1985, Mr. Keiser was New Business
Opportunities Manager for Mundipharma AG, a manufacturer of pharmaceutical
products, in Basel, Switzerland where he headed pharmaceutical licensing and
business development activities in Europe and the Far East. From 1978 to 1983,
he was Area Manager for F. Hoffmann La Roche Ltd., a manufacturer of
pharmaceutical products, in Basel, Switzerland. Mr. Keiser received his B.A.
from Gettysburg College.
LOUIS A. MATIS, M.D. has been the Senior Vice President and Chief Scientific
Officer since March 1998 and Vice President of Research, Immunobiology, of
Alexion from August 1994 to March 1998. From January 1993 to July 1994,
Dr. Matis served as the Director of our Program in Immunobiology. Prior to
joining Alexion, from 1977 to 1992, Dr. Matis held various appointments at the
NIH and the FDA. From 1990 to 1992, Dr. Matis was a Senior Investigator in the
Laboratory of Immunoregulation at the National Cancer Institute and from 1987 to
1990 he was a Senior Staff Fellow in the Molecular Immunology Laboratory at the
Center for Biologics Evaluation and Research associated with the FDA. Dr. Matis
is the author of more than 100 scientific papers in the fields of T-cell
biology. Dr. Matis has received numerous awards including the NIH Award of
Merit. Dr. Matis received his B.A. from Amherst College and M.D. from the
University of Pennsylvania Medical School.
STEPHEN P. SQUINTO, PH.D. is a founder of Alexion and has held the positions of
Senior Vice President and Chief Technical Officer since March 1998, Vice
President of Research, Molecular Sciences, from August 1994 to March 1998,
Senior Director of Molecular Sciences from July 1993 to July 1994 and Director
of Molecular Development from April 1992 to July 1993. From 1989 to 1992,
Dr. Squinto held various positions at Regeneron Pharmaceuticals, Inc., most
recently serving as Senior Scientist and Assistant Head of the Discovery Group.
From 1986 to 1989, Dr. Squinto was an Assistant Professor of Biochemistry and
Molecular Biology at Louisiana State University Medical Center. Dr. Squinto's
work has led to over 70 scientific papers in the fields of gene regulation,
growth factor biology and gene transfer. Dr. Squinto's work is primarily in the
fields of regulation of eukaryotic gene expression, mammalian gene expression
systems and growth receptor and signal transduction biology. Dr. Squinto also
serves as a Director of the BRDC since 1997. Dr. Squinto received his B.A. in
Chemistry and Ph.D. in Biochemistry and Biophysics from Loyola University of
Chicago.
BARRY P. LUKE has been Vice President of Finance and Administration since
September 1998 and Senior Director of Finance and Administration of Alexion from
August 1995 to September 1998 and prior thereto was Director of Finance and
Accounting of the Company from May 1993. From 1989 to 1993, Mr. Luke was Chief
Financial Officer, Secretary and Vice President--Finance and Administration at
Comtex Scientific Corporation, a publicly held distributor of electronic news
and business information. From 1985 to 1989, he was Controller and Treasurer of
Softstrip, Inc., a manufacturer of computer
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peripherals and software. From 1980 to 1985, Mr. Luke was employed by the
General Electric Company where he held positions at GE's Corporate Audit Staff
after completing GE's Financial Management Program. Mr. Luke received a B.A. in
Economics from Yale University and an M.B.A. in management and marketing from
the University of Connecticut.
NANCY MOTOLA, PH.D. has been the Vice President of Regulatory Affairs and
Quality Assurance since 1998. From 1991 to 1998, Dr. Motola served as Assistant,
Associate, and then Deputy Director, Regulatory Affairs for the Bayer
Corporation Pharmaceutical Division where she was responsible for regulatory
aspects of product development programs for cardiovascular, neuroscience,
metabolic and oncology drugs and included drugs targeting arthritis, cardiac
disorders, stroke and cognitive dysfunction. Dr. Motola has been responsible for
the filing of numerous INDs, other regulatory submissions and has filed New Drug
Applications for marketing approval resulting in three currently marketed drugs.
Dr. Motola held regulatory affairs positions of increasing responsibility at
Abbott Laboratories from 1989 to 1991 and at E.R. Squibb and Sons, Inc. from
1983 to 1989. She has also served as past Chairperson of the Regulatory Affairs
Section of the American Association of Pharmaceutical Scientists. Dr. Motola
received her B.A. from Central Connecticut State University and M.S. and Ph.D.
degrees in medicinal chemistry from the University of Rhode Island.
JAMES A. WILKINS, PH.D. has been Vice President of Process Sciences and
Manufacturing of Alexion since September 1998 and has held the positions of
Senior Director of Process Sciences from August 1996 to September 1998, Senior
Director of Process Development from August 1995 to August 1996, and Director of
Process Development from September 1993 to August 1995. From 1989 to 1993,
Dr. Wilkins was Group Leader of the Protein Chemistry Department at Otsuka
America Pharmaceutical, Inc. From 1987 to 1989, Dr. Wilkins was a Scientist in
Recovery Process Development at Genentech, Inc. and from 1982 to 1987, he was an
Associate Research Scientist in the Thomas C. Jenkins Department of Biophysics
at Johns Hopkins University. He is the author of more than 25 presentations and
scientific articles in the fields of protein refolding and protein biochemistry.
Dr. Wilkins received a B.A. in Biology from University of Texas and a Ph.D. in
Biochemistry from University of Tennessee.
WILLIAM FODOR, PH.D. has been Senior Director of Xenotransplantation since 1997.
After joining Alexion in 1992, Dr. Fodor was a Staff Scientist from 1992 to
1994, Principal Scientist from 1994 to 1996, and Director of Xenotransplantation
from 1996 to 1997. Dr. Fodor has been responsible for managing the preclinical
development and manufacturing of our xenotransplantation product candidates.
Prior to 1992, Dr. Fodor was a postdoctoral research fellow in the Section of
Immunobiology at Yale University School of Medicine and at Biogen, Inc., a
biopharmaceutical firm. Dr. Fodor's work has led to over 30 scientific papers
and patents in the fields of immunobiology and molecular biology. Dr. Fodor
received his B.S. in Genetics and Ph.D. in Molecular Genetics from the Ohio
State University.
CHRISTOPHER F. MOJCIK, M.D., PH.D. has been Senior Director of Clinical
Development since joining Alexion in July 1998. From 1996 until July 1998, he
was an Associate Director in the Metabolics/ Rheumatics Department at Bayer
Corporation's Pharmaceuticals Division. Dr. Mojcik was responsible for Phase II
and III development of certain arthritis programs and certain Phase IV programs
in cardiopulmonary bypass. From 1993 to 1996, he was a Senior Staff Fellow in
the Cellular Immunology Section of the Laboratory of Immunology in the NIAID at
the NIH. From 1991 to 1993, he completed his Fellowship in Rheumatology in the
National Institute of Arthritis and Musculoskeletal and Skin Diseases at the
NIH. He received his B.A. from Washington University in St. Louis, Missouri, and
his M.D. and Ph.D. from the University of Connecticut.
SCOTT A. ROLLINS, PH.D. is a co-founder of Alexion and has been Senior Director
of Project Management and Drug Development since August 1999, Senior Director of
Complement Biology from 1997 to 1999, Director of Complement Biology from 1996
to 1997, Principal Scientist from 1994 to 1996, and Staff Scientist from 1992 to
1994. Since 1994, Dr. Rollins has been responsible for the preclinical
development
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of our anti-inflammatory compound 5G1.1-SC. Since 1999, Dr. Rollins has been
additionally responsible for the project management functions of 5G1.1-SC,
currently under joint development with Procter & Gamble Pharmaceuticals. Prior
to 1992, Dr. Rollins was a postdoctoral research fellow in the Department of
Immunobiology at Yale University School of Medicine. Dr. Rollins' work has led
to over 50 scientific papers and patents in the fields of complement biology. He
received his B.S. in Cytotechnology and Ph.D. in Microbiology and Immunology
from the University of Oklahoma Health Sciences Center.
JERRY T. JACKSON has been a director of Alexion since September 1999. He was
employed by Merck & Co. Inc., a major pharmaceutical company, from 1965 until
his retirement in 1995. During this time, he had extensive experience in sales,
marketing and corporate management, including joint ventures. From 1993 until
1995, Mr. Jackson served as Executive Vice President of Merck with broad
responsibilities for numerous operating groups--including Merck's International
Human Health, Worldwide Human Vaccines, the AgVet Division, Astra/Merck U.S.
Operations, as well as worldwide marketing. During 1993, he was also President
of the Worldwide Human Health Division in 1993. He served as Senior Vice
President of Merck from 1991 to 1992 responsible for Merck's Specialty Chemicals
and previously, he was President of Merck's Sharp & Dohme International.
Mr. Jackson serves as a director of Cor Therapeutics, Inc., Molecular
Biosystems, Inc., SunPharm Corporation, and Crescendo Pharmaceuticals
Corporation. Mr. Jackson received his B.A. from University of New Mexico.
MAX LINK, PH.D. has been a director of Alexion since April 1992. From May 1993
to June 1994, Dr. Link was Chief Executive Officer of Corange (Bermuda), the
parent company of Boehringer Mannheim Therapeutics, Boehringer Mannheim
Diagnostics and DePuy Orthopedics. From 1992 to 1993, Dr. Link was Chairman of
the Board of Sandoz Pharma, Ltd., a manufacturer of pharmaceutical products.
From 1987 to 1992, Dr. Link was the Chief Executive Officer of Sandoz Pharma and
a member of the Executive Board of Sandoz, Ltd., Basel. Prior to 1987, Dr. Link
served in various capacities with the United States operations of Sandoz,
including as President and Chief Executive Officer. Dr. Link is also a director
of Protein Design Labs, Inc., Cell Therapeutics, Inc., and Procept, Inc., each a
publicly held pharmaceutical company, as well as Human Genome Sciences Inc., a
genomics company.
JOSEPH A. MADRI, PH.D., M.D. is a founder of Alexion and has been a director of
Alexion since February 1992. Since 1980, Dr. Madri has been on the faculty of
the Yale University School of Medicine and is currently a Professor of
Pathology. Dr. Madri serves on the editorial boards of numerous scientific
journals and he is the author of over 175 scientific publications. Dr. Madri
works in the areas of regulation of angiogenesis, vascular cell-matrix
interactions, cell-cell interactions, lymphocyte-endothelial cell interactions
and endothelial and smooth muscle cell biology and has been awarded a Merit
award from the National Institutes of Health. Dr. Madri received his B.S. and
M.S. in Biology from St. John's University and M.D. and Ph.D. in Biological
Chemistry from Indiana University.
LEONARD MARKS, JR., PH.D. has been a director of Alexion since April 1992. Since
1985 Dr. Marks has served as an independent corporate director and management
consultant. Dr. Marks serves on the board of directors of Netvision Technologies
Inc. Dr. Marks served as a director of Airlease Management Services, an aircraft
leasing company (a subsidiary of Bank America Leasing & Capital Corporation),
from 1995 to March 1998, and Northern Trust Bank of Arizona, a commercial and
trust bank subsidiary of Northern Trust of Chicago, from 1995 to March 1998.
Prior to 1985, Dr. Marks held various positions in academia and in the corporate
sector including Executive Vice President, Castle & Cooke, Inc. from 1972 to
1985. Dr. Marks received his B.A. in Economics from Drew University and an
M.B.A. and Doctorate in Business Administration from Harvard University.
EILEEN M. MORE has been a director of Alexion since December 1993. Ms. More has
been associated since 1978 with Oak Investment Partners and has been a General
Partner of Oak since 1980. Oak is a venture capital firm and a stockholder of
Alexion. Ms. More is currently a director of several private high
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technology and biotechnology firms including OraPharma, Inc., Halox
Technologies, Psychiatric Solutions and Teloquent Communication Corporation.
Ms. More studied mathematics at the University of Bridgeport and is a Chartered
Financial Analyst.
R. DOUGLAS NORBY has been a director of Alexion since September 1999. Since
1996, Mr. Norby has been the Executive Vice President and Chief Financial
Officer of LSI Logic Corporation, a semiconductor company, and he also serves on
the Board of LSI. From September 1993 until November 1996, he served as Senior
Vice President and Chief Financial Officer of Mentor Graphics Corporation, a
software company. Mr. Norby served as President of Pharmetrix Corporation, a
drug delivery company, from July 1992 to September 1993, and from 1985 to 1992,
he was President and Chief Operating Officer of Lucasfilm, Ltd., an
entertainment company. From 1979 to 1985, Mr. Norby was Senior Vice President
and Chief Financial Officer of Syntex Corporation, a pharmaceutical company.
Mr. Norby received a B.A. in Economics from Harvard University and an M.B.A.
from Harvard Business School.
ALVIN S. PARVEN has been a director of Alexion since May 1999. Since 1997,
Mr. Parven has been President of ASP Associates, a management and strategic
consulting firm. From 1994 to 1997, Mr. Parven was Vice President at Aetna
Business Consulting, reporting to the Office of the Chairman of Aetna. From 1987
to 1994, Mr. Parven was Vice President, Operations at Aetna Health Plans. Prior
to 1987, he served in various capacities at Aetna including Vice President,
Pension Services from 1983 to 1987. Mr. Parven received his B.A. from
Northeastern University.
CERTAIN TRANSACTIONS
In March 1998, through its wholly-owned subsidiary Biotech Target, S.A.,
BB Biotech AG, a single institutional investor, purchased 670,000 shares of our
common stock in a private placement at $13.18 per share, aggregating
$8.8 million. At October 1, 1999, BB Biotech beneficially owned 1,824,113 shares
of common stock, or approximately 16.1% of our outstanding shares of common
stock.
In September 1997, BB Biotech, through Biotech Target, purchased 400,000 shares
of Series B Preferred Stock at $25.00 per share, convertible automatically in
six months, or at the election of the holder at any time after the date of
issuance, into 935,782 shares of common stock at $10.69 per share. The net
proceeds from this private placement were approximately $9.5 million. The
conversion price represented a 3.0% premium to the closing bid of $10.38 on the
day of pricing. The Series B Preferred Stock paid a dividend of $2.25 per share
of Series B Preferred Stock on March 4, 1998. In March 1998, the Series B
Preferred Stock was converted to 935,782 shares of our common stock, and we
elected to pay the dividend on the preferred stock in shares of common stock,
aggregating 70,831 shares.
In June and October 1992, we entered into patent licensing agreements with
Oklahoma Medical Research Foundation and Yale University. The agreements provide
that we will pay to these institutions royalties based on sales of products
incorporating technology licensed thereunder and also license initiation fees,
including annual minimum royalties that increase in amount based on the status
of product development and the passage of time. Under policies of OMRF and Yale,
the individual inventors of patents are entitled to receive a percentage of the
royalties and other license fees received by the licensing institution. Some of
our founders and scientific advisors are inventors under patent and patent
applications, including Dr. Bell, one of our directors and our President and
Chief Executive Officer, Dr. Madri, one of our directors, Dr. Squinto, Senior
Vice President and Chief Technology Officer, and Dr. Rollins, Senior Director of
Project Management and Drug Development with respect to patent applications
licensed from Yale and, therefore, entitled to receive a portion of royalties
and other fees payable by us.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of October 1, 1999, except as
otherwise noted in the footnotes and as adjusted to reflect the sale of
2,500,000 shares of common stock in the offering: (1) each person known by us to
own beneficially more than 5.0% percent of our outstanding common stock;
(2) each director and each named executive officer; and (3) all directors and
executive officers of Alexion as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------------------
NAME OF BENEFICIAL OWNER(1) OWNED(2) BEFORE OFFERING AFTER OFFERING
- --------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
BB Biotech AG
Vordergrasse 3
8200 Schaffhausen
CH/Switzerland(3)............................... 1,824,113 16.1% 13.2%
Zesiger Capital
320 Park Avenue, 30th floor
New York, NY 10022(4)........................... 845,000 7.5% 6.1%
The Kaufmann Fund, Inc.
140 E. 45th Street, 43rd floor
New York, NY 10017(5)........................... 837,300 7.4% 6.1%
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154(6)........................... 828,600 7.3% 6.0%
T. Rowe Price Associates
100 East Pratt Street
Baltimore, MD 21205(7).......................... 828,600 7.3% 6.0%
OrbiMed Advisers, Inc.
41 Madison Avenue, 40th floor
New York, NY 10010(8)........................... 750,500 6.6% 5.4%
Leonard Bell, M.D.(9)............................. 583,850 5.0% 4.1%
Stephen P. Squinto, Ph.D.(10)..................... 180,450 1.6% 1.3%
David W. Keiser(11)............................... 167,300 1.5% 1.2%
Louis A. Matis, M.D.(12).......................... 147,900 1.3% 1.1%
Eileen M. More(13)................................ 114,780 1.0 % *
John H. Fried, Ph.D.(14).......................... 91,003 * *
James A. Wilkins, Ph.D.(15)....................... 60,000 * *
Joseph A. Madri, Ph.D., M.D.(16).................. 57,467 * *
Max Link, Ph.D.(17)............................... 25,490 * *
Leonard Marks, Jr., Ph.D.(18)..................... 15,967 * *
Jerry T. Jackson(19).............................. -- * *
R. Douglas Norby(20).............................. -- * *
Alvin S. Parven(21)............................... -- * *
Directors and Executive Officers as a group
(15 persons)(22)................................ 1,501,257 12.2% 10.1%
</TABLE>
- ------------------------------------
* Less than one percent
(1) Unless otherwise indicated, the address of all persons is 25 Science Park,
New Haven, Connecticut 06511.
53
<PAGE>
(2) To our knowledge, except as set forth below, the persons named in the table
have sole voting and investment power with respect to all shares of our
common stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes in this table.
(3) This figure is based upon information set forth in Amendment No. 3 to
Schedule 13D filed on May 27, 1998, filed jointly by BB Biotech AG and
Biotech Target, S.A. Biotech Target, S.A., a Panamanian corporation, is a
wholly-owned subsidiary of BB Biotech AG. BB Biotech AG is a holding company
incorporated in Switzerland.
(4) This figure is based upon information set forth in Schedule 13G filed on
January 21, 1999.
(5) This figure is based upon information set forth in Schedule 13G filed on
August 20, 1999.
(6) This figure is based upon information independently obtained by us as of
October 14, 1999. The last publicly available disclosure filed with the SEC
by the stockholder was a Form 13F dated as of August 14, 1998.
(7) This figure is based upon information set forth in Schedule 13G filed on
February 5, 1999.
(8) This figure is based upon information set forth in Schedule 13G filed on
March 25, 1999.
(9) Includes 423,750 shares of our common stock that may be acquired upon the
exercise of options within 60 days of October 1, 1999 and 300 shares, in
aggregate, held in the names of Dr. Bell's three minor children. Excludes
161,250 shares obtainable through the exercise of options granted to
Dr. Bell which are not exercisable within 60 days of October 1, 1999 and
90,000 shares held in trust for Dr. Bell's children of which Dr. Bell
disclaims beneficial ownership. Dr. Bell disclaims beneficial ownership of
the shares held in the name of his minor children.
(10) Includes 123,750 shares of our common stock which may be acquired upon the
exercise of options within 60 days of October 1, 1999 and 6,200 shares, in
aggregate, held in the names of Dr. Squinto's two minor children of which
6,000 shares are in two trusts managed by his wife. Excludes 58,750 shares
obtainable through the exercise of options granted to Dr. Squinto which, are
not exercisable within 60 days of October 1, 1999. Dr. Squinto disclaims
beneficial ownership of the shares held in the name of his minor children
and the foregoing trusts.
(11) Includes 125,000 shares of our common stock which may be acquired upon the
exercise of options within 60 days of October 1, 1999 and 300 shares, in
aggregate, held in the names of Mr. Keiser's three minor children. Excludes
72,500 shares obtainable through the exercise of options granted to
Mr. Keiser, which, are not exercisable within 60 days of October 1, 1999.
Mr. Keiser disclaims beneficial ownership of the shares held in the name of
his minor children.
(12) Includes 133,750 shares of our common stock which may be acquired upon the
exercise of options granted to Dr. Matis within 60 days of October 1, 1999
and 150 shares, in aggregate, held in the names of Dr. Matis' three minor
children. Excludes 58,750 shares obtainable through the exercise of options,
granted to Dr. Matis, which, are not exercisable within 60 days of
October 1, 1999. Dr. Matis disclaims beneficial ownership of the shares held
in the name of his minor children.
(13) Includes 27,467 shares of our common stock which may be acquired upon the
exercise of options within 60 days of October 1, 1999 granted to Eileen
More. Also includes 76,406 shares owned by Oak Investment V Partners and
10,907 shares owned by Oak Investment V Affiliates, two affiliated limited
partnerships. Ms. More is a General Partner of these entities. Excludes
3,333 shares obtainable through the exercise of options granted to Ms. More
which are not exercisable within 60 days of October 1, 1999.
(14) Includes 14,967 shares of our common stock that may be acquired on the
exercise of options that are exercisable within 60 days of October 1, 1999.
Excludes 3,333 shares obtainable through the exercise of options granted to
Dr. Fried, which are not exercisable within 60 days of October 1, 1999.
(15) Excludes 45,000 shares obtainable through the exercise of options granted
to Dr. Wilkins, which are not exercisable within 60 days of October 1, 1999.
(16) Includes 12,467 shares of our common stock that may be acquired upon the
exercise of options within 60 days of October 1, 1999. Excludes 3,333 shares
obtainable through the exercise of options granted to Dr. Madri, which are
not exercisable within 60 days of October 1, 1999.
54
<PAGE>
(17) Includes 167 shares of our common stock which, may be acquired upon the
exercise of options within 60 days of October 1, 1999. Excludes 3,333 shares
obtainable through the exercise of options, granted to Dr. Link, which are
not exercisable within 60 days of October 1, 1999.
(18) Includes 14,967 shares of our common stock which, may be acquired upon the
exercise of options within 60 days of October 1, 1999. Excludes 3,333 shares
obtainable through the exercise of options granted to Dr. Marks, which are
not exercisable within 60 days of October 1, 1999.
(19) Excludes 7,500 shares obtainable through the exercise of options granted to
Mr. Jackson, which are not exercisable within 60 days of October 1, 1999.
(20) Excludes 7,500 shares obtainable through the exercise of options granted to
Mr. Norby, which are not exercisable within 60 days of October 1, 1999.
(21) Excludes 7,500 shares obtainable through the exercise of options granted to
Mr. Parven, which are not exercisable within 60 days of October 1, 1999.
(22) Consists of shares beneficially owned by Drs. Bell, Fried, Link, Madri,
Marks, Matis, Motola, Squinto, and Wilkins, Messrs. Jackson, Keiser, Luke,
Norby and Parven, and Ms. More. Includes 993,335 shares of our common stock
which, may be acquired upon the exercise of options within 60 days of
October 1, 1999.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock will consist of 25,000,000 shares of common stock,
$.0001 par value, and 5,000,000 shares of preferred stock, $.0001 par value. As
of October 1, 1999, and after giving effect to the issuance of 2,500,000 shares
of common stock offered by us in the offering, there will be:
- 13,829,660 shares of common stock outstanding;
- no shares of preferred stock issued or outstanding;
- 120,000 shares of preferred stock designated as junior
participating cumulative preferred stock, $1.00 par value;
- options to purchase 2,317,887 shares of common stock; and
- warrants to purchase 220,000 shares of common stock.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not authorized by our certificate of incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. Subject to preferences that may be
applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available at times and in amounts as the board of directors from
time to time may determine. The common stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to
stockholders shall be distributed ratably among the holders of our common stock
after payment of liquidation preferences, if any, on any outstanding shares of
preferred stock and payment of other claims of creditors. Each outstanding share
of common stock is, and each share of common stock to be outstanding upon
completion of the offering will be upon payment, duly and validly issued, fully
paid and non-assessable.
PREFERRED STOCK
The authorized shares of preferred stock may by issued in one or more series
without further stockholder authorization, and the board of directors is
authorized to fix and determine the terms, limitations and relative rights and
preferences of the preferred stock, to establish series of preferred stock and
to fix and determine the variations among series. If we issue preferred stock,
it would have priority over our common stock with respect to dividends and to
other distributions, including the distribution of assets upon liquidation, and
we may be obligated to repurchase or redeem it. The board of directors can issue
preferred stock without the approval of our common stockholders. Preferred stock
may have voting and conversion rights, including multiple voting rights, which
could adversely affect the rights of holders of common stock. In addition to
having a preference with respect to dividends or liquidation proceeds, if
preferred stock is issued, it may be entitled to the allocation of capital gains
from the sale of our assets. Pursuant to our rights agreement, dated
February 14, 1997, we designated 120,000 shares of our preferred stock as junior
participating cumulative preferred stock. We do not have any present plans to
issue any more shares of preferred stock.
56
<PAGE>
STOCK OPTIONS
As of October 1, 1999, we have outstanding options to purchase 2,317,887 shares
of common stock at a weighted average exercise price of $8.15 per share. Of
these options, we issued options to purchase 2,260,887 shares pursuant to our
1992 Stock Option Plan and options to purchase 57,000 shares pursuant to our
1992 Stock Option Plan for Outside Directors.
The 1992 Stock Option Plan, as currently in effect, permits the granting of
options to purchase up to an aggregate of 3,100,000 shares of our common stock.
Under this plan, we may grant incentive stock options and non-incentive stock
options. The exercise price for shares covered by an incentive stock option may
not be less than 100% of the fair market value of our common stock on the date
of grant (110% in the case of a grant to an employee who owns stock possessing
more than 10% of the combined voting power of all classes of our stock or any
subsidiary entitled to vote). The exercise price for shares covered by a
non-incentive stock option may not be less than the par value of our common
stock at the date of grant. All options must expire no later than 10 years (five
years in the case of an incentive stock option granted to a 10% stockholder)
from the date of grant.
The 1992 Stock Option Plan for Outside Directors provides for the automatic
grant of options to our directors who are not our officers, employees or
consultants, other than the Chairman of the Board. Each of these directors
receives options on the date of his or her election and on the date of each
annual meeting of stockholders at which he or she is reelected as a director.
WARRANTS
We have outstanding warrants to purchase 220,000 shares of our common stock at
an initial exercise price of $9.90 per share which were issued to Josephthal
Lyon & Ross Incorporated, the underwriter of our initial public offering, for a
nominal consideration in connection with our initial public offering. These
warrants are initially exercisable at a price of $9.90 per share for a period of
42 months starting on August 27, 1997.
REGISTRATION RIGHTS
Dr. Leonard Bell has rights to include in a registration statement of ours
585,000 shares of our common stock issuable upon exercise of his stock options.
If we grant to any other person or entity registration rights more favorable
than those granted to Dr. Bell, we are obligated to amend Dr. Bell's piggyback
registration rights to include the more favorable rights. Dr. Bell has waived
his registration rights in connection with the offering.
In addition, holders of approximately 150,000 shares of our common stock have
piggyback registration rights. These holders may include shares in the offering
in amounts the underwriters determine acceptable given prevailing market
conditions. We are currently seeking waivers of these registration rights.
ANTI-TAKEOVER PROVISIONS
"POISON PILL" RIGHTS TO SPECIAL PREFERRED STOCK
On February 14, 1997, our board of directors adopted a "poison pill" by
declaring a dividend distribution of one preferred stock purchase right for each
outstanding share of our common stock. Each right entitles the registered holder
to purchase from us one one-hundredth of a share of junior participating
cumulative preferred stock, par value $1.00 per share, at a price of $75.00 per
57
<PAGE>
one-hundredth of a share, subject to adjustment. The description and terms of
the rights are set forth in a rights agreement which we entered into with
Continental Stock Transfer & Trust Company, as rights agent.
The rights are not exercisable until the distribution date, which means the date
of the earlier to occur of:
- 10 business days following the time of a public announcement or
notice to us that a person or group of affiliated or associated
persons has acquired beneficial ownership, as defined in the rights
agreement, of 20% or more of our outstanding shares of common
stock; or
- 10 business days, or such later date as may be determined by our
board of directors, after the date of the commencement or
announcement by a person of an intention to make a tender offer or
exchange offer for an amount of common stock which, together with
the shares of stock already owned by such person, constitutes 20%
or more of our outstanding shares of common stock.
The rights will expire on March 6, 2002, unless we decided to redeem them
earlier as described below.
In the event that after the stock acquisition date, we are acquired in a merger
or other business combination transaction or if 50% or more of our assets, cash
flow or earning power are sold or otherwise transferred, each right holder shall
have the right to receive, upon the exercise thereof at the then current
exercise price of the right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the right. In the event that we were
the surviving corporation of a merger and our common stock were changed or
exchanged, each right holder will thereafter have the right to receive upon
exercise that number of shares of common stock of the other party to the
transaction having a market value of two times the exercise price of the right.
In the event that a person or group acquires 20% or more of our outstanding
shares, otherwise than pursuant to a tender offer or exchange offer for all
outstanding shares of common stock at a price and on terms which are determined
to be fair and in our best interests and the bests interests of our stockholders
by a majority of the members of our board of directors who are not acquiring
persons or representatives or nominees of or affiliated or associated with the
acquiring person, each right holder, except for any acquiring person holding
rights, will be able to receive upon exercise that number of shares of common
stock having a market value of two times the exercise price of the right. A
person or group will not be deemed to be an acquiring person if our board of
directors determines that such person or group became an acquiring person
inadvertently and such person or group promptly divests itself of a sufficient
number of shares of common stock so that such person or group no longer has 20%
or more of our outstanding shares.
Upon specified conditions, at any time prior to the earlier of 10 business days
after the stock acquisition date or March 6, 2002, by a resolution of our board
of directors, we may redeem the rights in whole, but not in part, at a price of
$0.01 per right.
At any time after a person acquires 20% of our outstanding shares of common
stock and prior to the acquisition by that person of 50% or more of our
outstanding common stock, our board of directors, with the agreement of a
majority of the continuing directors, may exchange the rights, in whole or in
part, for our common stock at an adjustable exchange ratio initially set at one
share of common stock per right. However, rights beneficially owned by a person
who acquires 20% of our outstanding shares of common stock become void.
58
<PAGE>
Each share of the junior participating cumulative preferred stock purchasable
upon exercise of the rights will have a minimum preferential dividend of $10.00
per year, but will be entitled to receive, in the aggregate, a dividend of 100
times the dividend declared on a share of common stock. In the event of
liquidation, these preferred stockholders will be entitled to receive a minimum
liquidation payment of $100.00 per share, but will be entitled to receive an
aggregate liquidation payment equal to 100 times the payment to be made per
share of common stock. Each share will have 100 votes, voting together with the
shares of common stock. In addition, if dividends are in arrears for four
consecutive quarterly payment periods, these stockholders be entitled to vote as
a class to elect two members of the board of directors. In the event of any
merger, consolidation or other transaction in which our common stock shares are
exchanged, each share of the junior participating cumulative preferred stock
will be entitled to receive 100 times the amount and type of consideration
received per share of common stock. The dividend and liquidation rights of these
shares and the rights of these shares relating to mergers and consolidations are
protected by anti-dilution provisions.
Until a right is exercised, the right holder will have no rights as a
stockholder of Alexion, including, without limitation, the right to vote or to
receive dividends.
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the Delaware General Corporation, certain "business
combinations" between a Delaware corporation, whose stock generally is publicly
traded or held of record by more than 2,000 stockholders, and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless:
- the corporation has elected in its certificate of incorporation or
bylaws not to be governed by this Section 203. We have not made
such an election;
- the business combination was approved by the board of directors of
the corporation before the other party to the business combination
became an interested stockholder;
- upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of
the transaction, excluding voting stock owned by directors who are
also officers or held in employee stock plans in which the
employees do not have a right to determine confidentially whether
to tender or vote stock held by the plan; or
- the business combination was approved by the board of directors of
the corporation and ratified by 66 2/3% of the voting stock which
the interested stockholder did not own. The three-year prohibition
does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with
the approval of a majority of the corporation's directors. The term
"business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes
beneficial owner of 15% or more of a Delaware corporation's voting
stock. Section 203 could have the effect of delaying, deferring or
preventing a change in control of Alexion.
59
<PAGE>
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized by unissued common stock and
preferred stock could render more difficult or discourage an attempt to obtain
control of our company by means of a proxy contest, tender offer, merger or
otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
60
<PAGE>
UNDERWRITING
The underwriters named below have agreed to buy, subject to the terms of the
purchase agreement, the number of shares listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc..............................
Hambrecht & Quist LLC.......................................
Total...................................................
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $ per share. The underwriters propose to offer the
shares to certain dealers at the same price less a concession of not more than
$ per share. The underwriters may allow and the dealers may
reallow a concession of not more than $ per share on sales to
certain other brokers and dealers. After the offering, these figures may be
changed by the underwriters.
We have granted to the underwriters an option to purchase up to an additional
375,000 shares of common stock from us at the same price to the public, and with
the same underwriting discount, as set forth in the table above. The
underwriters may exercise this option any time during the 30-day period after
the date of this prospectus, but only to cover over-allotments, if any. To the
extent the underwriters exercise the option, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the
purchase agreement.
The following table shows the underwriting fees to be paid to the underwriters
in connection with the offering. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
We and each of our directors, executive officers and certain key employees have
agreed to restrictions on our ability to sell additional shares of our common
stock for a period of 90 days after the date of this prospectus. We have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of U.S. Bancorp Piper
Jaffray Inc. The agreements provide exceptions for:
- sales to underwriters pursuant to the purchase agreement;
61
<PAGE>
- our sales in connection with the exercise of options granted, the
granting of options to purchase up to an additional 613,822 shares
under the 1992 Stock Option Plan and the granting of options to
purchase shares under the 1992 Stock Option Plan for Outside
Directors; and
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than have been sold to them by us. The underwriters
may elect to cover any such short position by purchasing shares of common stock
in the open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock in the
open market and may impose penalty bids. If penalty bids are imposed, selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased, whether in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the common stock at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid may
also affect the price of the common stock to the extent that it discourages
resales of the common stock. The magnitude or effect of any stabilization or
other transactions is uncertain. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
In connection with the offering, some underwriters and selling group members may
also engage in passive market making transactions in the common stock on The
Nasdaq National Market. Passive market making consists of displaying bids on The
Nasdaq National Market limited by the prices of independent market makers and
effecting purchases limited by those prices in response to order flow. Rule 103
of Regulation M promulgated by the SEC limits the amount of net purchases that
each passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail in the open market and, if commenced,
may be discontinued at any time.
LEGAL MATTERS
Legal matters relating to the common stock have been passed upon for Alexion by
Fulbright & Jaworski L.L.P., New York, New York. Legal matters in connection
with the offering will be passed upon for the underwriters by Morgan, Lewis &
Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The audited consolidated financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information filed by us at the Commission's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be also
obtained from the Public Reference Section of the Commission at
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<PAGE>
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference rooms
in New York, New York and Chicago, Illinois, at prescribed rates. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Copies of such information may also be inspected at the reading room of
the library of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006. Our filings with the Commission are also
available to the public from commercial document retrieval services and at the
Commission's web site at "http://www.sec.gov."
We are allowed to "incorporate by reference" the information we file with the
Commission (File No. 0-27756), which means that we can disclose important
information to you by referring you to another document we filed with the
Commission. The information incorporated by reference is an important part of
this prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any filings made with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, after the date of this prospectus but before the end of any offering
made under this prospectus:
- our annual report on Form 10-K for the fiscal year ended July 31,
1999;
- our registration statement on Form 8-A, filed on February 21, 1997;
and
- our registration statement on Form 8-A, filed on February 12, 1996.
You should read the information relating to us in this prospectus together with
the information in the documents incorporated by reference.
Any statement contained in a document incorporated by reference herein, unless
otherwise indicated therein, speaks as of the date of the document. Statements
contained in this prospectus may modify or replace statements contained in the
documents incorporated by reference.
We will furnish without charge to you, upon written or oral request, a copy of
any or all of the documents described above, except for exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents. Requests should be addressed to: Alexion Pharmaceuticals, Inc.,
25 Science Park, New Haven, Connecticut 06511, (203) 776-1790, Attention: David
W. Keiser, Executive Vice President and Chief Operating Officer. We furnish our
stockholders with an annual report containing audited financial statements. In
addition, we may furnish such other reports as may be authorized, from time to
time, by our board of directors.
This prospectus is part of a registration statement we filed with the
Commission. You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We will not make an offer of the
shares of common stock in any state where the offer is not permitted. You should
not assume that the information in this prospectus or any supplement is accurate
as of any date other than the date on the front of those documents.
63
<PAGE>
ALEXION PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of July 31, 1999 and 1998.... F-3
Consolidated Statements of Operations for the Years Ended
July 31, 1999, 1998 and 1997.............................. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1999, 1998, and 1997................. F-5
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1999, 1998 and 1997.............................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Alexion Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Alexion
Pharmaceuticals, Inc. (a Delaware corporation) and subsidiary as of July 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended July 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Alexion
Pharmaceuticals, Inc. and subsidiary as of July 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 1999, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
August 27, 1999
F-2
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
JULY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 24,238 $ 31,509
Marketable securities..................................... 4,090 5,985
Reimbursable contract costs:
Billed.................................................. 4,577 --
Unbilled................................................ 2,285 137
Prepaid expenses.......................................... 472 209
-------- --------
Total current assets.................................. 35,662 37,840
PROPERTY, PLANT, AND EQUIPMENT, net......................... 7,413 2,357
SECURITY DEPOSITS AND OTHER ASSETS.......................... 1,299 1,888
-------- --------
Total assets.......................................... $ 44,374 $ 42,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 368 $ 368
Accounts payable.......................................... 3,544 810
Accrued expenses.......................................... 2,328 818
Deferred revenue.......................................... 450 67
-------- --------
Total current liabilities............................. 6,690 2,063
-------- --------
NOTES PAYABLE, less current portion included above.......... 4,383 832
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 1, 7, 9 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000 shares
authorized; none issued at July 31, 1999 and 1998....... -- --
Common stock $.0001 par value; 25,000 shares authorized;
11,304 and 11,237 shares issued at July 31, 1999 and
1998, respectively...................................... 1 1
Additional paid-in capital................................ 80,287 79,781
Accumulated deficit....................................... (46,987) (40,592)
Treasury stock, at cost, 12 shares........................ -- --
-------- --------
Total stockholders' equity............................ 33,301 39,190
-------- --------
Total liabilities and stockholders' equity............ $ 44,374 $ 42,085
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED JULY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CONTRACT RESEARCH REVENUES.................................. $18,754 $ 5,037 $ 3,811
------- ------- -------
OPERATING EXPENSES:
Research and development.................................. 23,710 12,323 9,079
General and administrative................................ 2,953 2,666 2,827
------- ------- -------
Total operating expenses................................ 26,663 14,989 11,906
------- ------- -------
OPERATING LOSS.............................................. (7,909) (9,952) (8,095)
OTHER INCOME, net........................................... 1,514 2,087 843
------- ------- -------
Net loss................................................ (6,395) (7,865) (7,252)
PREFERRED STOCK DIVIDENDS................................... -- (900) --
------- ------- -------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS.................. $(6,395) $(8,765) $(7,252)
======= ======= =======
NET LOSS PER COMMON SHARE--
BASIC AND DILUTED (NOTE 2)................................ $ (0.57) $ (0.87) $ (0.97)
======= ======= =======
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE................................. 11,265 10,056 7,451
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
CONVERTIBLE TREASURY STOCK,
PREFERRED STOCK COMMON STOCK ADDITIONAL AT COST
------------------- ------------------- PAID-IN ACCUMULATED -------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
-------- -------- -------- -------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1996............. -- $ -- 7,335 $ 1 $42,859 $(24,575) 12 $ --
Issuance of common stock, net of
issuance costs of $814......... -- -- 1,450 -- 10,424 -- -- --
Issuance of common stock from
exercise of warrants........... -- -- 38 -- 286 -- -- --
Issuance of common stock from
exercise of stock options...... -- -- 35 -- 83 -- -- --
Net change in unrealized gains on
marketable securities.......... -- -- -- -- 20 -- -- --
Net loss......................... -- -- -- -- -- (7,252) -- --
-------- ------- ------ ---- ------- -------- --- ----
BALANCE, July 31, 1997............. -- -- 8,858 1 53,672 (31,827) 12 --
Issuance of Series B convertible
preferred stock, net of
issuance
costs of $493.................. 400,000 -- -- -- 9,507 -- -- --
Issuance of common stock in
payment of preferred stock
dividend....................... -- -- 71 -- 900 (900) -- --
Conversion of Series B
convertible preferred stock
into
common stock................... (400,000) -- 936 -- -- -- -- --
Issuance of common stock, net of
issuance costs of $49.......... -- -- 837 -- 11,779 -- -- --
Issuance of common stock from
exercise of warrants........... -- -- 513 -- 3,858 -- -- --
Issuance of common stock from
exercise of stock options...... -- -- 22 -- 67 -- -- --
Net change in unrealized gains on
marketable securities.......... -- -- -- -- (2) -- -- --
Net loss......................... -- -- -- -- -- (7,865) -- --
-------- ------- ------ ---- ------- -------- --- ----
BALANCE, July 31, 1998............. -- -- 11,237 1 79,781 (40,592) 12 --
Issuance of common stock from
exercise of stock options...... -- -- 67 -- 383 -- -- --
Compensation expense, related to
grant of stock options......... -- -- -- -- 132 -- -- --
Net change in unrealized gains on
marketable securities.......... -- -- -- -- (9) -- -- --
Net loss......................... -- -- -- -- -- (6,395) -- --
-------- ------- ------ ---- ------- -------- --- ----
BALANCE, July 31, 1999............. -- $ -- 11,304 $ 1 $80,287 $(46,987) 12 $ --
======== ======= ====== ==== ======= ======== === ====
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, July 31, 1996............. $18,285
Issuance of common stock, net of
issuance costs of $814......... 10,424
Issuance of common stock from
exercise of warrants........... 286
Issuance of common stock from
exercise of stock options...... 83
Net change in unrealized gains on
marketable securities.......... 20
Net loss......................... (7,252)
-------
BALANCE, July 31, 1997............. 21,846
Issuance of Series B convertible
preferred stock, net of
issuance
costs of $493.................. 9,507
Issuance of common stock in
payment of preferred stock
dividend....................... --
Conversion of Series B
convertible preferred stock
into
common stock................... --
Issuance of common stock, net of
issuance costs of $49.......... 11,779
Issuance of common stock from
exercise of warrants........... 3,858
Issuance of common stock from
exercise of stock options...... 67
Net change in unrealized gains on
marketable securities.......... (2)
Net loss......................... (7,865)
-------
BALANCE, July 31, 1998............. 39,190
Issuance of common stock from
exercise of stock options...... 383
Compensation expense, related to
grant of stock options......... 132
Net change in unrealized gains on
marketable securities.......... (9)
Net loss......................... (6,395)
-------
BALANCE, July 31, 1999............. $33,301
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (6,395) $ (7,865) $ (7,252)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 889 598 698
Compensation expense related to grant of stock
options............................................. 132 -- --
Change in assets and liabilities--
Reimbursable contract costs......................... (6,725) (137) --
Prepaid expenses.................................... (263) 23 235
Accounts payable.................................... 2,734 82 447
Accrued expenses.................................... 1,510 (384) 801
Deferred revenue.................................... 383 (279) (653)
-------- -------- --------
Net cash used in operating activities........... (7,735) (7,962) (5,724)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from marketable securities, net.................. 1,895 20 3,119
Purchases of property, plant, and equipment............... (1,912) (2,057) (749)
-------- -------- --------
Net cash (used in) provided by investing
activities.................................... (17) (2,037) 2,370
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and common
stock................................................... 383 25,211 10,793
Repayments of capital lease obligations................... -- (8) (29)
Borrowings under notes payable............................ -- 1,200 --
Repayments of notes payable............................... (369) (130) (321)
Security deposits and other............................... 467 (1,508) 163
-------- -------- --------
Net cash provided by financing activities....... 481 24,765 10,606
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (7,271) 14,766 7,252
CASH AND CASH EQUIVALENTS, beginning of period.............. 31,509 16,743 9,491
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 24,238 $ 31,509 $ 16,743
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ 188 $ 42 $ 47
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Fixed assets acquired pursuant to seller financing........ $ 3,920 $ -- $ --
======== ======== ========
Preferred stock dividends................................. $ -- $ 900 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized in 1992
and is a company engaged in the development of proprietary products for the
treatment of cardiovascular, autoimmune and neurologic diseases and disorders.
The Company is currently conducting Phase II clinical trials for its two lead C5
Inhibitor product candidates, 5G1.1-SC and 5G1.1. The Company is also developing
Apogen immunotherapeutic products affecting disease-causing T-cells. In
addition, the Company is developing therapies to permit transplantation of cells
from other species into humans known as xenotransplantation.
The Company has incurred consolidated losses since inception and has made no
product sales to date.
The Company will continue to need additional financing to obtain regulatory
approvals for its product candidates, fund operating losses, and, if deemed
appropriate, establish manufacturing, sales, marketing and distribution
capabilities. In addition, the Company operates in an environment of rapid
changes in technology, FDA guidelines and regulations, healthcare regulations
and competition from pharmaceutical and biotechnology companies and is dependent
upon the services of its employees and other third parties.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its products. The
Company will seek to raise necessary funds through public or private equity or
debt financings, bank loans, collaborative or other arrangements with corporate
sources, or through other sources of financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--
The accompanying consolidated financial statements include Alexion
Pharmaceuticals, Inc. and its wholly-owned subsidiary Columbus Farming
Corporation ("Columbus"). Columbus was formed on February 9, 1999 to acquire
certain manufacturing assets from United States Surgical Corporation ("US
Surgical") (See Notes 3 and 6). All significant inter-company balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS--
Cash and cash equivalents are stated at cost, which approximates market, and
include short-term highly liquid investments with original maturities of less
than three months.
MARKETABLE SECURITIES--
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount of
credit exposure with any one entity.
The Company has classified its marketable securities as "available for sale"
and, accordingly, carries such securities at aggregate fair value. Unrealized
gains or losses are included in stockholders' equity as a
F-7
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
component of additional paid-in capital. At July 31, 1999, the Company's
marketable securities had a maximum maturity of less than two years with an
average of approximately six months. The following is a summary of marketable
securities at July 31, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
--------- -------------- --------
<S> <C> <C> <C>
Federal agency obligations................... $2,088 $(9) $2,079
Corporate bonds.............................. 2,006 5 2,011
------ --- ------
Total marketable securities at July 31,
1999..................................... $4,094 $(4) $4,090
====== === ======
U.S. government obligations.................. $ 500 $-- $ 500
Federal agency obligations................... 2,000 -- 2,000
Corporate bonds.............................. 3,480 5 3,485
------ --- ------
Total marketable securities at July 31,
1998 $5,980 $ 5 $5,985
====== === ======
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT--
Property, plant, and equipment is recorded at cost and is depreciated over the
estimated useful lives of the assets involved. Depreciation commences at the
time the assets are placed in service and is computed using the straight-line
method over the estimated useful lives of the assets (see Note 3). Maintenance
and repairs are charged to expense when incurred.
<TABLE>
<CAPTION>
ASSET ESTIMATED USEFUL LIFE
- ----- ---------------------
<S> <C>
Building and building improvements........................ 15 years
Laboratory equipment...................................... 5 years
Office equipment.......................................... 3 years
Furniture................................................. 3 years
</TABLE>
LONG-LIVED ASSETS--
The Company accounts for its investments in long-lived assets in accordance with
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
(SFAS 121). SFAS 121 requires a company to review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company has reviewed its
long-lived assets and determined that no impairments exist.
REVENUE RECOGNITION--
Contract research revenues recorded by the Company consist of research and
development support payments, license fees, and milestone payments under
collaborations with third parties and amounts received under various government
grants.
F-8
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Research and development support revenues are recognized as the related work and
expenses are incurred under the terms of the contracts for development
activities. Revenues derived from the achievement of milestones are recognized
when the milestone is achieved. Non-refundable license fees received in exchange
for specific rights to the Company's technologies, research, potential products
and markets are recognized as revenues as earned in accordance with the terms of
the contracts.
Unbilled reimbursable contract costs as shown on the accompanying consolidated
balance sheets represent reimbursable costs incurred in connection with research
contracts which have not yet been billed. The Company bills these costs and
recognizes the costs and related revenues in accordance with the terms of the
contracts.
Deferred revenue results from cash received in advance of revenue recognition
under research and development contracts (see Note 8).
RESEARCH AND DEVELOPMENT EXPENSES--
Research and development costs are expensed in the period incurred.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--
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.
COMPREHENSIVE INCOME--
In July 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income (loss) and its components in a full set of
general purpose financial statements. The objective of the statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners ("comprehensive income (loss)").
The impact of adoption of this statement did not have a significant effect on
the Company's financial position and results of operations, as there was no
significant difference in comprehensive income (loss) and net loss represented a
gain (loss) on marketable securities of $(9,000), $(2,000), and $20,000 for the
years ended July 31, 1999, 1998 and 1997, respectively.
NET LOSS PER COMMON SHARE--
The Company computes and presents net loss per common share in accordance with
SFAS No. 128, "Earnings Per Share." There is no difference in basic and diluted
net loss per common share as the effect
F-9
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of stock options and warrants is anti-dilutive for all periods presented. These
outstanding stock options and warrants entitled holders to purchase 2,568,587,
1,947,986, and 2,410,953 shares of common stock at July 31, 1999, 1998 and 1997,
respectively.
3. PROPERTY, PLANT, AND EQUIPMENT:
A summary of equipment is as follows (dollars in thousand):
<TABLE>
<CAPTION>
JULY 31,
-------------------
<S> <C> <C>
1999 1998
------- -------
Land...................................................... $ 364 $ --
Building and building improvements........................ 3,080 --
Laboratory equipment...................................... 6,013 4,523
Office equipment.......................................... 648 352
Furniture................................................. 695 104
Equipment under capital leases............................ -- 378
------- -------
10,800 5,357
Less--Accumulated depreciation and amortization........... (3,387) (3,000)
------- -------
$ 7,413 $ 2,357
======= =======
</TABLE>
During 1999, the Company acquired land, building, and additional laboratory
equipment at a total cost of approximately $3.9 million financed with a note
payable to US Surgical (see Note 6).
4. SECURITY DEPOSITS AND OTHER:
A summary of security deposits and other assets is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Restricted cash held as collateral for note payable (see
Note 6)................................................... $ 955 $1,500
Other....................................................... 344 388
------ ------
$1,299 $1,888
====== ======
</TABLE>
F-10
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED EXPENSES:
A summary of accrued expenses is as follows (dollars in thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Research and development expenses........................... $1,333 $ 159
Payroll and employee benefits............................... 617 477
Professional fees........................................... 91 77
Other....................................................... 287 105
------ ------
$2,328 $ 818
====== ======
</TABLE>
6. NOTES PAYABLE:
A summary of notes payable is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Term loan payable to a bank requiring quarterly principal
payments of $92 payable through August 2001 bearing
interest at a variable rate which is repriced quarterly.
The rate as of July 31, 1999 was 7.1%. The term loan
agreement requires the Company to maintain a restricted
cash balance equal to 115% of the outstanding loan balance
plus accrued interest in an interest bearing account as
collateral for the note................................... $ 831 $1,200
Term note payable to US Surgical bearing interest at 6% per
annum, payable quarterly. The principal balance under the
note matures in May 2005. The note payable is secured by
certain manufacturing assets of Columbus.................. 3,920 --
------ ------
4,751 1,200
Less--Current portion....................................... 368 368
------ ------
Total long--term...................................... $4,383 $ 832
====== ======
</TABLE>
Future repayments of the notes payable are scheduled as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
2000.................................................... $ 368
2001.................................................... 463
2005.................................................... 3,920
------
$4,751
======
</TABLE>
F-11
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LICENSE AND RESEARCH & DEVELOPMENT AGREEMENTS:
The Company has entered into a number of license and research & development
agreements since its inception. These agreements have been made with various
research institutions, universities, and government agencies in order to advance
and obtain technologies management believes important to the Company's overall
business strategy.
License agreements generally provide for an initial fee followed by annual
minimum royalty payments. Additionally, certain agreements call for future
payments upon the attainment of agreed to milestones, such as, but not limited
to, Investigational New Drug (IND) application or Product License Approval
(PLA). These agreements require minimum royalty payments based upon sales
developed from the applicable technologies, if any. The Company's policy is to
amortize capitalized licensed technology over a seven year period or over the
license term, whichever is shorter, using the straight-line method.
Research & development agreements generally provide for the Company to fund
future project research for one to four years. Based upon these agreements, the
Company may obtain exclusive and non-exclusive rights and options to the
applicable technologies developed as a result of the applicable research. The
Company's policy is to expense research and development payments as incurred.
The minimum payments (assuming non-termination of the above agreements) as of
July 31, 1999, for each of the next five years are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
RESEARCH
LICENSE DEVELOPMENT
YEAR ENDING JULY 31, AGREEMENTS AGREEMENTS
- -------------------- ---------- -----------
<S> <C> <C>
2000............................................. $296 $50
2001............................................. 296 50
2002............................................. 389 50
2003............................................. 389 50
2004............................................. 274 --
</TABLE>
Should the Company achieve certain milestones related to product development and
product license applications and approvals, additional payments would be
required if the Company elects to continue and maintain its licenses. The
agreements also require the Company to fund certain costs associated with the
filing of patent applications.
8. CONTRACT RESEARCH REVENUES:
During the three years ended July 31, 1999, the Company recorded contract
research revenues from the Commerce Department's National Institute of Standards
and Technology (NIST) and National Institutes of Health (NIH).
In July 1995, the Company entered into a collaborative research and development
agreement in connection with its xenotransplantation program with US Surgical.
In September 1997, the Company modified its research and development agreement
with US Surgical. As part of the modification agreement, US Surgical purchased
166,945 shares of common stock for $3.0 million. In February 1999, as part of
the termination of this agreement, the Company purchased certain manufacturing
assets and
F-12
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CONTRACT RESEARCH REVENUES: (CONTINUED)
effected the return of all technology rights of its xenotransplantation program
from US Surgical. The Company financed the asset purchase with a $3.9 million
note payable (see Note 6).
In December 1996, the Company entered into a license and collaborative research
agreement with Genetic Therapy Inc. ("GTI/Novartis"), a subsidiary of
Novartis, Inc., relating to the Company's gene transfer technology. In
October 1998, in view of Alexion's increased focus on the advanced clinical
development of its anti-inflammatory drug candidates and GTI/Novartis' announced
restructuring and reorganization, the Company and GTI/Novartis agreed to
discontinue the collaborative gene therapy program.
In August 1995, the Company was awarded a three-year agreement, for
approximately $2 million, from NIST to fund a xenotransplantation project. In
November 1997, the Company and US Surgical were awarded a three-year,
$2 million cooperative agreement from NIST to fund a joint xenotransplantation
project. This agreement was modified into a single entity agreement in
February 1999. In October 1998, the Company was awarded another three-year
$2 million agreement from NIST to fund a xenotransplantation project.
In January 1999, the Company and Procter & Gamble Pharmaceuticals Inc. ("P&G")
entered into an exclusive collaboration to develop and commercialize 5G1.1-SC,
one of the Company's lead product candidates. Under this collaboration, the
Company will initially pursue the development of 5G1.1-SC for the treatment of
inflammation caused by cardiopulmonary bypass surgery, heart attack, and
angioplasty. P&G has agreed to fund all clinical development and manufacturing
costs relating to 5G1.1-SC for these indications. Additionally, P&G has agreed
to pay the Company up to $95 million in payments, which include a non-refundable
upfront license fee, milestone payments, and research and development support
payments. The Company will also receive royalties on worldwide sales of
5G1.1-SC, if any, for all indications. The Company also has a preferred position
relative to third-party manufacturers to manufacture 5G1.1-SC worldwide. The
Company shares co-promotion rights with P&G to sell, market and distribute
5G1.1-SC in the United States, and has granted P&G the exclusive rights to sell,
market and distribute 5G1.1-SC outside of the United States. Through July 31,
1999, the Company recorded revenues of $17.8 million from P&G, including
receiving a non-refundable upfront license fee of $10 million and $7.8 million
for research and development support expenses.
A summary of revenues generated from contract research collaboration and grant
awards is as follows for the years ended July 31, (dollars in thousands):
<TABLE>
<CAPTION>
COLLABORATION/GRANT AWARDS 1999 1998 1997
- -------------------------- -------- -------- --------
<S> <C> <C> <C>
P&G................................................ $17,753 $ -- $ --
NIST and NIH....................................... 834 857 924
US Surgical........................................ -- 3,780 1,804
GTI/Novartis....................................... 167 400 1,083
------- ------ ------
$18,754 $5,037 $3,811
======= ====== ======
</TABLE>
F-13
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS:
The Company has entered into three-year and five-year employment agreements with
its executives. These agreements provide that these individuals will receive
aggregate annual base salaries of approximately $827,000 as of July 31, 1999.
These individuals may also receive discretionary bonus awards, as determined by
the Board of Directors.
As of July 31, 1999, the Company leases its administrative and research &
development facilities under three operating leases which expired in
December 1997, June 1998, and March 1999. The Company is currently continuing
the leases on a month-to-month basis while discussions for new lease
arrangements continue. The Company believes it will reach an agreement regarding
such facilities on commercially adequate terms.
Lease expense for the Company's facilities was $420,000, $415,000 and $216,000
for the years ended July 31, 1999, 1998, and 1997, respectively.
Future minimum annual rental payments as of July 31, 1999, under other
noncancellable operating leases (primarily for equipment) are approximately
$36,000, $34,000, $30,000, $30,000, and $30,000 for the five years ended
July 31, 2004, respectively.
10. COMMON STOCK AND PREFERRED STOCK:
FISCAL 1997 PRIVATE PLACEMENT--
In July 1997, the Company completed a private placement offering for 1,450,000
shares of common stock, resulting in net proceeds of approximately
$10.4 million.
FISCAL 1998 PRIVATE PLACEMENTS--
In September 1997, the Company completed the private placement of 400,000 shares
of Series B convertible preferred stock for aggregate consideration of
$10 million to a single institutional investor, Biotech Target, S.A., a
wholly-owned subsidiary of BB Biotech AG. The net proceeds to the Company were
approximately $9.5 million. The investor was entitled to a dividend of $2.25 per
share of Series B convertible preferred stock if this stock was held through
March 4, 1998. In March 1998 the investor converted the preferred stock into
935,782 shares of common stock and dividends of $900,000 were paid by the
delivery of an additional 70,831 shares of the Company's common stock. Also, in
March 1998, Biotech Target S.A. purchased an additional 670,000 shares of common
stock for aggregate consideration of approximately $8.8 million.
In September 1997, the Company sold 166,945 shares of its common stock to US
Surgical for aggregate consideration of $3.0 million. The sale of common stock
was made in connection with the modification of the joint development agreement
between the Company and US Surgical.
F-14
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS--
Under the Company's 1992 Stock Option Plan, as amended, incentive and
nonqualified stock options may be granted for up to a maximum of 3.1 million
shares of common stock to directors, officers, key employees and consultants of
the Company. Under the Company's 1992 Stock Option Plan for Outside Directors,
as amended, the Company has registered an additional 200,000 shares of common
stock for issuance upon exercise of options granted under the plan. Options
generally become exercisable in equal proportions over three to four years and
remain exercisable for up to ten years after the grant date, subject to certain
conditions.
Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation (SFAS 123) requires the measurement of the fair value of stock
options or warrants to be included in the statement of income or disclosed in
the notes to financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under Accounting
Principles Board Opinion No. 25 and elect the disclosure-only alternative under
SFAS 123. The Company has computed the pro forma disclosure required under
SFAS 123 for options granted using the Black-Scholes option pricing model
prescribed by SFAS 123. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate........................... 5.00% 5.25% 6.25%
Expected dividend yield........................... 0% 0% 0%
Expected lives.................................... 5 years 5 years 5 years
Expected volatility............................... 65% 61% 53%
</TABLE>
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates of awards under these plans consistent with
the method of SFAS 123, the Company's net loss and pro forma net loss per common
share would have been increased to the pro forma amounts indicated below
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(6,395) $(8,765) $(7,252)
Pro forma....................................... (8,419) (9,958) (7,815)
Net loss per common share:
As reported..................................... $ (0.57) $ (0.87) $ (0.97)
Pro forma....................................... (0.74) (0.99) (1.05)
</TABLE>
F-15
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS: (CONTINUED)
A summary of the status of the Company's stock option plans at July 31, 1999,
1998 and 1997 and changes during the years then ended is presented in the table
and narrative below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at August 1.................. 1,727,986 $7.40 1,484,284 $ 6.63 1,207,334 $ 5.46
Granted................................ 780,750 9.64 279,750 $11.31 337,250 $10.37
Exercised.............................. (66,587) 5.75 (21,864) $ 3.16 (34,937) $ 2.38
Cancelled.............................. (93,562) 9.73 (14,184) $11.29 (25,363) $ 6.19
--------- ----- --------- ------ --------- ------
Outstanding at July 31................... 2,348,587 $8.10 1,727,986 $ 7.40 1,484,284 $ 6.63
========= ===== ========= ====== ========= ======
Options exercisable at July 31........... 1,238,398 $6.46 883,063 $ 5.73 574,690 $ 4.98
Weighted-average fair value of options
granted during the year................ $6.52 $ 6.42 $ 5.40
</TABLE>
During fiscal 1999, options to purchase 513,500 shares of common stock were
granted at an exercise price equal to the fair value of the stock at the date of
grant. The weighted average exercise price of these options was $9.98 per share.
The weighted average fair value of these options at the date of grant was $5.89
per option. In addition, options to purchase 267,250 shares of common stock were
granted subject to shareholders' approving an increase in total shares available
to be granted under the plan. These options were granted at an exercise price of
$9.00 per share which was equal to the fair value of the common stock at the
date of grant. The exercise price of these options was less than the fair value
of the stock at the date of shareholder approval. Accordingly, the Company is
recording compensation expense based upon this difference over the vesting
period associated with these options. Compensation expense associated with these
options was $132,000 for the year ended July 31, 1999. Aggregate compensation
expense of approximately $600,000 associated with these option grants is
expected to be recognized over the next three years. The weighted average fair
value of these options at the date of shareholder approval was $7.73 per option.
The following table presents weighted average price and life information about
significant option groups outstanding at July 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS) PRICE EXERCISABLE PRICE
- --------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.37-$2.50 555,448 5.4 $ 2.38 536,698 $ 2.38
$2.51-$8.24 166,000 3.5 7.47 152,250 7.54
$8.25-$10.50 1,359,839 8.4 9.69 512,552 9.95
$10.51-$13.25 267,300 8.7 12.25 36,898 12.87
--------- --- ------ --------- ------
2,348,587 7.4 $ 8.10 1,238,398 $ 6.46
========= === ====== ========= ======
</TABLE>
F-16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS: (CONTINUED)
WARRANTS--
In connection with the Company's initial public offering, the Company sold to
its underwriter, for nominal consideration, warrants to purchase 220,000 shares
of common stock. These warrants are exercisable at a price of $9.90 per share
for a period of forty-two (42) months commencing on August 27, 1997. None of
these warrants have been exercised as of July 31, 1999.
12. RIGHTS TO PURCHASE PREFERRED STOCK:
In February 1997, the Board of Directors of the Company declared a dividend of
one preferred stock purchase right for each outstanding share of common stock.
Under certain conditions, each right may be exercised to purchase one
one-hundredth of a share of a new series of preferred stock at an exercise price
of $75.00, subject to adjustment. The rights may be exercised only after a
public announcement that a party acquired 20% or more of the Company's common
stock or after commencement or public announcement to make a tender offer for
20% or more of the Company's common stock. The rights, which do not have voting
rights, expire on March 6, 2002, and may be redeemed by the Company at a price
of $0.01 per right at any time prior to their expiration or the acquisition of
20% or more of the Company's stock. The preferred stock purchasable upon
exercise of the rights will have a minimum preferential dividend of $10.00 per
year, but will be entitled to receive, in the aggregate, a dividend of 100 times
the dividend declared on a share of common stock. In the event of a liquidation,
the holders of the shares of preferred stock will be entitled to receive a
minimum liquidation payment of $100 per share, but will be entitled to receive
an aggregate liquidation payment equal to 100 times the payment to be made per
share of common stock.
In the event that the Company is acquired in a merger, other business
combination transaction, or 50% or more of its assets, cashflow, or earning
power are sold, proper provision shall be made so that each holder of a right
shall have the right to receive, upon exercise thereof at the then current
exercise price, that number of shares of common stock of the surviving company
which at the time of such transaction would have a market value of two times the
exercise price of the right.
13. 401(K) PLAN:
The Company has a 401(k) plan. Under the plan, employees may contribute up to
15 percent of their compensation with a maximum of $10,000 per employee in
calendar year 1999. Effective January 1998, Company matching contributions of
$0.50 for each dollar deferred (up to the first 6% deferred) have been
authorized by the Board of Directors. The Company had matching contributions of
approximately $85,000, $48,000 and $31,000 for the years ended July 31, 1999,
1998 and 1997, respectively.
14. INCOME TAXES:
At July 31, 1999, the Company has available for federal tax reporting purposes,
net operating loss carryforwards of approximately $44.1 million which expire
through 2019. The Company also has research and development credit carryovers of
approximately $2.2 million which begin to expire commencing in fiscal 2008. The
Tax Reform Act of 1986 contains certain provisions that may limit the
F-17
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES: (CONTINUED)
Company's ability to utilize net operating loss and tax credit carryforwards in
any given year if certain events occur, including cumulative changes in
ownership interests in excess of 50% over a three-year period. Accordingly there
can be no assurance that the Company's ability to utilize its existing net
operating loss and tax credit carryforwards in future periods will not be
limited as a result of the effect of changes in ownership in excess of 50% over
a three-year period.
The Company follows SFAS No. 109, "Accounting for Income Taxes." This statement
requires that deferred income tax assets and liabilities reflect the impact of
"temporary differences" between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations.
The components of deferred income taxes as of July 31, 1999 are as follows
(dollars in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $16,801
Tax credit carryforwards.................................. 2,218
Other..................................................... 144
-------
Total deferred tax assets................................... 19,163
Less: Valuation allowance for deferred tax assets........... 19,163
-------
Net deferred tax assets..................................... $ --
=======
</TABLE>
The Company has not yet achieved profitable operations. Accordingly, management
believes the tax benefits as of July 31, 1999 do not satisfy the realization
criteria set forth in SFAS No. 109 and has recorded a valuation allowance for
the entire deferred tax asset.
F-18
<PAGE>
2,500,000 SHARES
ALEXION PHARMACEUTICALS, INC.
COMMON STOCK
[LOGO]
--------------
PROSPECTUS
--------------
U.S. BANCORP PIPER JAFFRAY
HAMBRECHT & QUIST
OCTOBER , 1999
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth Alexion Pharmaceuticals, Inc. (the "Company")
estimates (other than the SEC registration fee) of the expenses in connection
with the issuance and distribution of the shares of common stock being
registered. None of the following expenses are being paid by the selling
stockholders.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 10,541.00
NASD filing fee............................................. $ 4,255.46
Nasdaq listing fee.......................................... $ 17,500.00
Legal fees and expenses..................................... $120,000.00
Accounting fees and expenses................................ $ 50,000.00
Printing expenses........................................... $ 75,000.00
Miscellaneous expenses...................................... $ 97,703.54
-----------
Total:.................................................. $375,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation 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 such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by or
in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's by-law, agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Section EIGHTH of the Company's
Certificate of Incorporation, as amended (the "Certificate") provides that the
Company shall indemnify each person who is or was a director, officer, employee
or agent of the Company (including the heirs, executors, administrators or
estate of such person) or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other
II-1
<PAGE>
enterprise, to the fullest extent permitted. The indemnification provided by the
Certificate shall not be deemed exclusive of any other rights to which any of
those seeking indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Expenses (including attorneys' fees) incurred in defending a civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the indemnified person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Company. Section NINTH of the Certificate provides that
a director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.1 Form of Underwriting Agreement.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality.*
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).*
23.2 Consent of Arthur Andersen LLP, Independent Auditors.
24.1 Power of Attorney (included on signature page).
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-2
<PAGE>
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required
to be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
15 above, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW HAVEN
AND STATE OF CONNECTICUT ON THE 18TH DAY OF OCTOBER, 1999.
<TABLE>
<S> <C> <C>
ALEXION PHARMACEUTICALS, INC.
By: /s/ LEONARD BELL
-----------------------------------------
Leonard Bell, M.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER,
SECRETARY AND TREASURER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints LEONARD BELL, M.D. and DAVID W. KEISER, or either
of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
President, Chief Executive
/s/ LEONARD BELL Officer, Secretary,
------------------------------------------- Treasurer and Director October 18, 1999
Leonard Bell, M.D. (principal executive
officer)
Executive Vice President and
/s/ DAVID W. KEISER Chief Operating Officer
------------------------------------------- (principal financial October 18, 1999
David W. Keiser officer)
/s/ BARRY P. LUKE Vice President of Finance and
------------------------------------------- Administration (principal October 18, 1999
Barry P. Luke accounting officer)
/s/ JOHN H. FRIED
------------------------------------------- Chairman of the Board of October 18, 1999
John H. Fried, Ph.D. Directors
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
------------------------------------------- Director
Jerry T. Jackson
/s/ JOSEPH A. MADRI
------------------------------------------- Director October 18, 1999
Joseph A. Madri, Ph.D., M.D.
/s/ LEONARD MARKS
------------------------------------------- Director October 18, 1999
Leonard Marks, Jr., Ph.D.
/s/ MAX LINK
------------------------------------------- Director October 18, 1999
Max Link, Ph.D.
/s/ EILEEN M. MORE
------------------------------------------- Director October 18, 1999
Eileen M. More
/s/ R. DOUGLAS NORBY
------------------------------------------- Director October 18, 1999
R. Douglas Norby
/s/ ALVIN S. PARVEN
------------------------------------------- Director October 18, 1999
Alvin S. Parven
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- --------------------- -------
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
5.1 Opinion of Fulbright & Jaworski L.L.P.*
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP, Independent Auditors.
24.1 Power of Attorney (included in signature page).
</TABLE>
* To be filed by amendment.
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference in
this registration statement of our report dated August 27, 1999 included in
Alexion Pharmaceuticals, Inc.'s Form 10-K for the year ended July 31, 1999 and
to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
October 15, 1999
