<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998.
REGISTRATION NO. 333-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------
INHALE THERAPEUTIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3134940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 INDUSTRIAL ROAD
SAN CARLOS, CALIFORNIA 94070
(650) 631-3100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT B. CHESS AND AJIT S. GILL
CO-CHIEF EXECUTIVE OFFICERS
INHALE THERAPEUTIC SYSTEMS, INC.
150 INDUSTRIAL ROAD
SAN CARLOS, CALIFORNIA 94070
(650) 631-3100
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
COPIES TO:
MARK P. TANOURY, ESQ.
COOLEY GODWARD LLP
3000 SAND HILL ROAD
BUILDING 3, SUITE 230
MENLO PARK, CALIFORNIA 94025
(650) 843-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: If the only
securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/ 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. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------- ------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock 1,200,000 $31.69 $38,028,000 $10,572
--------- ------ ----------- -------
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act, this Registration Statement
also covers such indeterminable additional shares as may become issuable
as a result of any future stock splits, stock dividends or similar
transaction.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
computing the amount of the registration fee based on the average of the
high and low prices of the Company's Common Stock as reported on the
Nasdaq National Market on December 8, 1998.
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 THAT 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 REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PROSPECTUS DATED DECEMBER 14, 1998
INHALE THERAPEUTIC SYSTEMS, INC.
1,200,000 SHARES
$.0001 PAR VALUE
COMMON STOCK
The selling stockholders identified in this prospectus may sell up to
1,200,000 shares of common stock of Inhale Therapeutic Systems, Inc. The
selling stockholders, directly or through agents, brokers, dealers or
underwriters, may sell the shares of common stock described in this
prospectus (1) on terms to be determined at the time of a sale, (2) in
transactions on the Nasdaq National Market, (3) in privately negotiated
transactions or (4) in a combination of these methods of sale. If the
selling stockholders sells shares to or through brokers or dealers, such
brokers or dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders. We will not
receive any proceeds from the sale of shares by the selling stockholders.
We will not be paying any underwriting commissions or discounts in the
offering of these shares. We will, however, be paying for the expenses
incurred in the offering of the shares. For their shares, the selling
stockholders will receive the purchase price of the shares sold less any
agents' commissions and underwriters' discounts and other related expenses.
The selling stockholders and any agents, broker, dealers or underwriters that
participate in the sale of the shares may be considered "underwriters" as
defined in the Securities Act of 1933, and any commission they receive and
any profit on the resale of the shares they purchase may be considered
underwriting discounts or commissions under the Securities Act. We have
agreed to indemnify the selling stockholders and certain other persons
against certain liabilities, including liabilities under the Securities Act.
Please see "Where You Can Find More Information" on page 5 for additional
information about us on file with the United States Securities and Exchange
Commission.
We strongly urge you to read and consider this prospectus carefully and in
its entirety, including the matters referred to under "Risk Factors"
beginning at page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
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TABLE OF CONTENTS
PAGE
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THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 12
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 13
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
THE COMPANY
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
INCLUDING "RISK FACTORS" APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE
FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED IN THE COMPANY'S ANNUAL
REPORT (FORM 10-K) FOR THE YEAR ENDED DECEMBER 31, 1997, INCORPORATED BY
REFERENCE HEREIN (THE "ANNUAL REPORT"). EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" BEGINNING AT PAGE 6 OF THIS
PROSPECTUS AND THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" CONTAINED IN
THE ANNUAL REPORT, AS WELL THOSE DISCUSSED ELSEWHERE IN THE PROSPECTUS, THE
ANNUAL REPORT, AND ANY OTHER DOCUMENT INCORPORATED HEREIN PRIOR TO THE
TERMINATION OF THE OFFERING.
We are developing a pulmonary drug delivery system applicable to a wide range
of peptides, proteins and other molecules currently delivered by injection or
by other routes including existing inhalation systems. As an alternative to
invasive delivery techniques, a pulmonary delivery system potentially could
expand the market for pharmaceutical drug therapies by increasing patient
acceptance and improving compliance, which in turn could decrease medical
complications and the associated costs of disease management. Pulmonary
delivery also may enable new therapeutic uses of certain drugs. We are
focusing development efforts on applying our pulmonary delivery system
primarily to drugs for systemic and local lung diseases that either have
proven efficacy and are approved for delivery by injection or are in late
stage human clinical trials. In addition, we are applying our delivery
technology to selected other applications where our approach may have
significant advantages. Several of our projects are in clinical trials,
including insulin (currently starting Phase III clinical trials) and numerous
other projects are in various stages of research, feasibility, formulation
and preclinical development.
Medical science, health care providers and consumers have been searching for
alternatives to injection as a means of delivering drugs. To date, oral,
transdermal, and nasal routes of delivery have shown that they have low
natural bioavailabilty (the amount of drug absorbed from the delivery site
into the bloodstream) due to the large size of macromolecules, making these
routes commercially unattractive alternatives for the natural delivery of
most macromolecule drugs.
We approach pulmonary drug delivery with the objective of maximizing overall
system efficiency while addressing commercial requirements for
reproducibility, formulations stability, safety and convenience. We are
designing our delivery system to integrate
- customized formulations;
- proprietary fine dry powder processing;
- packaging technology; and
- our proprietary inhalation device
for efficient, reproducible lung delivery of macromolecule powders. To
achieve this goal, we are combining an understanding of lung biology, aerosol
science, chemical engineering, mechanical engineering, and protein
formulations in our system development efforts. We intend to take bulk drugs
supplied by collaborative pharmaceutical and biotechnology partners,
formulate and process these drugs into fine powders and fill and package the
powders into individual dosing units (blisters). We have designed the
blisters to load into our device, which patients then activate to inhale the
aerosolized drugs.
Our strategy is to work with collaborative partners to develop and
commercialize drugs for systemic and local lung modification using our
pulmonary delivery system. We are engaged in early stage feasibility,
research or development collaborations with Pfizer Inc., Baxter Healthcare
Corporation (a subsidiary of Baxter International), Centeon (a company of
Hoechst AG and Rohne-Poulenc SA, soon to be renamed Aventis Biologicals), Eli
Lilly and Company, Immunex Corporation and Genzyme Corporation as well as
other major international pharmaceutical and biotechnology companies. We
describe the most recent of these collaborations in greater detail below. In
addition to our collaborations, we have initiated projects with several drugs
(calcitonin, heparin, Interferon-Alpha, Interferon-Beta and follicle
stimulating hormone). We anticipate that any product that might be developed
would be commercialized through a collaborative partner and believe our
partnering strategy will enable us to reduce our cash requirements while
developing a large and diversified potential product portfolio.
RECENT DEVELOPMENTS
During the past 12 months, we advanced our insulin program with Pfizer,
entered into an additional collaborative agreement with Lilly, restructured
our agreement with Baxter, expanded our management team, and received
additional patents covering our pulmonary delivery technology.
CLINICAL PROGRAMS
On November 10, 1998, we reported that Pfizer announced the beginning of
Phase III clinical trials to test the systemic delivery of insulin through
the lungs using our pulmonary delivery system. We kicked off Phase III
trials with an investigators meeting held from November 7-9, and we will
follow it with recruitment, enrollment and dosing of patients. We have
projected the trials to include Type 1 and Type 2 diabetics at 117 sites.
On September 9, 1998, we announced preliminary results from a Phase IIb trial
showing that individuals with type 2 diabetes can markedly improve their
glycemic control without insulin injections by combining our pulmonary
insulin with oral diabetes agents. Pfizer collected the new results from 56
of 69 outpatients in an on-going three-month Phase II multi-center clinical
trial conducted by Pfizer. Patients who were failing to control their
diabetes with oral agents alone achieved control using pulmonary insulin in
combination with oral therapy without the need for insulin injections.
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On June 16, 1998, we announced the results of three-month clinical trials
with 121 outpatients conducted by our collaborator, Pfizer, which
demonstrated that the pulmonary delivery of insulin resulted in blood glucose
control and dose-to-dose reproducibility comparable to injection for the
treatment of diabetes. In these Phase IIb trials, patients also favored
inhaling over injecting insulin.
On November 4, 1998, we reported that Pfizer and Hoechst Marion Roussel AG
announced that they had entered into worldwide agreements to manufacture
insulin, and co-develop and co-promote inhaled insulin. Under the terms of
the agreement, Pfizer and Hoechst Marion Roussel will construct a jointly
owned manufacturing plant in Frankfurt, Germany. Until its completion,
Hoechst Marion Roussel will provide biosynthetic recombinant insulin from its
existing plant to us for powder processing. We will continue to have
responsibility for manufacturing powders and supplying devices and will
receive a royalty on any inhaled insulin products marketed jointly by Pfizer
and Hoechst.
On April 1, 1998, we successfully completed an initial Phase II human
clinical trial for one drug and a Phase I human clinical trial for a second
drug resulting from our collaboration with Baxter. Both trials indicated
that our pulmonary delivery system could provide significant advantages
compared to current delivery alternatives for these molecules.
COLLABORATIVE PARTNERS
On January 6, 1998, we entered into a collaborative agreement with Lilly to
develop pulmonary delivery for an unspecified protein product based on our
deep-lung delivery system for macromolecules. This is the second
collaborative agreement between us and Lilly. Under the terms of the
agreement, we may receive funding of up to $20 million in research,
development, and milestone payments. Lilly will receive global
commercialization rights for the pulmonary delivery of any products and we
will receive royalties on any marketed products. We will manufacture
packaged powders for and supply inhalation devices to Lilly.
In April, 1998, we completed a review with Baxter of our two-year old
collaboration. The two companies agreed to focus their efforts on the one
compound that the parties believe has the largest commercial potential. Two
additional compounds remain in the collaboration and we may develop them
further in the future. We will receive all rights to work done on a fourth
compound from the collaboration, currently in pre-clinical development, and
will be free to develop further or partner the compound independently of
Baxter. On October 15, 1998, we reached agreement with Baxter to amend our
collaborative agreement. The purpose of the amendment was to facilitate
signing a new corporate partner to fund further development and
commercialization of the undisclosed compound that has been Baxter's focus
since April, 1998. Baxter will continue to provide development funding for
this compound in preparation for Phase II trials while the two companies are
seeking the new partner.
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Each of the foregoing collaborative arrangements are terminable by the
partner. Therefore, there can be no assurance that we will receive
additional payments as described or that any marketable products will result
from the collaborations. See "Risk Factors - Dependence Upon Collaborative
Partners."
MANAGEMENT TEAM
In September, 1998, we adopted a co-Chief Executive Officer (CEO) structure.
The two co-CEOs of Inhale are Ajit Gill, former Chief Operating Officer, and
Robert Chess, former Chief Executive Officer and President. The position of
President will no longer exist. In addition, to help manage our growth, we
created the positions of Vice President of Human Resources and General
Counsel. Our new Vice President of Human Resources is Don Campodonico and
our General Counsel is Stephen Hurst.
Ajit S. Gill has served as our Chief Financial Officer and Vice President of
Technical Operations as well as Chief Operating Officer. Before joining
Inhale in 1992, Mr. Gill was Vice President and General Manager of Kodak's
Interactive Systems division. Mr. Gill was Chief Financial Officer for
TRW-Fujitsu, Director of Business Development for Visicorp, and has served as
President for three early-stage high technology companies.
Robert B. Chess has served as Inhale's President since 1991 and CEO since
1992. Mr. Chess was co-founder and president of Penederm, Inc., a
dermatology pharmaceutical company focused on improved drug topical delivery,
and previously held management positions at Intel Corporation and Metaphor
Computer Systems (now part of IBM). Immediately before joining Inhale, he
served as a member of President Bush's White House staff.
Prior to joining Inhale, Mr. Campodonico, the new Vice President of Human
Resources, served as Vice President of the Octel Messaging Division of Lucent
Technologies. He also served as Vice President of Octel University, where he
was responsible for product, sales, and management training. Prior to his
service at Octel, Mr. Campodonico held a variety of management positions at
ROLM Corporation, including Vice President of Manufacturing of ROLM MilSpec
Computers.
We have also appointed Stephen Hurst, previous Inhale Vice President of
Intellectual Property and Licensing, as General Counsel. Mr. Hurst has been
with Inhale since 1994. Prior to joining Inhale, he served as an
intellectual property consultant for COR Therapeutics, Inc. Mr. Hurst was the
campus Patent and Licensing Coordinator at the University of California, San
Francisco prior to his consulting at COR. He also worked as an Associate
Counsel at the intellectual property law firm of Townsend & Townsend.
NEW PATENTS
The United States Patent and Trademark Office granted us five new patents in
1998. In July, we announced that the PTO granted two additional patents
covering our device technology for reproducibly delivering aerosolized doses
of drugs to the deep lung.
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In October, we were issued a patent containing 50 claims directed to methods
and means for aerosolizing dry powders through use of a high pressure gas
stream to draw dry powder from a receptacle such as a blister. In addition,
we announced a patent covering methods and means for pulmonary delivery of
dry powder alpha-1 antitrypsin for administration to a patient. A third
patent announced in October extends our coverage of pulmonary delivery of
active fragments of parathyroid hormone (PTH), a macromolecule being
developed by pharmaceutical companies to treat osteoporosis.
In April, 1998, we signed an agreement with Initiatech Inc. under which we
will license technology, intellectual property, and patents for protecting
biologically active compounds in the dry state. We plan to use this
technology to expand our current technology base in stabilizing dry powder
aerosol formulations for peptides, proteins, and other macromolecules at room
temperature.
4
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WHERE YOU CAN FIND MORE INFORMATION
Our principal executive offices are located at 150 Industrial Road, San
Carlos, CA 94070. Our telephone number is (650) 631-3100. We maintain an
Internet home page at www.Inhale.com. The contents of our web page are not
incorporated herein and are not a part of this prospectus.
We have filed with the SEC a registration statement on Form S-3 to register
the common stock offered by this prospectus. However, this prospectus does
not contain all of the information contained in the registration statement
and the exhibits and schedules to the registration statement. We strongly
encourage you to carefully read the registration statement and the exhibits
and schedules to the registration statement. We also file annual, quarterly
and special reports, proxy statements and other information with the SEC.
You may inspect and copy such material at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the SEC's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. You may also obtain copies of such material from the
SEC at prescribed rates by wiring to the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the
SEC's Website at www.sec.gov.
The SEC allows us to "incorporate by reference" the information contained in
documents that we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information in this prospectus supersedes information incorporated by
reference which we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will automatically update
and supersede this information. We incorporate by reference the documents
listed below and any future filings we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934;
1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
filed on March 23, 1998 and an amendment thereto filed April 30, 1998,
including all material incorporated by reference therein;
2. Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998, filed on May 14, 1998, including all material incorporated by
reference therein;
3. Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998, filed on August 13, 1998, including all material incorporated by
reference therein;
4. Our Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1998, filed on November 12, 1998, including all material incorporated
by reference therein;
5. Our Current Report on Form 8-K, filed on April 7, 1998, including all
material incorporated by reference therein; and
6. The description of the common stock contained in our Registration Statement
on Form 8-A as filed on May 2, 1994.
You may request a copy of these filings, at no cost to you, by writing or
telephoning us at:
Inhale Therapeutic Systems, Inc.
Attention: Investor Relations
150 Industrial Road
San Carlos, CA 94070
Telephone: (650) 631-3100
Our common stock is quoted on the Nasdaq National Market under the symbol
"INHL". The last reported sales price of the common stock on the Nasdaq
National Market ("Nasdaq") on December 11, 1998 was $30.06 per share. You
may inspect reports and other information concerning us at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
You should rely only on the information incorporated by reference or provided
in this prospectus. We have authorized no one to provide you with different
information. You should not assume that the information in this prospectus
is accurate as of any date other than the date on the front of the document.
5
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RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING ANY INVESTMENT
IN INHALE. YOUR UNDERSTANDING OF THESE RISK FACTORS IS IMPORTANT IN
EVALUATING INHALE AND OUR BUSINESS. INVESTMENT IN OUR COMMON STOCK INVOLVES
CONSIDERABLE RISK TO YOU AND MAY RESULT IN THE LOSS OF ALL OR PART OF YOUR
INVESTMENT. THE FOLLOWING AREAS OF RISK ARE DISCUSSED IN MORE DETAIL BELOW:
- Early Stage Company
- Uncertainties Related to Technology and Product Development
- Uncertainties Related to Clinical Trials
- History of Operating Losses; Uncertainty of Future Profitability
- Dependence Upon Collaborative Partners
- Limited Manufacturing Experience; Risk of Scale-Up
- Uncertainty of Market Acceptance
- Future Capital Needs; Uncertainty of Additional Funding
- Dependence Upon Proprietary Technology; Uncertainty of Obtaining
Licenses or Developing Technology
- Dependence Upon and Need to Attract Key Personnel
- Government Regulation; Uncertainty of Obtaining Regulatory Approval
- Uncertainty Related to the Health Care Industry and Third-Party
Reimbursement
- Highly Competitive Industry; Risk of Technological Obsolescence
- Product Liability; Availability of Insurance
- Hazardous Materials
- Anti-Takeover Provisions
- Potential Volatility of Stock Price
EARLY STAGE COMPANY. We are in an early stage of development. There is a
risk that our pulmonary delivery technology will not be technically feasible.
Even if our pulmonary delivery technology is technically feasible, it may
not be commercially accepted across a range of macromolecules and small
molecule drugs. We have tested six of our thirteen pulmonary delivery
formulations in human clinical trials. The pulmonary formulations tested in
humans are insulin, interleukin-1 receptor, salmon calcitonin, an
osteoporosis drug and two small molecules.
Many of the underlying drug compounds contained in our pulmonary formulations
have been tested in humans by other companies using alternative delivery
routes. Our potential products require extensive research, development and
pre-clinical and clinical testing. Our potential products also may involve
lengthy regulatory review before they can be sold. We do not know if and
cannot assure that any of our potential products will prove to be safe and
effective or meet regulatory standards. There is a risk that any of our
potential products will not be able to be produced in commercial quantities
at acceptable cost or marketed successfully. Our failure to achieve
technical feasibility, demonstrate safety, achieve clinical efficacy, obtain
regulatory approval or, together with partners, successfully market products
will seriously impact the amount of our revenue and our results of
operations.
UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT. The success of
our pulmonary drug delivery system for any drugs will depend upon our
achieving the following:
- sufficient system efficiency;
- formulation stability;
- safety; and
- dosage reproducibility.
System efficiency is the product of the pulmonary bioavailability of a potential
product and the percentage of each drug dose lost at various stages of the
manufacturing and pulmonary delivery process. Pulmonary bioavailability is the
percentage of a drug that is absorbed into the bloodstream when that drug is
delivered directly to the lungs. This is the initial screen for whether
pulmonary delivery of any systemic drug is feasible. The stages of the
manufacturing and pulmonary delivery process are:
- drug formulation;
- dry powder processing;
- packaging; and
- moving the drug from a delivery device into the lungs.
We would not consider a drug as a good candidate for development and
commercialization if its dose loss is excessive at any one stage or
cumulatively in the manufacturing and delivery process or if its pulmonary
bioavailability is too low.
Formulation stability is the physical and chemical stability of the drug over
time and under various storage conditions. Formulation stability will vary
with each pulmonary formulation and the type and amount of excipients that
are used in the formulation.
The safety of our pulmonary formulations will vary with each drug and the
excipients used in its formulation.
Reproducible dosing is the ability to deliver a consistent and predictable
amount of drug into the bloodstream over time both for a single patient and
across patient groups. Reproducible dosing requires the development of:
- an inhalation device that consistently delivers predictable amounts of
dry powder formulations to the deep lung;
- accurate unit dose packaging of dry powder formulations; and
- moisture resistant packaging.
There is a risk that we will not develop reproducible dosing of any potential
product. The failure to do so means that we would not consider it a good
candidate for development and commercialization.
Our integrated approach to systems development relies upon several different
but related technologies:
- dry powder formulations;
- dry powder processing technology;
- dry powder packaging technology; and
- pulmonary delivery devices.
At the same time we must:
- establish collaborations with partners;
- perform laboratory and clinical testing of potential products; and
- scale-up our manufacturing processes.
We must accomplish all of these steps without delaying any aspect of
technology development. Any delay in one component of product or business
development could delay our ability to develop, obtain
6
<PAGE>
approval of or market therapeutic products using our pulmonary delivery
technology.
Before we can sell any potential product, we must:
- further refine our device prototype;
- complete scale-up of our powder processing system; and
- complete scale-up of our automated packaging system.
There is a risk that we will not:
- be able to demonstrate pulmonary bioavailability for the drug
candidates we have identified or may identify;
- be able to achieve commercial viability of our pulmonary delivery
system;
- achieve the total system efficiency needed to be competitive with
alternative routes of delivery;
- prove potential products to be safe or provide reproducible dosages of
stable formulations sufficient to achieve clinical efficacy;
- gain regulatory approval or market acceptance; or
- advance the numerous aspects of product and business development
needed to prevent delays in overall product development.
The failure to demonstrate pulmonary bioavailability, achieve total system
efficiency, provide safe, reproducible dosages of stable formulations or
advance on a timely basis the numerous aspects of product and business
development will seriously impact the amounts of our revenues and our results
of operations.
UNCERTAINTIES RELATED TO CLINICAL TRIALS. We have limited experience in
conducting clinical trials and intend to rely primarily on our collaborative
partners for such trials, including Pfizer and Eli Lilly & Company. We are,
however, responsible for managing the clinical trials in our collaboration
with Baxter Healthcare Corporation. Before seeking regulatory approvals for
the commercial sale of products under development, we must demonstrate
through pre-clinical studies and clinical trials that such products are safe
and effective for use in the target indications. The results from
pre-clinical studies and early clinical trials may not reflect the results
that will be obtained in large-scale testing. Accordingly, therefore, we
cannot be certain that clinical trials will demonstrate the levels of safety
and effectiveness needed to obtain regulatory approvals or will result in
marketable products.
We might also conduct clinical trials with patients having advanced stages of
disease. During the course of treatment, these patients can die or suffer
other adverse medical effects for reasons that may not be related to the drug
being tested but that can nevertheless affect clinical trial results. A
number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after good results in earlier
trials. Clinical trials for products being developed by us and our partners
may be delayed by many factors, including enrolling a sufficient number of
patients fitting the trial profile. If we fail to demonstrate safety and
efficacy of any of our products in clinical trials, the resulting delays in
developing other compounds and conducting pre-clinical testing and clinical
trials will impact the amount of our revenue and our results of operations.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. We have
never been profitable and, through September 30, 1998, have incurred a
cumulative deficit of approximately $49.7 million. We expect to continue to
incur substantial and increasing losses over at least the next several years
as we expand our research and development efforts, testing activities and
manufacturing operations, and as we complete our late stage clinical and
early commercial production facility. All of our potential products are in
research or in the early stages of development except for our insulin
collaboration. We have generated no revenues from approved product sales.
Our revenues to date have consisted primarily of payments under short-term
research and feasibility agreements and development contracts. To achieve
and sustain profitable operations, we must, alone or with others,
successfully develop, obtain regulatory approval for, manufacture, introduce,
market and sell products using our pulmonary drug delivery system. There is
a risk that we will not generate sufficient product or contract research
revenue to become profitable or to sustain profitability.
DEPENDENCE UPON COLLABORATIVE PARTNERS. We currently do not have the
resources necessary to develop, obtain regulatory approvals, or commercialize
any of our potential therapeutic products. Our ability to apply our
pulmonary delivery system to a broad range of drugs depends upon our
establishing and maintaining collaborative arrangements with other companies,
especially for drugs currently approved for sale or in clinical testing that
are covered by third-party patents. We have entered into collaborative
arrangements with certain partners to fund clinical trials, assist in
obtaining regulatory approvals, supply drugs for formulation and market and
distribute products.
We have also entered into agreements with partners to test the feasibility of
our pulmonary delivery system with certain of their proprietary molecules.
There is a risk that we will not be able to enter into additional
collaborations or that our feasibility agreements will lead to
collaborations. In addition, we may not be able to maintain or succeed with
any of these collaborative arrangements or feasibility agreements, and our
failure to enter into or maintain them will seriously impact the amounts of
our revenue and our results of operations. Moreover, we cannot work with any
patented drug unless the owner of the drug agrees to collaborate with us.
The inability of any partner to supply drugs for formulation will seriously
impact the amount of our revenue and our results of operations.
Our existing partners may pursue development of other drug delivery systems
that may compete with our drug delivery system. They also have the right to
terminate their agreements with us at any time without significant penalty to
them. We expect future partners to have similar rights. Generally, we plan
to formulate and manufacture powders for our partners and to supply the
inhalation devices for such powders. Some of our partners, however, may
choose to formulate or manufacture their own powders, or to develop or supply
their own device. If they choose to do so, then one or more potential
sources of revenue for us may be eliminated or reduced. We anticipate that
we may be precluded from entering into new arrangements with companies whose
products compete with those of our existing partners. In addition, we have
limited or no control over the resources that any partner devotes to our
potential products, or over their development efforts, including the clinical
trials, and the marketing and pricing of products.
The pharmaceutical and biotechnology industries are consolidating. We may
not be able to continue or initiate collaborations if our existing or
potential partners are acquired or acquire other companies. There is a risk
that our partners will not perform their obligations as expected, devote
sufficient resources to developing, testing or marketing our potential
products or will terminate or change their agreements. Our revenues and our
results of operations will be seriously impacted if:
- a partner develops an alternate drug delivery systems;
- a partner develops, rather than us, components of the delivery system;
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- we are precluded from entering into competitive arrangements;
- we fail to obtain timely regulatory approvals;
- an agreement is prematurely terminated;
- an agreement is renegotiated; or
- a partner fails to devote sufficient resources to developing and
commercializing our potential products.
LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP. We must scale-up our
current powder processing and filling facilities and comply with the good
manufacturing practice standards prescribed by the United States Food and
Drug Administration and other standards prescribed by other regulatory
agencies to achieve drug production levels that are adequate to support late
stage human clinical trials and early commercial sales.
We have no experience manufacturing products for large scale clinical testing
or commercial purposes. We have only performed powder processing on the
small scale needed for testing formulations and for early stage and larger
clinical trials. We may encounter manufacturing and control problems as we
attempt to scale-up powder processing facilities. We may not be able to
achieve such scale-up in a timely manner or at a commercially reasonable
cost, if at all. Our failure to solve any of these problems could delay or
prevent late stage clinical testing and commercialization of our products and
could seriously impact the amount of our revenues and our results of
operations.
To date, we have relied on one particular method of powder processing. There
is a risk that this technology will not work with all drugs or that the drug
losses will prohibit the commercial viability of certain drugs.
Additionally, there is a risk that any alternative powder processing methods
we may pursue will not be commercially practical for aerosol drugs or that we
will not have or be able to acquire the rights to use such alternative
methods.
Our fine particle powders and small quantity packaging require special
handling. We have designed and qualified small scale automated filling
equipment for small quantity packaging of fine powders. We face significant
technical challenges in scaling-up an automated filling system that can
handle the small dose and particle sizes of our powders in commercial
quantities. There is a risk that we will not be able to scale-up our
automated filling equipment in a timely manner or at commercially reasonable
costs. Any failure or delay in such scale-up would delay product development
or bar commercialization of our products and will impact the level of our
revenues and results of operations.
We face many technical challenges in further developing our inhalation device
to work with a broad range of drugs, to produce such a device in sufficient
quantities and to adapt the device to different powder formulations. There
is a risk that we will not successfully achieve any of these things. Our
failure to overcome any of these challenges will impact our revenues and
results of operations.
For late stage clinical trials and initial commercial production, we intend
to use one or more contract manufacturers to produce our device. There is a
risk that we will not be able to enter into or maintain arrangements with any
potential contract manufacturers, and that the failure to do so will impact
our revenues and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE. The commercial success of our potential
products depends upon market acceptance by health care providers, third-party
payors, like health insurance companies and Medicare, and patients. Our
products under development use a new method of drug delivery and there is a
risk that our potential products will not be accepted by the market. Market
acceptance will depend on many factors, including
- the safety and efficacy results of our clinical trials;
- favorable regulatory approval and product labeling;
- the frequency of product use;
- the availability of third-party reimbursement;
- the availability of alternative technologies; and
- the price of our products relative to alternative technologies.
There is a risk that health care providers, patients or third-party payors
will not accept our pulmonary drug delivery system. If the market does not
accept our potential products, our revenues and results of operations will be
seriously impacted if our potential products are not accepted by the market.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. Our operations to
date have consumed substantial and increasing amounts of cash. We expect
that the negative cash flow from operations will continue and accelerate.
The development of our technology and potential products will require a
commitment of substantial funds so that we can:
- conduct costly and time-consuming research, preclinical and clinical
testing;
- establish an early commercial production facility; and
- bring any such potential products to market.
Our future capital requirements will depend on many factors, including:
- continued progress in the research and development of our technology
and drug delivery system;
- our ability to establish and maintain collaborative arrangements with
others and the terms of those arrangements;
- payments received from partners under research and development
agreements;
- progress with preclinical and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost of development and the rate of scale-up of our powder
processing and packaging technologies;
- the timing and costs of our late stage clinical and early commercial
production facility;
- the cost involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims; and
- the need to acquire licenses to new technology and the status of
competitive products.
We expect that our existing capital resources, revenues from collaborations
and the interest thereon, will enable us to maintain our current and planned
operations at least through 2000. Thereafter, we will need to raise
substantial additional capital to fund our operations. We intend to seek
such additional funding through new collaborative arrangements, by extending
existing arrangements, or through public or private equity or debt
financings. There is a risk that additional financing will not be available
on acceptable terms or at all. If additional funds are raised by issuing
equity securities, further dilution to stockholders will result. If adequate
funds are not available, we may be required to delay, reduce the scope of, or
eliminate one or more of our research or development programs or obtain funds
through relinquishing rights to some of our technologies, product candidates
or products that we would otherwise develop or commercialize.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF OBTAINING
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LICENSES OR DEVELOPING TECHNOLOGY. We must protect our proprietary
technology from infringement, misappropriation, duplication and discovery to
be successful. We rely principally on a combination of patent, trademark and
copyright law, trade secrets and contract law to protect our technology
worldwide. We have filed patent applications covering certain aspects of our
device, powder processing technology, and powder formulations and pulmonary
route of delivery for certain molecules, and plan to file additional patent
applications. Currently we have 27 issued U.S. and foreign patents that
cover certain aspects of our technology and we have a number of patent
applications pending. There is a risk that any of the patents applied for
will not issue, or that any patents that issue or have issued will not be
valid and enforceable. Enforcing our patent rights would be time consuming
and costly.
Our patent positions and the patent positions of pharmaceutical,
biotechnology and drug delivery companies are uncertain and involve complex
legal and factual issues. Additionally, the coverage claimed in a patent
application can be significantly reduced before the patent is issued.
Therefore, we do not know whether any of our patent applications will result
in the issuance of patents or, if any patents issue, whether they will
provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications in the United States are maintained
in secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, we
cannot be certain that we were the first inventor of inventions covered by
our pending patent applications or issued patents or that we were the first
to file patent applications for such inventions. We may have to participate
in interference proceedings declared by the Patent and Trademark Office to
determine ownership of a given invention, which could be costly to us, even
if the eventual outcome is favorable to us. An adverse outcome could subject
us to significant liabilities to third parties, require disputed rights to be
licensed from or to third-parties or require us to cease using the technology
in dispute.
We are aware of numerous pending and issued U.S. and foreign patent rights
and other proprietary rights owned by third-parties that relate to aerosol
devices and delivery, pharmaceutical formulations, dry powder processing
technology and the pulmonary route of delivery for certain macromolecules.
There is a risk that any of our patents or patent applications will not be
considered relevant to our technology by authorities in the various
jurisdictions where such rights exist, or that these rights will be asserted
against us by such third-parties.
We are aware of an alternate dry powder processing technology that we are not
using for our current products under development but may desire to use for
certain products in the future. The ownership of this powder processing
technology is unclear. We are aware that multiple parties, including Inhale,
claim patent, trade secret and other rights in the technology. If we
determine that this alternate powder processing technology is relevant to the
development of future products and further determine that a license to this
alternate powder processing technology is needed, we cannot be certain that
we can obtain a license from the relevant party or parties on commercially
reasonable terms, if at all.
There is a risk that we will not obtain any license to any technology that we
determine we need, on reasonable terms, or that we will not develop or
otherwise obtain alternate technology. Our failure to obtain licenses, if
needed, will impact the level of our revenues and results of operations.
In June 1997, we acquired the intellectual property portfolio of the
BioPreservation Division of Pafra Limited of Basildon, England. This
portfolio includes issued U.S. and foreign patents and pending applications
relating to the stabilization of macromolecule drugs in dry formulations. A
granted European patent included in this portfolio is currently the subject
of an opposition proceeding before the European Patent Office. The
opposition proceeding allows third-parties to present evidence to the
European Patent Office in a attempt to have the allowed patent declared
invalid. Opposition to this patent was initiated prior to the acquisition
and we are continuing the defense of this patent. There is a risk that we
will not be successful in the defense of this opposition proceeding. In
addition, there is a risk that any of the Pafra patent applications will not
issue, or that any of the Pafra patents will not be valid and enforceable.
The loss of the opposition proceeding or the inability to obtain or defend
the Pafra patents could impact the level of our revenues and results of
operations.
In the past, third-parties have asserted and in the future may assert that we
are employing technology that is based on issued patents, trade secrets or
know-how of others. In addition, future patents may not issue to
third-parties that our technology may infringe. We could incur substantial
costs in defending ourselves and our partners against any such claims.
Parties making such claims may be able to obtain injunctive or other
equitable relief that could effectively block our ability to further develop
or commercialize some or all of our products in the United States and abroad,
and could result in the award of substantial damages. A claim of
infringement may require our partners and us to obtain one or more licenses
from third-parties. There is a risk that we or our partners would not be
able to obtain such licenses at a reasonable cost, if at all. Defense of any
lawsuit or failure to obtain any such license could impact the level of our
revenues and results of operations.
Our access or our partners' access to the drugs to be formulated will affect
our ability to develop and commercialize our technology. Many drugs,
including powder formulations of certain drugs that are presently under
development by us, are subject to issued and pending United States and
foreign patents that may be owned by our competitors. We know that there are
issued patents and pending patent applications relating to the pulmonary
delivery of macromolecule drugs, including several for which we are
developing pulmonary delivery formulations. This situation is highly complex,
and the ability of any one company, including Inhale, to commercialize a
particular biopharmaceutical drug is, therefore, highly unpredictable.
We intend generally to rely on the ability of our partners to provide access
to the drugs that are to be formulated for pulmonary delivery. There is a
risk that our partners will not be able to provide access to such drug
candidates. Even if such access is provided, there is a risk that our
partners or we will be accused of, or determined to be, infringing a
third-party's rights and will be prohibited from working with the drug or be
found liable for damages that may not be subject to indemnification. Any
such restriction on access or liability for damages would impact the level of
our revenues and results of operations.
We also rely on trade secrets and contract law to protect certain of our
proprietary technology. There is a risk that any such contract will be
breached, and that if breached, that we will not have adequate remedies.
There is a risk that any of our trade secrets will become known or
independently discovered by third-parties, thereby eliminating its value as a
trade secret.
In 1995 the Patent and Trademark Office adopted changes to the United States
patent law that changed the term of issued patents, subject to certain
transition periods, to 20 years from the date of filing rather than 17 years
from date of issuance. Beginning in June 1995, the patent term became 20
years from the earliest effective filing date of the underlying patent
application. Such change may reduce the
9
<PAGE>
effective term of protection for patents that are pending for more than three
years in the Patent and Trademark Office. In addition, as of January 1996,
all inventors who work outside of the United States are able to establish a
date of invention on the same basis as those working in the United States.
Such change could adversely affect our ability to prevail in a priority of
invention dispute with a third party located or doing work outside of the
United States. While we cannot predict the effect that such changes will
have on our business, such changes could affect our ability to protect our
ownership of our technology and sustain the commercial viability of our
products. The possibility of extensive delays in such process could
effectively reduce the term during which a marketed product is protected by
patents.
DEPENDENCE UPON AND NEED TO ATTRACT KEY PERSONNEL. We depend on the
principal members of our scientific and management staff. We do not have
employment contracts with our key employees, nor do we have key man insurance
policies on them. We also rely on consultants and advisors to assist us in
formulating research and development strategy. To pursue our product
development and commercialization plans, we will need to hire additional
qualified scientific personnel to perform research and development, as well
as personnel with expertise in clinical testing, government regulation and
manufacturing. We also expect to expand product development and
manufacturing which will require additional management personnel and the
development of additional expertise by existing management personnel.
Retaining and attracting qualified personnel, consultants and advisors will
be critical to our success. We face competition for qualified individuals
from numerous pharmaceutical, biotechnology and drug delivery companies,
universities and other research institutions. There is a risk that we will
not be able to retain our current key employees or attract and retain
qualified additional personnel and management when needed. Our failure to do
so would impact our ability to develop and sell our products.
GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL.
Numerous governmental authorities in the United States and other countries
regulate the production and marketing of our products and our ongoing
research and development activities. Prior to marketing a new dosage form of
any drug, including one developed for use with our pulmonary drug delivery
system, the product must undergo rigorous preclinical and clinical testing
and an extensive review process mandated by the FDA and equivalent foreign
authorities. This is true whether or not such drug was already approved for
marketing in another dosage form. These processes generally take a number of
years and require the expenditure of substantial resources. We have not
submitted any products to the FDA for marketing approval. We have no
experience obtaining such regulatory approval, nor do we have the expertise
or other resources to do so. We intend to rely on our partners to fund
clinical testing and to obtain product approvals.
The time required for completing such testing and obtaining such approvals is
uncertain. We need to further refine our device prototype, further scale-up
the powder processing system and automated powder filling and packaging
system before our partners or we initiate later stage clinical trials or
market our products. Any delay in any of these components of product
development may delay testing. In addition, we may encounter delays or
rejections based upon changes in the United States Food and Drug
Administration policy, including policy relating to good manufacturing
practice compliance, during the period of product development. We may
encounter similar delays in other countries.
Even if regulatory approval of a product is granted, the approval may limit
the indicated uses for which the product may be marketed. In addition, the
marketed product, its manufacturer, and its manufacturing facilities are
subject to continual review and periodic inspections. Later discovery of
previously unknown problems with a product, manufacturer or facility may
result in restrictions on such product or manufacturer, including withdrawal
of the product from the market. There is a risk that we will not obtain
regulatory approval for any products on a timely basis, or at all. The
failure to obtain timely regulatory approval of our products, any product
marketing limitations or a product withdrawal would impact the level of our
revenue and results of operations.
UNCERTAINTY RELATED TO THE HEALTH CARE INDUSTRY AND THIRD-PARTY
REIMBURSEMENT. Political, economic and regulatory influences are subjecting
the health care industry in the United States to fundamental change. Recent
initiatives to reduce the federal deficit and to reform health care delivery
are increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess
- alternative benefits;
- controls on health care spending through limitations on the growth of
private health insurance premiums and Medicare and Medicaid spending;
- the creation of large insurance purchasing groups;
- price controls on pharmaceuticals; and
- other fundamental changes to the health care delivery system.
Any such proposed or actual changes could cause us or our collaborative
partners to limit or eliminate spending on development projects. We expect
legislative debate to continue in the future. We also expect that market
forces will demand reduced healthcare costs. We cannot predict what effect
the adoption of any federal or state health care reform measures or future
private sector reforms may have on our business.
In both domestic and foreign markets, sales of our products under development
will depend in part upon the availability of reimbursement from third-party
payors, such as government health administration authorities, managed care
providers, private health insurers and other organizations. In addition,
other third-party payors are increasingly challenging the price and cost
effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There is a risk that our proposed products will not be considered cost
effective and that adequate third-party reimbursement will not be available
to allow us to maintain competitive price levels. Legislation and
regulations affecting the pricing of pharmaceuticals may change before our
proposed products are approved for marketing. Adoption of such legislation
could further limit reimbursement for medical products. If the governments
and third party payors do not provide adequate coverage and reimbursements,
the market acceptance of these products would be limited, which would impact
the level of our revenues and results of operations.
HIGHLY COMPETITIVE INDUSTRY; RISK OF TECHNOLOGICAL OBSOLESCENCE. The
biotechnology and pharmaceutical industries are highly competitive. We
expect rapidly evolving and significant developments to continue at a rapid
pace. Our success depends upon maintaining a competitive position in the
development of products and technologies for pulmonary delivery of
pharmaceutical drugs. Our business would be adversely impacted if a
competing company were to develop, or acquire rights to:
- a better dry powder pulmonary delivery device or fine powder
processing technology;
- a better system for efficiently and reproducibly delivering drugs to
the deep lung;
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- a non-invasive drug delivery system which is more attractive for the
delivery of drugs than pulmonary delivery; or
- an invasive delivery system which overcomes some of the drawbacks of
current invasive systems for chronic or subchronic indications (such
as a sustained release system).
We compete with pharmaceutical, biotechnology and drug delivery companies,
hospitals, research organizations, individual scientists and nonprofit
organizations engaged in developing alternative drug delivery systems or new
drug research and testing. We also compete with entities producing and
developing injectable drugs. We are aware of a number of companies
developing new products and non-invasive alternatives to injectable drug
delivery, including oral delivery systems, intranasal delivery systems,
transdermal systems and colonic absorption systems. Several of these
companies may have developed or be developing dry powder devices that could
be used for pulmonary delivery.
We are also aware of other companies engaged in developing and
commercializing pulmonary drug delivery systems and enhanced injectable drug
delivery systems. Many of these companies have greater research and
development capabilities, experience, manufacturing, marketing, financial and
managerial resources than we do and represent significant competition for us.
Acquisitions of competing drug delivery companies by large pharmaceutical
companies could enhance our competitors' financial, marketing and other
resources. Accordingly, our competitors may succeed in developing competing
technologies, obtaining United States Food and Drug Administration approval
for products or gain market acceptance before us. We cannot assure that
developments by others will not make our products or technologies
uncompetitive or obsolete.
PRODUCT LIABILITY; AVAILABILITY OF INSURANCE. The design, development and
manufacture of our products involve an inherent risk of product liability
claims and associated adverse publicity. Although we currently maintain
general liability insurance, there is a risk that the coverage limits of our
insurance policies will not be adequate. We obtained clinical trial product
liability insurance of $3.0 million per event for certain clinical trials and
intend to obtain insurance for future clinical trials of insulin and other
products under development. There is a risk, however, that we will not be
able to obtain or maintain insurance for any future clinical trials. Such
insurance is expensive, difficult to obtain and may not be available in the
future on acceptable terms, or at all. A successful claim brought against us
in excess of our insurance coverage would impact the level of our revenue and
results of operations.
HAZARDOUS MATERIALS. Our research and development includes the controlled
use of hazardous materials, chemicals and various radioactive compounds.
Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
we could be held liable for any damages that result and any such liability
could exceed the our resources. We may incur substantial costs to comply
with environmental regulations.
ANTI-TAKEOVER PROVISIONS. Certain provisions of our Certificate of
Incorporation and the Delaware General Corporation Law could discourage a
third party from attempting to acquire, or make it more difficult for a third
party to acquire, control of Inhale without approval of our Board of
Directors. Such provisions could also limit the price that certain investors
might be willing to pay in the future for shares of Common Stock. Certain of
the provisions allow the Board of Directors to authorize the issuance of
Preferred Stock with rights superior to those of the Common Stock.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices for securities of
early stage biotechnology companies have historically been highly volatile
and the market from time to time has experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. A variety of factors may have a significant effect on the market
price of the Common Stock, including:
- fluctuations in our operating results;
- announcements of technological innovations or new therapeutic
products;
- announcement or termination of collaborative relationships by Inhale
or our competitors;
- governmental regulation;
- clinical trial results;
- developments in patent or other proprietary rights;
- public concern as to the safety of drug formulations developed by
Inhale or others; and
- general market conditions.
Our securities are subject to a high degree of risk and volatility. In the
past, following periods of volatility in the market price of a company's
securities, class action securities litigation have often been instituted
against such a company. Any such litigation instigated against us could
result in substantial costs and a diversion of management's attention and
resources, which could have a serious impact on our revenues and results of
operations.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of Common Stock by the selling
stockholders in the offering.
DIVIDEND POLICY
We have never paid cash dividends. We currently intend to retain any
earnings for use in our business and do not anticipate paying any cash
dividends in the foreseeable future.
SELLING STOCKHOLDERS
The selling stockholders acquired the shares of common stock covered by this
Prospectus from the Company pursuant to a stock purchase agreement, dated
December 8, 1998, between Inhale Therapeutic Systems, Inc. and Capital
Research and Management Company for an aggregate purchase price of
$37,200,000.00 ($31.00 per share). The offer and sale by us of the common
stock to the selling stockholders pursuant to the stock purchase agreement
was made pursuant to an exemption from the registration requirements of the
Securities Act provided by Section 4(2) thereof. The stock purchase
agreement contains representations and warranties as to the selling
stockholders' status as "accredited investors" as such term is defined in
Rule 501 promulgated under the Securities Act.
Pursuant to the stock purchase agreement, the selling stockholders have
represented that they acquired the shares for investment and with no present
intention of distributing the shares. We agreed, in the stock purchase
agreement to prepare and file a registration statement as soon as practicable
and to bear all expenses other than fees and expenses of counsel for the
selling stockholders and underwriting discounts and commissions and brokerage
commissions and fees. In addition, and in recognition of the fact that the
selling stockholders, even though purchasing the shares without a view to
distribution, may wish to be legally permitted to sell the shares when they
deem appropriate, we filed with the Commission a Registration Statement on
Form S-3, of which this Prospectus forms a part, with respect to, among other
things, the resale of the shares from time to time at prevailing prices in
the over-the-counter market or in privately-negotiated transactions and have
agreed to prepare and file such amendments and supplements to the
Registration Statement as may be necessary to keep the Registration Statement
effective until such shares are no longer, by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect, required to be registered
for the sale thereof by the selling stockholders.
The following table sets forth the name of the selling stockholders, the
number of shares of common stock owned beneficially by the selling
stockholders as of December 10, 1998 and the number of shares that may be
offered pursuant to this Prospectus. This information is based upon
information provided to us by the selling stockholders. There are currently
no agreements, arrangements or understandings with respect to the sale of any
of the shares. The shares are being registered to permit public secondary
trading of the shares, and the selling stockholders may offer the shares for
resale from time to time.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY MAXIMUM NUMBER OF SHARES BENEFICIALLY
NAME OWNED PRIOR TO THE OFFERING SHARES BEING OFFERED OWNED AFTER THE OFFERING
- --------------------------- --------------------------- -------------------- -------------------------
NUMBER PERCENT(1) NUMBER PERCENT(1)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Capital Research and 1,000,000 5.91% 1,000,000 0 0
Management Company on
behalf of SMALLCAP World
Fund, Inc.
Capital Research and 200,000 1.18% 200,000 0 0
Management Company on
behalf of American
Variable Insurance
Series-Growth Fund
TOTAL 1,200,000 7.09% 1,200,000 0 0
--------- ---------
---------
</TABLE>
(1) Applicable percentage of ownership is based on 16,914,620 shares of common
stock outstanding on December 10, 1998, and includes the sale and issuance
of 1,200,000 shares of common stock to the selling stockholders pursuant
to the stock purchase agreement.
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PLAN OF DISTRIBUTION
The shares offered hereunder may be sold from time to time by the selling
stockholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on the Nasdaq National Market or in the
over-the-counter market or otherwise, at prices and on terms then prevailing
or related to the then-current market price, or in negotiated transactions.
The shares may be sold to or through one or more broker-dealers, acting as
agent or principal, in underwritten offerings, block trades, agency
placements, exchange distributions, brokerage transactions or otherwise, or
in any combination of transactions.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition
and without limiting the foregoing, the selling stockholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of shares of common
stock by the selling stockholders.
At the time a particular offer of shares is made, to the extent required, a
supplemental prospectus will be distributed that will set forth the number of
shares being offered and the terms of the offering including the name or
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the shares purchased from the selling stockholders and any
discounts, concessions or commissions allowed or reallowed or paid to
dealers.
In connection with any transaction involving the shares, broker-dealers or
others may receive from the selling stockholders, and/or the purchasers of
the shares for whom such broker-dealers act as agents or to whom they may
sell as principals or both, compensation in the form of discounts,
concessions or commissions in amounts to be negotiated at the time (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). Broker-dealers and any other persons participating in a
distribution of the shares may be deemed to be "underwriters" within the
meaning of the Act in connection with such distribution, and any such
discounts, concessions or commissions may be deemed to be underwriting
discounts or commissions under the Act.
Any or all of the sales or other transactions involving the shares described
above, whether effected by the selling stockholders, any broker-dealer or
others, may be made pursuant to this Prospectus. In addition, any shares
that qualify for sale pursuant to Rule 144 under the Act may be sold under
Rule 144 rather than pursuant to this Prospectus.
In order to comply with the securities laws of certain states, if applicable,
the shares may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the shares may
not be sold unless the shares have been registered or qualified for sale or
an exemption from registration or qualification requirements is available and
is complied with.
All costs associated with this offering, other than fees and expenses of
counsel for the selling stockholders and underwriting discounts and
commissions and brokerage commissions and fees, will be paid by us. We have
agreed to indemnify the selling stockholders against certain liabilities in
connection with any offering of the shares pursuant to this Prospectus,
including liabilities arising under the Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP, Menlo Park, California, ("Cooley Godward").
13
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1997, as set forth in their report, which is incorporated in
this prospectus by reference. Our financial statements are incorporated by
reference in reliance on their report, given on their authority as experts in
accounting and auditing.
14
<PAGE>
WE HAVE AUTHORIZED NO ONE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS THAT ARE NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD RELY
ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS
PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SHARES IN ANY JURISDICTION
WHERE IT IS UNLAWFUL. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE
DOCUMENT.
TABLE OF CONTENTS
PAGE
----
THE COMPANY.......................................................... 1
RECENT DEVELOPMENTS ................................................. 1
WHERE YOU CAN FIND MORE INFORMATION.................................. 5
RISK FACTORS......................................................... 6
USE OF PROCEEDS...................................................... 12
DIVIDEND POLICY...................................................... 12
SELLING STOCKHOLDERS................................................. 12
PLAN OF DISTRIBUTION................................................. 13
LEGAL MATTERS........................................................ 13
EXPERTS ............................................................. 14
1,200,000 SHARES
COMMON STOCK
INHALE THERAPEUTIC
SYSTEMS, INC. LOGO
PROSPECTUS
DECEMBER 14, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by Inhale Therapeutic
Systems, Inc., hereinafter referred to as the "Registrant" or the "Company"
in connection with the sale of the Shares being registered. All the amounts
shown are estimates except for the registration fee. None of these expenses
will be paid by the selling stockholders.
<TABLE>
<S> <C>
Registration fee................................................ $10,572
Printing and engraving expenses................................. $ 3,000
Legal fees and expenses......................................... $30,000
Accounting fees and expenses.................................... $10,000
Miscellaneous................................................... $ 2,000
Total........................................................... $55,572
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not
eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such an injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
II-1
<PAGE>
ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
4.1 Stock Purchase Agreement between the Registrant and
Capital Research and Management Company, dated December
8, 1998.
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Ernst and Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney (included on signature pages).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period during which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or any decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low end or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for purposes of determining liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities to be offered
therein, and the offering of such securities at that time shall be
deemed to be an initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which shall remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Carlos, County of
San Mateo, State of California, on the 11th day of December, 1998.
INHALE THERAPEUTIC SYSTEMS
By: /s/ Robert B. Chess
----------------------------
Robert B. Chess
Co-Chief Executive Officer and Director
By: /s/ Ajit S. Gill
----------------------------
Ajit S. Gill
Co-Chief Executive Officer and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert B.
Chess and Ajit S. Gill his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration
Statement on Form S-3, and to file the same, with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, 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 full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Robert B. Chess Co-Chief Executive Officer
- --------------------------- and Director December 11, 1998
Robert B. Chess (Co-Principal Executive Officer)
/s/ Ajit S. Gill Co-Chief Executive Officer
- --------------------------- and Director December 11, 1998
Ajit S. Gill (Co-Principal Executive Officer)
/s/ Christian O. Henry Controller
- --------------------------- (Principal Financial and Accounting December 11, 1998
Christian O. Henry Officer)
/s/ Terry L. Ondendyk
- --------------------------- Chairman of the Board December 11, 1998
Terry L. Ondendyk
/s/ Mark J. Gabrielson
- --------------------------- Director December 11, 1998
Mark J. Gabrielson
/s/ James B. Galvin
- --------------------------- Director December 11, 1998
James B. Galvin
/s/ John S. Patton
- --------------------------- Vice President and Director December 11, 1998
John S. Patton
/s/ Melvin Perelman
- --------------------------- Director December 11, 1998
Melvin Perelman
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
4.1 Stock Purchase Agreement between the Registrant and
Capital Research and Management Company, dated December
8, 1998.
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Ernst and Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney (included on signature pages).
II-6
<PAGE>
STOCK PURCHASE AGREEMENT
BETWEEN
INHALE THERAPEUTIC SYSTEMS, INC.
AND
CAPITAL RESEARCH AND MANAGEMENT COMPANY
DATED DECEMBER 8, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE OF COMMON STOCK............................................ 1
2. CLOSING DATE; DELIVERY.............................................. 1
2.1 Closing; Closing Date......................................... 1
2.2 Delivery...................................................... 1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 1
3.1 Authorization................................................. 1
3.2 No Conflict with Other Instruments............................ 1
3.3 Certificate of Incorporation; By-laws......................... 2
3.4 Organization, Good Standing and Qualification................. 2
3.5 Disclosure Documents.......................................... 2
3.6 Capitalization................................................ 2
3.7 Subsidiaries.................................................. 2
3.8 Valid Issuance of Shares...................................... 2
3.9 Litigation, etc............................................... 2
3.10 Governmental Consents......................................... 3
3.11 Brokers Fee................................................... 3
3.12 Contracts..................................................... 3
3.13 No Material Change............................................ 3
3.14 Intellectual Property......................................... 3
3.15 Compliance.................................................... 3
3.16 Investment Company............................................ 4
3.17 SEC Documents; Financial Statements........................... 4
3.18 Additional Information........................................ 4
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER......................... 4
4.1 Legal Power................................................... 4
4.2 Due Execution................................................. 4
4.3 Investment Representations.................................... 4
4.4 No Brokers.................................................... 6
5. CONDITIONS TO CLOSING............................................... 6
5.1 Conditions to Obligations of Purchaser at Closing............. 6
5.2 Conditions to Obligations of the Company at Closing........... 7
6. REGISTRATION OF THE SHARES.......................................... 7
6.2 Indemnification............................................... 8
7. MISCELLANEOUS....................................................... 11
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.1 Survival of Representations, Warranties and Agreements........ 11
7.2 Governing Law................................................. 11
7.3 Successors and Assigns........................................ 12
7.4 Entire Agreement.............................................. 12
7.5 Severability.................................................. 12
7.6 Amendment and Waiver.......................................... 12
7.7 Notices....................................................... 12
7.8 Fees and Expenses............................................. 12
7.9 Titles and Subtitles.......................................... 12
7.10 Counterparts................................................. 12
7.11 NASDAQ....................................................... 12
7.12 Acknowledgment of Purchaser Regarding Document Delivery...... 12
EXHIBITS:
- ---------
Exhibit A SCHEDULE OF EXCEPTIONS
Exhibit B CERTIFICATE OF INCORPORATION
Exhibit C BYLAWS
Exhibit D FORM OF OPINION OF COOLEY GODWARD LLP
ii.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of 8th December 1998, by and between INHALE
THERAPEUTIC SYSTEMS, INC., a Delaware corporation with its principal office
at 150 Industrial Road, San Carlos, California 94070 (the "Company"), and
CAPITAL RESEARCH AND MANAGEMENT COMPANY, a Delaware corporation with its
principal office at 333 S. Hope Street, 55th Floor, Los Angeles, California
90071 (the "Purchaser"), on behalf of SMALLCAP World Fund, Inc. and
American Variable Insurance Series-Growth Fund.
IN CONSIDERATION of the mutual covenants and agreements contained
herein, the Company and the Purchaser agree as follows:
1. PURCHASE OF COMMON STOCK. Subject to the terms and conditions
of this Agreement, and in reliance on the representations and warranties
contained herein, at the Closing (as hereinafter defined) the Company agrees
to sell to Purchaser and Purchaser agrees to purchase from the Company, one
million two hundred thousand (1,200,000) shares of the Company's Common Stock
(the "Shares"). The purchase price per share shall be $31.00.
2. CLOSING DATE; DELIVERY.
2.1 CLOSING; CLOSING DATE. Subject to the terms of Section 5,
the closing of the sale and purchase of the Shares under Section 1 of this
Agreement (the "Closing") shall be held at 2:00 p.m. (PDT) on December 9,
1998 the "Closing Date") at the offices of the Company, or at such other time
and place as the Company and Purchaser may agree.
2.2 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to Purchaser a stock certificate,
in the names designated by Purchaser, representing the shares of Common Stock
deliverable at such Closing, dated as of Closing, against payment of the
purchase price therefor by wire transfer, unless other means of payment shall
have been agreed upon by Purchaser and the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Subject to and
except as disclosed by the Company in the Schedule of Exceptions attached
hereto as Exhibit A, the Company hereby represents and warrants and covenants
to Purchaser as follows:
3.1 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement has been taken. The
Company has the requisite corporate power to enter into this Agreement and
carry out and perform its obligations under the terms of this Agreement. At
the Closing, the Company will have the requisite corporate power to sell the
shares of Common Stock to be sold at such Closing. This Agreement has been
duly authorized, executed and delivered by the Company and, upon due
execution and delivery by Purchaser, this Agreement will be a valid and
binding obligation of the Company, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by equitable principles.
3.2 NO CONFLICT WITH OTHER INSTRUMENTS. The execution,
delivery and performance of this Agreement will not result in any violation
of, be in conflict with, or constitute a default under, with or without the
passage of time or the giving of notice: (a) any provision of the Company's
Certificate of Incorporation or Bylaws as either shall be in effect; (b) any
provision of any judgment, decree or order to which the Company is a party or
by which it is bound; (c) any material contract, obligation or commitment to
which the Company is a party or
1.
<PAGE>
by which it is bound; or (d) any statute, rule or governmental regulation
applicable to the Company.
3.3 CERTIFICATE OF INCORPORATION; BY-LAWS. Attached hereto as
Exhibits B and C, respectively, are true, correct and complete copies of the
Certificate of Incorporation and Bylaws of the Company, as in effect on the
date hereof.
3.4 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
3.5 DISCLOSURE DOCUMENTS. The Company's Form 10-K filed with
the Securities and Exchange Commission on March 23, 1998, as amended on April
30, 1998, and Forms 10-Q for the fiscal quarters ended March 31, June 30, and
September 30, 1998, did not, when filed with the Securities and Exchange
Commission, contain any untrue statements of material fact or omit to state
any material fact necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.
3.6 CAPITALIZATION
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, of which 15,688,596 shares were issued and
outstanding as of September 30, 1998, and 10,000,000 shares of Preferred
Stock, none of which are outstanding. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable and have been issued in compliance with all applicable federal
and state securities laws.
(b) The Company had outstanding options to purchase 2,939,256
shares of Common Stock and outstanding warrants to purchase 20,000 shares of
Common Stock as of September 30, 1998. There are no preemptive or other
outstanding rights, options, warrants, conversion rights or agreements for
the purchase or acquisition from the Company of any shares of its capital
stock or other securities of the Company.
3.7 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, and has no stock or other interest as owner or
principal in, any other corporation or partnership, joint venture,
association or other business venture or entity.
3.8 VALID ISSUANCE OF SHARES. The shares of Common Stock which
will be purchased by Purchaser hereunder, when issued, sold and delivered in
accordance with the terms hereof for the con-sideration expressed herein,
will be duly and validly authorized and issued, fully paid and nonassessable
and, based in part upon the representations of Purchaser in Section 4.3 of
this Agreement, will be issued in compliance with all applicable federal and
state securities laws.
3.9 LITIGATION, ETC. There is no action, suit or proceeding
pending nor, to the best of its knowledge, any action, suit, proceeding or
investigation currently threatened against the Company, nor, to the best of
its knowledge, is there any basis therefor, which might result, either
individually or in the aggregate, in any material adverse change in the
assets, condition, affairs or prospects of the Company, financial or
otherwise. The foregoing includes, without limitation, any action, suit,
proceeding or investigation, pending or threatened, that questions the
validity of this Agreement or the right of the Company to enter into the
Agreement.
2.
<PAGE>
3.10 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority
on the part of the Company is required in connection with the consummation of
the transactions contemplated by this Agreement, except for notices required
or permitted to be filed with certain state and federal securities
commissions, which notices will be filed on a timely basis.
3.11 BROKERS FEE. Except for Volpe Brown Whelan & Company, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based on arrangements made by the Company. The Company is
solely responsible for any fee or commission payable to Volpe Brown Whelan &
Company in connection with the transactions contemplated by this Agreement,
and covenants to pay such fee or commission at Closing and agrees to
indemnify Purchaser against all liabilities related to such fees.
3.12 CONTRACTS. The contracts described in the Private
Placement Memorandum (as defined below) or incorporated by reference therein
are in full force and effect on the date hereof; and neither the Company, nor
to the best of the Company's knowledge, any other party is in material breach
of or default under any of such contracts.
3.13 NO MATERIAL CHANGE. Since September 30, 1998 and except
as described in or specifically contemplated by the Private Placement
Memorandum, (i) the Company has not incurred any material liabilities or
obligations, indirect, or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary course of
business or which could result in a material adverse effect on the Company;
(ii) the Company has not sustained any material loss or interference with its
business or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) the Company has not paid
or declared any dividends or other distributions with respect to its capital
stock and the Company is not in material default in the payment of principal
or interest on any outstanding debt obligations; (iv) there has not been any
change in the capital stock other than the sale of the Shares hereunder,
shares issued pursuant to employee equity incentive plans or purchase plans
approved by the Company's Board of Directors or indebtedness material to the
Company (other than in the ordinary course of business); and (v) there has
not been any material adverse change in the condition (financial or
otherwise), business, properties or results of operations of the Company.
3.14 INTELLECTUAL PROPERTY. Except as disclosed in or
specifically contemplated by the Private Placement Memorandum or incorporated
by reference therein, the Company has sufficient trademarks, trade names,
patent rights, copyrights, licenses, and governmental authorizations to
conduct its businesses as now conducted; and the Company has no knowledge of
any material infringement by it of trademark, trade name rights, patent
rights, copyrights, licenses, trade secrets or other similar rights of
others, and no claim has been made against the Company regarding trademark,
trade name, patent, copyright, license, trade secrecy or other infringement
which could have a material adverse effect on the condition (financial or
otherwise), business or results of operations of the Company.
3.15 COMPLIANCE. The Company has not been advised, and has no
reason to believe, that it is not conducting its business in compliance with
all applicable laws, rules and regulations of the jurisdictions in which it
is conducting business, including, without limitation, all applicable local,
state and federal environmental laws and regulations; except where failure to
be so in compliance would not materially adversely affect the condition
(financial or otherwise), business or results of operations of the Company.
3.
<PAGE>
3.16 INVESTMENT COMPANY. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
3.17 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has
filed in a timely manner all documents that it was required to file with the
SEC under Sections 13, 14(a) and 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), during the twelve (12) months
preceding the date of this Agreement. As of their respective filing dates
(or, if amended prior to the date of this Agreement, when amended), all
documents filed by the Company with the SEC (the "SEC Documents") complied in
all material respects with the requirements of the Exchange Act. None of the
SEC Documents as of their respective dates contained any untrue statement of
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents (the "Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto. The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present the financial position of the Company at the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring
adjustments). The Company is eligible to use the Registration Statement on
Form S-3 for resale of the Shares.
3.18 ADDITIONAL INFORMATION. The Company represents and warrants
that the information contained in the Private Placement Memorandum dated
December 8, 1998 (the "Private Placement Memorandum") containing certain
summary information relating to the sale by the Company of the Shares
pursuant to the Agreement, including all addenda and exhibits thereto (other
than the Appendices), is true and correct in all material respects.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to the Company as follows:
4.1 LEGAL POWER. Purchaser has the requisite legal power to
enter into this Agreement, to carry out and perform its obligations under the
terms of this Agreement and, at the Closing, will have the requisite legal
power to purchase the Shares.
4.2 DUE EXECUTION. This Agreement has been duly authorized,
executed and delivered by Purchaser, and, upon due execution and delivery by
the Company, this Agreement will be a valid and binding obligation of
Purchaser, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by equitable principles.
4.3 INVESTMENT REPRESENTATIONS. In connection with the purchase
of the Shares, the Purchaser makes the following representations:
(a) the Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the Shares
contemplated hereby, is knowledgeable, sophisticated and experienced in
making, and is qualified to make, decisions with respect to investments in
shares representing an investment decision like that involved in the purchase
of the Shares, including investments in securities issued by the Company, and
has requested, received, reviewed and considered all information it deems
relevant in making an informed decision to purchase the Shares;
4.
<PAGE>
(b) the Purchaser is acquiring the Shares in the ordinary
course of its business and for its own account for investment only (as
defined for purposes of the Hart-Scott-Rodino Antitrust Improvement Act of
1976 and the regulations thereunder) and with no present intention of
distributing any such Shares or any arrangements or understanding with any
other persons regarding the distribution of such Shares;
(c) the Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer, or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Shares
except in compliance with the Securities Act of 1933, as amended, (the "Act")
and the rules and regulations of the Securities and Exchange Commission (the
"SEC");
(d) the Purchaser has completed or caused to be completed the
Registration Statement Questionnaire and the Stock Certificate Questionnaire,
both attached hereto as Appendix I, for use in preparation of the
Registration Statement and the answers thereto are true and correct to the
best knowledge of the Purchaser as of the date hereof and will be true and
correct as of the effective date of the Registration Statement;
(e) the Purchaser has, in connection with its decision to
purchase the Shares, relied solely upon the Private Placement Memorandum and
the documents included therein and the representations and warranties of the
Company contained herein;
(f) the Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Act;
(g) the Purchaser understands that (i) the shares of Common
Stock to be purchased under this Agreement have not been registered under the
Act by reason of a specific exemption therefrom, that such securities must be
held by Purchaser, and that Purchaser must, therefore, bear the economic risk
of such investment, until a subsequent disposition thereof is registered
under the Act or is exempt from such registration; (ii) each certificate
representing such shares will be endorsed with the following legends:
(1) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(2) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON
TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED DECEMBER 8,
1998. A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO
INHALE THERAPEUTIC SYSTEMS, INC. AT ITS PRINCIPAL PLACE OF BUSINESS."
(3) Any legend required to be placed thereon by the
Company's Bylaws (and shown on Exhibit C hereto or as may hereafter be added
to such Bylaws
5.
<PAGE>
with respect to all Common Stock of the Company) or under applicable state
securities laws; and (iii) the Company will instruct any transfer agent not
to register the transfer of the shares of Common Stock purchased pursuant to
this Agreement (or any portion thereof) unless the conditions specified in
the foregoing legends are satisfied, until such time as a transfer is made,
pursuant to the terms of this Agreement, and in compliance with Rule 144 or
pursuant to a registration statement or, if the opinion of counsel referred
to above is to the further effect that such legend is not required in order
to establish compliance with any provisions of the Act or this Agreement; and
(h) the Purchaser has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the shares of Common Stock purchased hereunder.
4.4 NO BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based on arrangements
made by Purchaser.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF PURCHASER AT CLOSING.
Purchaser's obligation to purchase the Shares at the Closing is subject to
the fulfillment to Purchaser's satisfaction, on or prior to the Closing, of
all of the following conditions, any of which may be waived by Purchaser:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and
as of said date and the Company shall have performed and complied with all
obligations and conditions herein required to be performed or complied with
by it on or prior to the Closing and a certificate duly executed by an
officer of the Company, to the effect of the foregoing, shall be delivered to
the Purchaser.
(b) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to counsel to the Purchaser,
and counsel to the Purchaser shall have received all such counterpart
originals or certified or other copies of such documents as they may
reasonably request.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection
with the lawful sale and issuance of the Shares shall have been duly obtained
and shall be effective on and as of the Closing. No stop order or other
order enjoining the sale of the Shares such Closing shall have been issued
and no proceedings for such purpose shall be pending or, to the knowledge of
the Company, threatened by the Securities and Exchange Commission, or any
commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale and
issuance of the Shares shall be legally permitted by all laws and regulations
to which the Purchaser and the Company are subject.
(d) OPINION OF COUNSEL TO THE COMPANY. In connection with
any sale of shares hereunder, the Purchaser shall have received from Cooley
Godward LLP, counsel to the Company, an opinion letter addressed to it, dated
the date of the Closing in substantially the form attached hereto as Exhibit
D.
6.
<PAGE>
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING. The
Company's obligation to issue and sell the Shares to be sold at the Closing
is subject to the fulfillment to the Company's satisfaction, on or prior to
the Closing of the following conditions, any of which may be waived by the
Company:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchaser in Section 4 hereof shall be true and
correct in all material respects at the date of the Closing with the same
force and effect as if they had been made on and as of the date hereof.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have
performed and complied with all agreements and conditions herein required to
be performed or complied with by it on or before the Closing and a
Certificate duly executed by an officer of the Purchaser, to the effect of
the foregoing, shall be delivered to the Company.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection
with the lawful sale and issuance of the Shares shall have been duly obtained
and shall be effective on and as of the Closing. No stop order or other
order enjoining the sale of such shares shall have been issued and no
proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC, or any commissioner of corporations or
similar officer of any state having jurisdiction over this transaction. At
the time of the Closing the sale and issuance of the Shares shall be legally
permitted by all laws and regulations to which the Purchaser and the Company
are subject.
6. REGISTRATION OF THE SHARES.
6.1 As soon as practical following the Closing, and in any event
within 10 days thereafter, the Company will prepare and file with the SEC a
registration statement on Form S-3 (or such other form that the Company may
be eligible to use) relating to the sale of the Shares by Purchaser from time
to time (the "Registration Statement"), and use its best efforts, subject to
receipt of necessary information from Purchaser, to cause such Registration
Statement to be declared effective by the SEC as soon as practicable after
the SEC has completed its review process. In the event the Registration
Statement has not been declared effective by the SEC within 60 days of its
filing date, the purchase price shall be re-calculated as follows: (a) if
the effective date occurs more than 60 days but less than 75 days from the
filing date, the purchase price shall be reduced by five percent (5%), (b) if
the effective date occurs more than 75 days but less than 120 days from the
filing date, the purchase price shall be reduced by ten percent (10%) and (c)
if the effective date has not occurred within 120 days from the filing date,
the purchase price shall be reduced by twenty-five percent (25%). Within 15
days of the earlier of (i) the effective date of the Registration Statement
or (ii) the date that is 120 days from the filing date, the Company shall
refund the amount of the discount to the Purchaser by making a cash payment
to Purchaser. The Company agrees to use its best efforts to keep such
Registration Statement effective until the date on which the Shares may be
resold by Purchaser without registration by reason of Rule 144(k) under the
Act of 1933 or any other rule of similar effect. Notwithstanding the
foregoing, following the effectiveness of the Registration Statement, the
Company may, at any time, suspend the effectiveness of the Registration
Statement for up to no longer than 30 days, as appropriate (a "Suspension
Period"), by giving notice to the Purchaser, if the Company shall have
determined that the Company may be required to disclose any material
corporate development. The Company will use its best efforts to minimize the
length of any Suspension Period. Notwithstanding the foregoing, no more than
two Suspension Periods may occur in any twelve (12) month period. Purchaser
agrees that, upon receipt of any notice from the Company of a Suspension
Period, Purchaser will not sell any Shares pursuant to the Registration
Statement until (i) Purchaser is advised in writing by the Company that the
use of the applicable prospectus
7.
<PAGE>
may be resumed, (ii) Purchaser has received copies of any additional or
supplemental or amended prospectus, if applicable, and (iii) Purchaser has
received copies of any additional or supplemental filings which are
incorporated or deemed to be incorporated by reference in such prospectus.
Purchaser further covenants to notify the Company promptly of the sale of all
of its Shares.
6.2 INDEMNIFICATION. For the purpose of this Section 6.2:
(i) the term "Purchaser/Affiliate" shall include
Purchaser and any affiliate of Purchaser;
(ii) the term "Registration Statement" shall include any
final prospectus, exhibit, supplement or amendment included in or relating to
the Registration Statement referred to in Section 6.1.
(a) The Company agrees to indemnify and hold harmless
Purchaser and each person, if any, who controls Purchaser within the meaning
of the Securities Act, against any losses, claims, damages, liabilities or
expenses to which Purchaser or such controlling person may become subject,
under the Securities Act, the Exchange Act, or any other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof as contemplated below) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, including the
prospectus, financial statements and schedules, and all other documents filed
as a part thereof or incorporated by reference therein, as amended at the
time of effectiveness of the Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness
pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules
and Regulations, or the prospectus, in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, or filed as part of
the Registration Statement at the time of effectiveness if no Rule 424(b)
filing is required (the "Prospectus"), or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state in any of them a material fact required to be stated therein or
necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations
and warranties of the Company contained in this Agreement, or any failure of
the Company to perform its obligations hereunder or under law, and will
reimburse Purchaser and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by Purchaser or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company (i) by or on
behalf of Purchaser expressly for use therein or (ii) the failure of
Purchaser to comply with the covenants and agreements contained in this
Agreement respecting the sale of the Shares, the inaccuracy of any
representations made by Purchaser herein or any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was delivered
to Purchaser prior to the pertinent sale or sales by Purchaser. In addition
to its other obligations under this paragraph (a), the Company agrees that,
as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company in this
Agreement or failure to perform its obligations in this Agreement, all as
described in this paragraph (a), it will reimburse Purchaser on a quarterly
basis for all reasonable legal or other
8.
<PAGE>
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation, to reimburse Purchaser for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper,
Purchaser shall promptly return it to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America National Trust and Savings
Association, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to a Purchaser within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Purchaser will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the
meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses to which the Company, each of its directors, each of
its officers who signed the Registration Statement or controlling person may
become subject, under the Securities Act, the Exchange Act, or any other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of Purchaser) insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any failure of Purchaser
to comply with the covenants and agreements contained in this Agreement
respecting the sale of the Shares, the inaccuracy of any representation made
by Purchaser herein or any untrue or alleged untrue statement of any material
fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Purchaser expressly for use
therein, and will reimburse the Company, each of its directors, each of its
officers who signed the Registration Statement or controlling person for any
legal and other expense reasonably incurred by the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this paragraph (b),
Purchaser agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any failure to comply, statement or omission, or any alleged
failure to comply, statement or omission, described in this paragraph (b)
which relates to written information furnished to the Company by or on behalf
of any purchaser, it will reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of Purchaser's obligations to reimburse
the Company (and, to the extent applicable, each officer, director or
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director or controlling person) shall promptly return it to
Purchaser together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not
made to the Company within 30 days of a request for reimbursement shall bear
interest at the Prime Rate
9.
<PAGE>
from the date of such request. This indemnity agreement will be in addition
to any liability which Purchaser may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6.2 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 6.2 notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party for contribution or otherwise than under the
indemnity agreement contained in this Section 6.2 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to it and/or other indemnified parties which are different from or additional
to those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf
of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 6.2 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel, approved by
such indemnifying party in the case of paragraph (a), representing the
indemnified parties who are parties to such action) or (ii) the indemnified
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 6.2
is required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 6.2 in respect to any losses, claims,
damages, liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities or
expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and Purchaser from the
placement of Common Stock or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but the relative fault of the Company and Purchaser in connection
with the statements or omissions or inaccuracies in the representations and
warranties in this Agreement which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company on
the one hand and Purchaser on the other shall be deemed to be in the same
proportion as the amount paid by Purchaser to the Company pursuant to this
Agreement for the Shares purchased by Purchaser that were sold pursuant to
the Registration Statement bears to the difference (the "Difference") between
the amount Purchaser paid for the Shares that were sold pursuant to the
Registration Statement and the amount received by Purchaser from such sale.
The relative fault of the Company and Purchaser shall be determined by
reference to,
10.
<PAGE>
among other things, whether the untrue or alleged statement of a material
fact or the omission or alleged omission to state a material fact or the
inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company or by Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses referred
to above shall be deemed to include, subject to the limitations set forth in
paragraph (c) of this Section 6.2 any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in paragraph (c) of
this Section 6.2 with respect to notice of commencement of any action shall
apply if a claim for contribution is to be made under this paragraph (d);
PROVIDED, HOWEVER, that no additional notice shall be required with respect
to any action for which notice has been give under paragraph (c) for purposes
of indemnification. The Company and Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 6.2 were determined
solely by pro rata allocation (even if Purchaser were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 6.2, the Purchaser shall not
be required to contribute any amount in excess of the amount by which the
Difference exceeds the amount of any damages that Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in paragraphs
(a) and (b) of this Section 6.2, including the amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the provisions of the Judicial
Arbitration and Mediation Service (JAMS) and shall be held in San Francisco,
California. Any such arbitration must be commenced by service of a written
demand for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of any arbitration tribunal in
such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation
of the interim reimbursement provisions contained in paragraphs (a) and (b)
of this Section 6.2 and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses which is created by
the provisions of such paragraphs (a) and (b).
7. MISCELLANEOUS.
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
each Purchaser herein and in the certificates for the securities delivered
pursuant hereto shall survive the execution of this Agreement, the delivery
to the Purchasers of the Shares being purchased and the payment therefor and
shall expire on the second anniversary of the date hereof.
7.2 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of
California and the United States of America, without regard to choice of law
rules.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, and permitted assigns of the parties hereto.
11.
<PAGE>
7.4 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto,
and the other documents delivered pursuant hereto, constitutes the full and
entire understanding and agreement among the parties with regard to the
subjects hereof and no party shall be liable or bound to any other party in
any manner by any representations, warranties, covenants, or agreements
except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors and assigns, any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided herein.
7.5 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement. In the event of such
invalidity, the parties shall seek to agree on an alternative enforceable
provision that preserves the original purpose of this Agreement.
7.6 AMENDMENT AND WAIVER. Except as otherwise provided herein,
any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of
time or indefinitely), with the written consent of the Company and Purchaser.
7.7 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
and received (a) upon personal delivery, (b) on the fifth day following
mailing by registered or certified mail, return receipt requested, postage
prepaid, addressed to the Company and Purchaser at their respective addresses
first above written, (c) upon transmission of telegram or facsimile (with
telephonic notice), or (d) upon confirmed delivery by overnight commercial
courier service.
7.8 FEES AND EXPENSES. The Company and the Purchaser shall bear
their own expenses and legal fees incurred on their behalf with respect to
this Agreement and the transactions contemplated hereby.
7.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
7.11 NASDAQ. The Company will promptly file a Notification of
Listing of Additional Shares with Nasdaq covering the Shares. The Company
agrees to take all action reasonable and necessary to maintain the listing of
its Common Stock on Nasdaq.
7.12 ACKNOWLEDGMENT OF PURCHASER REGARDING DOCUMENT DELIVERY.
Purchaser acknowledges that the Company, with Purchaser's consent, did not
deliver to Purchaser in paper format Exhibits B and C to this Agreement and
Exhibits A through D to the Private Placement Memorandum. Purchaser further
acknowledges that in lieu of such delivery, Purchaser has obtained such
documents from the SEC's web site at www.sec.gov.
12.
<PAGE>
IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.
INHALE THERAPEUTIC SYSTEMS, INC.
By: /s/ Stephen L. Hurst
----------------------------------------
Name: Stephen L. Hurst
--------------------------------------
Title: Secretary and General Counsel
-------------------------------------
CAPITAL RESEARCH AND MANAGEMENT
COMPANY, ON BEHALF OF SMALLCAP WORLD
FUND, INC. AND AMERICAN VARIABLE
INSURANCE SERIES-GROWTH FUND
By: /s/ Michael Downer
----------------------------------------
Name: Michael Downer
--------------------------------------
Title:
-------------------------------------
13.
<PAGE>
APPENDIX I
INHALE THERAPEUTIC SYSTEMS
STOCK CERTIFICATE QUESTIONNAIRE
In connection with the Agreement, please provide us with the following
information:
1. The exact name that your Shares are to be ______________________________
registered in (this is the name that will
appear on your stock certificate(s)). You
may use a nominee name if appropriate:
2. The relationship between the Purchaser of ______________________________
the Shares and the Registered Holder
listed in response to item 1 above:
3. The mailing address of the Registered ______________________________
Holder listed in response to item 1 above: ______________________________
______________________________
______________________________
4. The Social Security Number or Tax ______________________________
Identification Number of the Registered
Holder listed in response to item 1 above:
<PAGE>
APPENDIX I
INHALE THERAPEUTIC SYSTEMS
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. Pursuant to the "Selling Shareholder" section of the Registration
Statement, please state your or your organization's name exactly as it
should appear in the Registration Statement:
2. Please provide the number of shares that you or your organization will
own immediately after Closing, including those Shares purchased by you
or your organization pursuant to this Purchase Agreement and those
shares purchased by you or your organization through other transactions:
3. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its
affiliates other than as disclosed in the Prospectus included in the
Registration Statement?
__________ Yes ___________ No
If yes, please indicate the nature of any such relationships below:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
<PAGE>
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
December 11, 1998
Inhale Therapeutic Systems, Inc.
150 Industrial Road
San Carlos, CA 94070
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Inhale Therapeutic Systems, Inc., a Delaware corporation
(the "Company"), of a Resale Registration Statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") on December 14, 1998 covering the offering of up to 1,200,000
shares of the Company's common stock, par value $.0001 per share (the
"Shares"). All of the Shares are to be sold by certain stockholders as
described in the Registration Statement.
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus included therein, the Company's
Certificate of Incorporation and Bylaws, and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. We have
assumed the genuineness and authenticity of all documents submitted to us as
originals, and the conformity to originals of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares are validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of
this opinion as an exhibit to the Registration Statement.
Sincerely,
Cooley Godward LLP
/s/ Mark P. Tanoury
Mark P. Tanoury
II-7
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Inhale
Therapeutic Systems, Inc. for the registration of 1,200,000 shares of its
common stock and to the incorporation by reference therein of our report
dated January 22, 1998, with respect to the financial statements of Inhale
Therapeutic Systems, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/S/ ERNST & YOUNG LLP
Palo Alto, California
December 11 , 1998
II-8
