Pursuant to Rule 424(b)(3)
File No. 333-64951
PROSPECTUS
[LOGO OMITTED]
PALATIN TECHNOLOGIES, INC.
373,636 SHARES OF COMMON STOCK
This Prospectus relates to the offering (the "Offering") of up to
373,636 shares (the "Registered Shares") of the common stock, $.01 par value per
share (the "Common Stock") of Palatin Technologies, Inc. (the "Company"), which
may be sold from time to time by the selling stockholders named in this
Prospectus (the "Selling Stockholders"). The resale of the Registered Shares is
covered by this Prospectus.
The Common Stock is traded on The Nasdaq SmallCap Market(sm) (the
"Nasdaq SmallCap"), under the symbol "PLTN." No other security of the Company is
listed on any securities exchange or quoted in any over-the-counter market. On
September 28, 1998, the last sale price of Common Stock as reported on the
Nasdaq SmallCap was $3.00.
The Selling Stockholders may, without limitation or notice to the
Company, sell the Registered Shares from time to time directly to purchasers or
through underwriters, brokers, dealers or agents, on securities exchanges, in
the over-the-counter market, and/or in privately negotiated transactions. The
price of the Registered Shares to the public will, therefore, depend on the time
and nature of each sale. The Company will receive no proceeds from the sale of
the Registered Shares. The Selling Stockholders will pay all underwriting
discounts and selling commissions applicable to the sale of Registered Shares.
Underwriting discounts and selling commissions will vary and may or may not
apply to any given sale. The Company will bear all expenses, estimated at
$50,000, relating to this registration of the Registered Shares including,
without limitation, registration and filing fees, printing expenses, fees and
expenses of counsel for the Company, and qualification or exemption of the
Registered Shares under state securities laws. See "Use of Proceeds" and "Plan
of Distribution."
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THE REGISTERED SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS OCTOBER 14, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and accordingly files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). All such reports, proxy statements and other
information may be inspected and copied at the Public Reference Section of the
Commission, Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at its
Regional Offices at Seven World Trade Center, 13th Floor, New York, NY 10048,
and at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661-2511. The Company is an electronic filer, and the Commission maintains a
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Common Stock is listed on the Nasdaq
SmallCap, and reports, proxy statements and other information concerning the
Company may be inspected at the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on
Form S-3 filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act") (together with all amendments, schedules
and exhibits thereto, the "Registration Statement"). This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Company and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are
hereby incorporated by reference into this Prospectus:
1. The Company's amended Annual Report on Form 10-KSB for the
year ended June 30, 1998, as filed with the Commission on
October 2, 1998;
2. The Company's Annual Report on Form 10-KSB for the year
ended June 30, 1998, as filed with the Commission on
September 28, 1998; and
3. The description of the Common Stock of the Company
contained in its Registration Statement under the Exchange
Act on Form 8-A filed on October 22, 1993.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering to which this Prospectus relates shall be deemed to be incorporated by
reference into this Prospectus and to be part of this Prospectus from the date
of filing thereof.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus and the Registration Statement of which it is a part to the extent
that a statement contained herein or in any other subsequently filed document
which also is incorporated herein modifies or replaces such statement. Any
statement so modified or superseded shall not be deemed, in its unmodified form,
to constitute a part of this Prospectus or such Registration Statement.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any of the information that was incorporated by reference in this Prospectus
(not including exhibits to the information that is incorporated by reference
unless the exhibits are themselves specifically incorporated by reference). The
address and telephone number to which such request is to be directed are:
Stephen T. Wills, Vice President, Palatin Technologies, Inc., 214 Carnegie
Center, Suite 100, Princeton, NJ 08540, telephone (609) 520-1911.
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BUSINESS SUMMARY
The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information, including "Risk
Factors," and financial statements appearing elsewhere or incorporated by
reference in this Prospectus.
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: delays in product development; problems or delays with clinical
trials; failure to receive or delays in receiving regulatory approval; lack of
enforceability of patents and proprietary rights; lack of reimbursement; general
economic and business conditions; industry capacity; industry trends;
competition; material costs and availability; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of qualified
personnel; changes in, or the failure to comply with, government regulations;
and other factors referenced in this Prospectus. When used in this Prospectus,
statements that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"anticipates," "plans," "intends," "expects" and similar expressions are
intended to identify such forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date of this Prospectus. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
GENERAL
The Company is a development-stage pharmaceutical company dedicated
to developing and commercializing products and technologies for diagnostic
imaging and ethical drug development utilizing peptide, monoclonal antibody and
radiopharmaceutical technologies. The Company is concentrating on the following
products and technologies: (i) LeuTech(TM), an infection and inflammation
imaging product ("LeuTech"), (ii) PT-14, a peptide hormone product for the
treatment of sexual dysfunction ("PT-14"), and (iii) its Metal Ion-induced
Distinctive Array of Structures ("MIDAS(TM)") metallopeptide technology ("MIDAS
technology").
LeuTech is the Company's radiolabeled monoclonal antibody-based
product for the rapid diagnosis of sites of infection or inflammation. The
Company has completed a Phase 2 multi-center clinical trial in which LeuTech was
evaluated for its ability to diagnose equivocal appendicitis. The Company
initiated multi-center Phase 3 clinical trials for diagnosis of equivocal
appendicitis in September 1998. Following the completion of Phase 3 clinical
trials, which the Company intends to complete during the first half of 1999, the
Company plans to seek approval from the United States Food and Drug
Administration ("FDA") to market LeuTech for the diagnosis of equivocal
appendicitis. In addition, the Company plans to initiate Phase 2 clinical trials
to evaluate LeuTech as an agent for diagnosing general infections. See "Products
and Technologies in Development."
PT-14 is currently under development for the treatment of male
erectile dysfunction ("MED"). The Company believes that PT-14 will be different
from currently available treatments for MED because its mechanism of action is
through receptors found in the brain, and not through a direct effect on blood
flow to the penis. PT-14 may be useful in treating patients that do not respond
well to current therapies. In a double-blind clinical study, 80% of men achieved
a clinically significant erectile response using PT-14. The Company intends to
further evaluate PT-14 for MED in a larger patient population beginning in the
fall of 1998. In addition, the Company plans to evaluate PT-14 as a treatment
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for women suffering from sexual dysfunction. Currently, PT-14 is administered as
a subcutaneous injection. The Company, in collaboration with TheraTech, Inc., a
publicly traded pharmaceutical and medical devices company ("TheraTech") and a
Selling Stockholder hereunder, is working on developing an oral transmucosal
delivery formulation of PT-14. See "Products and Technologies in Development"
and "Selling Stockholders."
MIDAS technology can be used for the rational design and development
of therapeutic and diagnostic agents. The Company is engaged in research and
development on a number of product opportunities for MIDAS technology, including
use as an infection imaging agent and a therapeutic agent for treatment of
obesity, and believes that MIDAS technology may have medical applications in a
variety of areas, including immune disorders, cancers and cardiology. The
Company has entered into a collaboration with Nihon Medi-Physics Ltd., a
Japanese developer and manufacturer of radiopharmaceutical drugs ("Nihon"), to
develop a MIDAS-based radiopharmaceutical agent. See "Products and Technologies
in Development."
The Company is at an early stage of development and has not yet
completed the development of any products. Accordingly, the Company has not
begun to market or generate revenues from the commercialization of any products.
It will be a number of years, if ever, before the Company will recognize
significant revenues from product sales or royalties. The Company's technologies
and products under development will require significant time-consuming and
costly research, development, pre-clinical studies, clinical testing, regulatory
approval and significant additional investment prior to their commercialization,
which may never occur. There can be no assurance that the Company's research and
development programs will be successful, that its products will exhibit the
expected biological results in humans, will prove to be safe and efficacious in
clinical trials or will obtain the required regulatory approvals or that the
Company or its collaborators will be successful in obtaining market acceptance
of any of the Company's products. There can be no assurance that the Company
will be successful in entering into strategic alliances or collaborative
arrangements on commercially reasonable terms, if at all, or that such
arrangements will be successful, or that the parties with which the Company will
establish arrangements will perform their obligations under such arrangements.
The Company or its collaborators may encounter problems and delays relating to
research and development, regulatory approval, manufacturing and marketing. The
failure by the Company to address successfully such problems and delays would
have a material adverse effect on the Company. In addition, no assurance can be
given that proprietary rights of third parties will not preclude the Company
from marketing its proposed products or that third parties will not market
superior or equivalent products.
PRODUCTS AND TECHNOLOGIES IN DEVELOPMENT
LeuTech. The LeuTech kit system, which uses the Company's direct
radiolabeling technology, is a murine (or mouse) monoclonal antibody-based
product designed to be labeled with the diagnostic radioisotope technetium-99m.
When labeled with technetium-99m, LeuTech is intended to be used for the rapid
imaging and diagnosis of infections, occult abscesses (hidden sites of
infection), and sites of inflammatory disease.
Examples of typical occult abscesses include infections of the
intra-abdominal area, such as intestinal, spleen, liver or urinary tract
abscesses, as well as bone, prosthetic and other abscesses. As part of the
body's immune response to an infection, large numbers of white blood cells
migrate to and collect at the site of the infection. The concentration of white
blood cells at the site of the infection can be used as the basis of detection.
By using an agent that "tags" or labels the white blood cells with
radioactivity, such as LeuTech, the site of the infection can be readily
detected using a gamma camera. The Company intends initially to seek approval
from the FDA to market LeuTech for diagnosis of equivocal (difficult to
diagnose) appendicitis.
The most specific procedure currently available for the nuclear
medicine imaging of sites of infection involves white blood cells labeled with
radioactivity outside of the patient's body. This white blood cell labeling
procedures begins with the removal of blood from the patient, isolating white
blood cells from the patient's blood, radiolabeling the white blood cells and
injecting the radiolabeled white blood cells back into the patient. The
radiolabeled white blood cells then localize at the site of the infection, and
can be detected using a gamma camera. This procedure is expensive, involves
risks to patients and technicians associated with blood handling, and generally
takes between eight and twelve hours to generate a diagnostically useful image.
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LeuTech has been formulated as a lyophilized, or freeze-dried, kit
containing the modified antibody and reagents required for the radiolabeling
process. Prior to use, LeuTech will be labeled with technetium-99m by a
radiopharmacy or by a hospital's nuclear medicine department. After labeling,
LeuTech is administered to the patient by intravenous injection, and rapidly
binds to white blood cells present at the site of the infection or circulating
in the blood stream. Using LeuTech, physicians can take a definitive image
within 90 minutes of administration, permitting rapid imaging and detection of
the site of infection.
The Company submitted an Investigational New Drug Application ("IND")
to the FDA on LeuTech, and Phase 1 and 2 clinical trials have been completed.
The Phase 1 clinical trial was designed to test the safety and biodistribution
of LeuTech. In this study, LeuTech was administered to 10 healthy volunteers who
were monitored for adverse events and the results showed that there were no
significant safety concerns associated with LeuTech administration.
In the Phase 2 clinical trial, LeuTech was evaluated for its ability
to diagnose equivocal appendicitis. The Phase 2 clinical trial enrolled 56
patients with a preliminary diagnosis of equivocal appendicitis at two medical
centers. In the study, the commercial preparation of LeuTech demonstrated 88%
accuracy and 100% sensitivity in the diagnosis of equivocal appendicitis. On
July 23, 1998, the Company met with representatives of the FDA to discuss the
LeuTech Phase 2 clinical results and to discuss the LeuTech Phase 3 clinical
trials protocol. As a result of this meeting, the Company submitted a Phase 3
protocol and began Phase 3 clinical trials for the diagnosis of equivocal
appendicitis in September 1998. The Company intends to complete Phase 3 clinical
trials of LeuTech in the first half of 1999 and thereafter file regulatory
applications with the FDA for approval to market LeuTech for diagnosis of
equivocal appendicitis. There can be no assurance that the Company will
successfully complete Phase 3 clinical trials, or that the FDA will ever approve
an application to market LeuTech.
The Company has also conducted LeuTech proof of principle trials in
other infectious indications. LeuTech images have been obtained in indications
such as osteomyelitis, abdominal abscesses, and pulmonary infections. In many
cases LeuTech diagnostic images were obtained in under one hour. The Company
intends to enter into Phase 2 clinical trials in late 1998 for a general
infection imaging and detection indication.
The Company has entered into an exclusive royalty-bearing license
agreement with The Wistar Institute of Anatomy and Biology ("Wistar Institute")
to use the antibody and cell line used for LeuTech for a defined field of use.
Failure to meet the performance criteria for any reason or any other event of
default under the license agreement leading to termination of the license
agreement with Wistar Institute would have a material adverse effect on the
Company. In addition, the Company has negotiated a long-term contractual
arrangement for the manufacture of the purified antibody necessary for LeuTech.
Such manufacture must be done under good manufacturing practices ("GMP")
requirements prescribed by the FDA and other agencies. Certain steps in the
manufacture of LeuTech, including contract manufacture of purified antibody,
vialing and lyophilization, have been done under GMP. There can be no assurance
that such contractors will be able to successfully manufacture purified antibody
for LeuTech on a sustained basis, that such contractors will remain in the
contract manufacturing business for the time required by the Company, or that
the Company will be able to enter into such contractual arrangements as to other
steps and components required to manufacture LeuTech.
There can be no assurance that the Company's LeuTech development
program will be successful, that the FDA will permit the Company's clinical
trials to proceed as planned, that LeuTech will prove to be safe and efficacious
in clinical trials, that LeuTech can be manufactured in commercially required
quantities on a sustained basis at an acceptable price, that LeuTech will obtain
the required regulatory approvals or that the Company or its collaborators will
be successful in obtaining market acceptance of LeuTech. The Company or its
collaborators may encounter problems and delays relating to research and
development, regulatory approval, manufacturing and marketing of LeuTech.
PT-14. PT-14, a stabilized peptide analog of the natural hormone
alpha-MSH, is being developed by the Company for the treatment of MED. The
Company believes that PT-14 will be different from currently available
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treatments for MED because its mechanism of action is through receptors found in
the brain as compared to a direct effect on blood flow to the penis. PT-14 may
be useful in treating patients who do not respond well to current therapies. In
a double-blind clinical study using PT-14 conducted under an IND submitted to
the FDA and held in the name of an investigator at the University of Arizona,
eight out of 10 men achieved clinically significant erectile response. The
Company intends to further evaluate PT-14 for MED in a larger patient population
beginning in the fall of 1998. In addition, the Company plans to evaluate PT-14
as a treatment for women suffering from sexual dysfunction.
In a recent study, the National Institutes of Health estimated that
more than 20,000,000 men in the United States may be afflicted with some form of
MED. Because of the large number of men believed to be afflicted with MED, the
market for treatment of MED is believed to be in excess of several billion
dollars per year. There is tremendous competition to develop and market drugs
for treatment of MED.
PT-14 is currently administered as a non-penile subcutaneous
injection. The Company has initiated development efforts on an oral delivery
formulation of PT-14, and has entered into an agreement with TheraTech,
including a license to certain patents owned by TheraTech, to collaboratively
develop an oral transmucosal delivery system for PT-14. There can be no
assurance that the Company and TheraTech will be able to develop an acceptable
oral transmucosal delivery system for PT-14, or any alternative oral delivery
system, in any reasonable period of time or at acceptable costs, if at all. If
an acceptable delivery system is developed, failure to meet performance criteria
or any other event of default under the license agreement leading to termination
of the license with TheraTech may have a material adverse effect on the Company.
The Company has entered into an exclusive royalty-bearing license
agreement with Competitive Technologies, Inc. ("Competitive Technologies") to
develop and market PT-14. Failure to meet the performance criteria for any
reason or any other event of default under the license agreement leading to
termination of the license agreement with Competitive Technologies may have a
material adverse effect on the Company.
There can be no assurance that the Company's PT-14 development
program will be successful, that PT-14 will prove to be safe and efficacious in
clinical trials, or that PT-14 will obtain required regulatory approvals. There
can be no assurance that, even if the Company is successful in receiving FDA
market approval for PT-14, the Company or its collaborators will be able to
successfully compete in the MED market. In addition, the Company or its
collaborators may encounter problems and delays relating to research and
development, regulatory approval, manufacturing and marketing of PT-14.
MIDAS Technology. MIDAS is a novel peptide chemistry that may have
broad applications in the pharmaceutical and radiopharmaceutical industries. The
MIDAS technology combines a metal ion with a specially designed peptide,
resulting in a biologically active molecule. Peptides, which are short chains of
amino acids, play important roles in regulating a variety of biological
functions. Natural peptides function by conforming or bending to fit specific
molecules on cell surfaces, called receptors, thereby signaling the cell to
initiate a biological activity. Some important biological functions that are
affected in this manner include overall growth and behavior, inflammatory
responses, immune responses and wound healing.
In order to effectively regulate cell signaling, a peptide must bind
to its target receptor with high affinity. The affinity of a peptide for its
target receptor is highly dependent on its three-dimensional shape or
conformation. Many naturally occurring peptides are flexible and can take on
multiple conformations, allowing them to interact with more than one type of
cell receptor, and to control multiple functions within the body. However, when
such peptides are used as drugs, this multiple reactivity is a disadvantage as
it may potentially lead to side effects. The ability to construct high-affinity,
receptor-specific peptides offers a significant opportunity to develop potent
receptor-specific drugs.
The Company believes that its patent-pending MIDAS technology can be
used to rationally design and produce receptor-specific drugs. Using MIDAS,
highly stable metallopeptide complexes are formed, in which the metal ion locks
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or constrains the peptide into a specific conformation. By designing MIDAS
peptides to mimic the conformation required for a specific receptor, a stable,
receptor-specific drug, with high affinity and enhanced biological activity, can
be made. Radiopharmaceutical products, which may be diagnostic or therapeutic,
may be developed using radioactive metal ions in MIDAS peptides. Non-radioactive
metal ions may be used in the development of biopharmaceutical MIDAS peptides.
The Company is engaged in research and development on a number of
product opportunities for its MIDAS technology, including use as peptide
molecules for diagnosis of infection and for treatment of obesity. The Company
believes that MIDAS technology may have medical applications in a variety of
areas, including immune disorders, cancers and cardiology. The Company intends
to seek to enter into strategic alliances or collaborative arrangements to
provide additional financial and technical resources for MIDAS development.
The Company entered into a License Option Agreement (the "Option
Agreement") with Nihon and received an initial payment of $1,000,000 before
Japanese withholding taxes of $100,000. Pursuant to the Option Agreement (i)
Nihon has an option to exclusively license certain jointly developed
radiopharmaceutical diagnostic products based on the Company's MIDAS technology
and (ii) Nihon can maintain its option by making certain milestone payments
based on progress in product development. Nihon may exercise its right to
negotiate a license agreement for the Company's MIDAS technology at any time
upon notice and payment of additional monies to the Company.
EXECUTIVE OFFICES
The address of the Company's principal executive offices is Palatin
Technologies, Inc., 214 Carnegie Center, Suite 100, Princeton, NJ 08540, and the
telephone number is (609) 520-1911.
RISK FACTORS
AN INVESTMENT IN THE REGISTERED SHARES IS HIGHLY SPECULATIVE IN NATURE, INVOLVES
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD A
LOSS OF THEIR ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR SHOULD CONSIDER
CAREFULLY THE RISKS INHERENT IN AND AFFECTING BOTH THE BUSINESS OF THE COMPANY
AND THE VALUE OF THE COMMON STOCK AND SPECULATIVE FACTORS INCLUDING, WITHOUT
LIMITATION, THE FOLLOWING RISK FACTORS, AS WELL AS OTHER INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT;
TECHNOLOGICAL UNCERTAINTY. The Company is at an early stage of development.
Accordingly, the Company has not begun to market or generate significant
revenues from the commercialization of any products. It will be a number of
years, if ever, before the Company will recognize significant revenues from
product sales or royalties. The Company's technologies and products under
development will require significant time-consuming and costly research,
development, pre-clinical studies, clinical testing, manufacturing processes,
regulatory approval and significant additional investment prior to their
commercialization, which may never occur. There can be no assurance that the
Company's research and development programs will be successful, that its
products will prove to be safe and efficacious, that its products will obtain
the required regulatory approvals, demonstrate substantial therapeutic or
diagnostic benefit, experience no design or manufacturing problems, be
manufactured on a large scale, be commercialized on a timely basis, be
economical to market, or that the Company's products will receive market
acceptance. The Company may be dependent on third parties for the development,
manufacturing and marketing, including distribution and sales, of its proposed
products. There can be no assurance that the Company will be successful in
entering into strategic alliances or collaborative arrangements on commercially
reasonable terms, if at all, that such alliances or arrangements will be
successful, or that the parties with which the Company will establish alliances
or arrangements will perform their obligations under such alliances or
arrangements. The Company or its collaborators or licensees may encounter
problems and delays relating to research and development, regulatory approval,
manufacturing and marketing. The failure by the Company to successfully address
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such problems and delays would have a material adverse effect on the Company. In
addition, no assurance can be given that proprietary rights of third parties
will not preclude the Company from marketing its proposed products or that third
parties will not market superior or equivalent products.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT. The Company has
incurred net operating losses since its inception (January 28, 1986) and, as of
June 30, 1998, had an accumulated deficit of approximately $23,319,980, which
has increased to date. The Company anticipates incurring additional losses over
at least the next several years and such losses are expected to increase as the
Company expands clinical trials and manufacturing efforts on LeuTech and
continues research and development of PT-14 and MIDAS technology. To achieve
profitability, the Company, alone or with others, must successfully develop its
technologies and products, protect such products through safeguarding the
Company's intellectual property, conduct pre-clinical studies and clinical
trials, obtain required regulatory approvals and successfully manufacture and
market such technologies and products. The time required to reach profitability
is highly uncertain, and there can be no assurance that the Company will be able
to achieve profitability on a sustained basis, if at all.
NEED FOR ADDITIONAL FINANCING AND ACCESS TO CAPITAL. The Company has
incurred negative cash flow from operations since its inception. The Company has
expended, and will continue to expend in the future, if available, substantial
funds to continue its research and development programs, including pre-clinical
studies and clinical trials, to seek regulatory approval of its products, to
develop manufacturing and marketing capabilities, and to fund the growth that is
expected to occur if any of its proposed products are approved for marketing.
Further, the Company has significant long-term debt that is due and payable
through May 1999. The Company expects that its existing capital resources will
be adequate to make scheduled debt payments and to fund its operations through
December 1998, based on current expenditure levels. No assurance can be given
that there will be no events affecting the Company's operations that would
deplete available resources significantly before such time. The Company's future
capital requirements depend on many factors, including continued progress in its
research and development activities, progress with pre-clinical studies and
clinical trials, prosecuting and enforcing patent claims, technological and
market developments, the ability of the Company to establish product development
arrangements, the cost of manufacturing scale-up and effective marketing
activities and collaborative or other arrangements. The Company will seek to
obtain additional funds through public or private financings, including equity
or debt financings, collaborative or other arrangements with corporate partners
and others, and from other sources. No assurance can be given that additional
financing will be available when needed, if at all, or on terms acceptable to
the Company. If adequate additional funds are not available, the Company may be
required to delay, scale back or eliminate certain of its research or
development activities, its manufacturing and marketing efforts, or require the
Company to license to third parties certain products or technologies that the
Company would otherwise seek to commercialize itself. If adequate funds are not
available, there will be a material and adverse effect on the Company.
UNCERTAINTY REGARDING ABILITY TO CONTINUE AS A GOING CONCERN. The
Company's independent accountants, Arthur Andersen LLP, in their report
contained in the Company's Form 10-KSB for the year ended June 30, 1998 (which
is incorporated by reference herein), included an explanatory paragraph
indicating their view that the Company's cash on hand was not adequate at that
time to sustain operations at current levels for a one year period, and
expressed substantial doubt about the ability of the Company to continue as a
going concern. There can be no assurance that future financial statements will
not include a similar explanatory paragraph, if the Company is unable to raise
sufficient funds or generate sufficient cash flow from operations to cover the
cost of its operations. The inclusion of such an explanatory paragraph could
raise concerns about the ability of the Company to fulfill its contractual
obligations, thereby adversely affecting the Company's relationships with third
parties, and could impact the ability of the Company to complete future
financings. Accordingly, the inclusion of such a paragraph in the report
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contained in the Company's Form 10-KSB and in any future financial statements
could have a material adverse effect on the Company's business, business
prospects, financial conditions or results of operations.
PATENTS AND PROPRIETARY RIGHTS, NO ASSURANCE OF ENFORCEABILITY OR
SIGNIFICANT COMPETITIVE ADVANTAGE. In general, the patent positions of companies
relying upon biotechnology are highly uncertain and involve complex legal and
factual questions. To date, no consistent policy regarding the breadth of claims
that are properly accorded to biotechnology patents has emerged. There can be no
assurance that patents will issue from the patent applications filed by the
Company or its licensors or that the scope of any claims granted in any patent
will provide meaningful proprietary protection or a competitive advantage to the
Company. There can be no assurance that the validity or enforceability of
patents issued or licensed to the Company will not be challenged by others or,
if challenged, will be upheld by a court. In addition, there can be no assurance
that competitors will not be able to circumvent any patents issued or licensed
to the Company.
There can be no assurance that the manufacture, use or sale of the
Company's proposed products would not infringe patent rights of others. The
Company may be unable to avoid infringement of any such patents and may have to
seek a license, defend an infringement action, or challenge the validity of such
patents in court. There can be no assurance that a license will be available to
the Company, if at all, upon terms and conditions acceptable to the Company or
that the Company will prevail in any patent litigation. Patent litigation is
costly and time-consuming, and there can be no assurance that the Company will
have sufficient resources to pursue such litigation. If the Company does not
obtain a license under any such patents, is found liable for infringement, or if
such patents are not found to be invalid, the Company may be liable for
significant money damages, may encounter significant delays in bringing products
to market, or may be precluded from participating in the manufacture, use or
sale of products or methods of treatment covered by such patents. In addition,
there can be no assurance that others will not infringe patent rights of the
Company or that the Company will have sufficient resources to pursue such
litigation. There can be no assurance that the Company has identified United
States or foreign patents that pose a risk of infringement.
The Company has received notice that a third party is seeking to have
the United States Patent and Trademark Office ("PTO") declare an interference
proceeding between a patent application owned by the third party and an issued
patent owned by the Company relating to radiolabeling of peptides. The PTO has
not declared an interference. If the PTO declares an interference, the Company
believes that the final outcome of this proceeding, even if adverse to the
Company, would not have a material adverse effect on the Company's current
product development plans.
The Company also relies on certain proprietary technologies (trade
secrets and know-how) which are not patentable. Although the Company has taken
steps to protect its unpatented trade secrets and know-how, in part through the
use of confidentiality agreements with its employees, consultants and certain of
its contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors. If the Company's employees, scientific
consultants, collaborators, or licensees develop inventions or processes
independently that may be applicable to the Company's product candidates,
disputes may arise about ownership of proprietary rights to those inventions and
processes. Such inventions and processes will not necessarily become the
Company's property, but may remain the property of those persons or their
employers. Protracted and costly litigation could be necessary to enforce and
determine the scope of the Company's proprietary rights. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company.
Several bills affecting patent rights have been introduced in the
United States Congress. These bills address various aspects of patent law,
including publication of pending patent applications, modification of the patent
term, re-examination, subject matter and enforceability. It is not certain
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whether any of these bills will be enacted into law and whether, as enacted,
they would affect the scope, validity and enforceability of the Company's
patents. Accordingly, the effect of legislative change on the Company's
intellectual property estate is uncertain.
UNCERTAINTY OF DEVELOPMENT AND COMMERCIALIZATION OF LEUTECH. The
Company has entered into an exclusive royalty-bearing license agreement with
Wistar Institute for a defined field of use for the antibody and cell line used
for LeuTech, which license agreement contains certain performance criteria and
benchmark payments. Failure to meet the performance criteria for any reason or
any other event of default under the license agreement leading to termination of
the exclusive license agreement with Wistar Institute would have a material
adverse effect on the Company. While the Company has negotiated long-term
contractual arrangements for the manufacture of LeuTech, there can be no
assurance that such contractors will be able to successfully manufacture LeuTech
on a sustained basis or that such contractors will remain in the contract
manufacturing business for the time required by the Company to market LeuTech,
and failure to do so would have a material adverse effect on the Company.
While the Company has filed an IND for LeuTech with the FDA, and
intends to complete Phase 3 clinical trials in 1999 and file regulatory
applications with the FDA for approval to market LeuTech for equivocal
appendicitis thereafter, there can be no assurance that the Company's LeuTech
development program will be successful, that the FDA will permit the Company's
clinical trials to proceed as planned, that LeuTech will prove to be safe and
efficacious in clinical trials, that LeuTech can be manufactured in commercially
required quantities on a sustained basis at an acceptable price, that LeuTech
will obtain the required regulatory approvals or that the Company or its
collaborators will be successful in marketing LeuTech and in obtaining market
acceptance of LeuTech. The Company or its collaborators may encounter problems
and delays relating to research and development, regulatory approval,
manufacturing and marketing of LeuTech. Failure to develop, obtain regulatory
approval for, manufacture and market LeuTech on a timely basis would have a
material adverse effect on the Company. See "Products and Technologies in
Development."
DEPENDENCE ON SOLE SOURCE CONTRACT MANUFACTURER FOR LEUTECH. The
Company depends on a sole source contract manufacturer to produce and purify
monoclonal antibody under GMP for use in LeuTech. The contract manufacturer is
located outside the United States, and has only two facilities in which
monoclonal antibodies can be produced and purified, although to date the
manufacturer has produced and purified the monoclonal antibody required for
LeuTech in only one of its facilities. There are, on a worldwide basis, a
limited number of contract facilities in which monoclonal antibodies can be
produced under GMP for use in pharmaceutical drugs, and historically it can take
a substantial period of time for a contract facility to begin producing and
purifying clinical grade monoclonal antibodies under GMP. The Company is
accordingly dependent on the contract manufacturer to produce and purify
monoclonal antibody under GMP which meets acceptance standards for LeuTech.
There can be no assurance that the contract manufacturer will perform as agreed
or will remain in the contract manufacturing business for the time required by
the Company to successfully produce and market LeuTech, and failure to do so
would have a material adverse effect on the Company.
UNCERTAINTY OF DEVELOPMENT OF PT-14. The Company has entered into an
exclusive royalty-bearing license agreement with Competitive Technologies to
develop and market PT-14, which license agreement contains certain performance
criteria and benchmark payments. The Company has also entered into a license and
development agreement with TheraTech, including a license to certain patents
owned by TheraTech, to collaboratively develop an oral transmucosal delivery
system for PT-14. The agreement with TheraTech contains certain performance
criteria and financial obligations. There can be no assurance that the Company
and TheraTech will be able to develop an acceptable oral transmucosal delivery
system for PT-14 in any reasonable period of time or for acceptable costs, if at
all. Failure to meet the performance criteria for any reason or any other event
of default under the foregoing agreements leading to termination of such
agreements, which may have a material adverse effect on the Company. There can
be no assurance that the Company's PT-14 development program will be successful,
that PT-14 will prove to be safe and efficacious in clinical trials, that PT-14
will obtain required regulatory approvals or that the Company or its
collaborators will be successful in obtaining market acceptance of PT-14. In
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addition, the Company or its collaborators may encounter problems and delays
relating to research and development, regulatory approval, manufacturing and
marketing of PT-14. Failure to develop, obtain regulatory approval for,
manufacture and market PT-14 on a timely basis may have a material adverse
effect on the Company. See "Products and Technologies in Development."
UNCERTAINTY OF DEVELOPMENT OF MIDAS TECHNOLOGY. The Company is
engaged in research and development on a number of product opportunities for its
MIDAS technology, including use as an infection imaging agent and a therapeutic
agent for treatment of obesity, and believes that MIDAS technology may have
medical applications in a variety of areas, including immune disorders, cancers
and cardiology. The Company intends to expand research and development of MIDAS
technology applications primarily through strategic alliances with other
entities. No assurances can be made regarding the establishment or the timing of
such alliances, and the failure to establish such alliances on a timely basis
could limit the Company's ability to develop MIDAS technology and could have a
material adverse effect on the Company. The Company expects to devote resources
to expand research and development of MIDAS technology to the extent funding is
available. No prediction can be made, however, as to when or whether the areas
in which there are ongoing MIDAS technology research projects will yield
scientific discoveries, or whether such research projects will lead to
commercial products. See "Products and Technologies in Development."
While the Company has entered into the Option Agreement with Nihon,
pursuant to which Nihon has an option to exclusively license certain products
based on the Company's MIDAS technology, there can be no assurance that future
payments provided for in the Option Agreement will be made, that the Company and
Nihon will ever enter into a definitive license agreement, or that a definitive
strategic alliance between the Company and Nihon will result in the development
or commercialization of any product. In the event that Nihon gives notice of its
right to negotiate a license agreement, and the parties cannot agree on terms of
such license agreement, the Company will be required to repay certain monies to
Nihon. Failure to enter into a definitive license agreement, or being required
to repay certain monies to Nihon, may have a material adverse effect on the
Company.
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL. Research,
development, testing, clinical trials, manufacture, advertising and marketing,
including distribution and sale, of pharmaceutical and radiopharmaceutical
products are subject to extensive regulation by governmental authorities in the
United States and other countries and by state regulatory authorities. This
regulatory process, which includes pre-clinical studies and clinical trials of
each proposed product to establish safety and effectiveness and confirmation by
the FDA that good laboratory, clinical and manufacturing practices were
maintained during testing and manufacturing, can take many years and requires
the expenditure of substantial resources. To date, none of the proposed products
being developed by the Company have been submitted for approval or approved by
the FDA or any other regulatory authority for marketing, and there can be no
assurance that any such product will ever be submitted or approved for marketing
or that the Company will be able to obtain the labeling claims desired for its
products. Delays in obtaining or failure to obtain such regulatory approvals
would have a material adverse effect on the Company.
The Company is and will continue to be dependent upon the
laboratories and medical institutions conducting its pre-clinical studies and
clinical trials to maintain both good laboratory and good clinical practices.
There can be no assurance that such facilities will maintain such practices,
which could further delay the approval process.
When and if approvals are granted, the Company, the approved drug,
the manufacture of such drug and the facilities in which such drug is
manufactured are subject to ongoing regulatory review. Subsequent discovery of
previously unknown problems may result in restriction on a product's use or
withdrawal of the product from the market. Adverse government regulation that
might arise from future legislative or administrative action, particularly as it
relates to health care reform and product pricing, cannot be predicted.
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NO COMMERCIAL MANUFACTURING CAPABILITY OR EXPERIENCE. To be
successful, the Company's products must be manufactured in commercial quantities
under GMP requirements prescribed by the FDA and at acceptable costs. The
Company intends to rely on collaborators, licensees or contract manufacturers
for the commercial manufacture of its products and the Company will be dependent
on such corporate partners or other entities for, and will have only limited
control over, the commercial manufacturing of its products. The Company has
entered into manufacturing arrangements for the manufacture of LeuTech under
GMP, however, there can be no assurance that the contract manufacturers will
perform as agreed or will remain in the contract manufacturing business for the
time required by the Company, which would have a material adverse effect on the
Company.
LIMITED CLINICAL TRIAL EXPERIENCE. Before obtaining required
regulatory approvals for the commercial sale of its proposed products, the
Company must demonstrate through clinical trials that such products are safe and
efficacious for use. The initiation and completion of clinical trials is
dependent upon many factors, including the availability of qualified clinical
investigators and access to suitable patient populations. The Company relies, in
part, on third parties for preparation of regulatory filings and the design of
clinical trials. There can be no assurance that the Company will be able to find
appropriate third parties to provide services relating to clinical trials.
Delays in initiating and completing clinical trials may result in increased
trial costs and delays in FDA submissions, which would have a material adverse
effect on the Company.
A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in clinical trials, even after
showing promising results in earlier studies or trials. There can be no
assurance that the Company will not encounter problems in its clinical trials
that will cause the Company to delay or suspend its clinical trials, that the
clinical trials of its proposed products will be completed at all, that such
testing will ultimately demonstrate the safety or efficacy of such proposed
products or that any proposed products will receive regulatory approval on a
timely basis, if at all. If any such problems occur, there would be a material
adverse effect on the Company.
LIMITED MARKETING, DISTRIBUTION OR SALES CAPABILITY AND EXPERIENCE.
The Company has limited experience in marketing pharmaceutical products,
including distribution and selling of pharmaceutical and radiopharmaceutical
products, and will have to develop a sales force and/or rely on collaborators or
licensees or on arrangements with others to provide for the marketing,
distribution, and sales of its proposed products. There can be no assurance that
the Company will be able to establish marketing, distribution and sales
capabilities or make arrangements with third parties to perform such activities
on acceptable terms, which may result in the lack of control by the Company over
the marketing, distribution and sales of its proposed products and which would
have a material adverse effect on the Company. In addition, there can be no
assurance that the Company or any third party will be successful in marketing,
distributing or selling any products, and failure to do so could have a material
adverse effect on the Company.
COMPETITION. The radiopharmaceutical and pharmaceutical industries
are highly competitive. In the radiopharmaceutical industry, there are several
companies devoted to development and commercialization of monoclonal
antibody-based products and peptide-based products. In the development of
products to treat MED, there are many companies that are commercializing
products or that have programs to develop products to treat MED. In the
pharmaceutical industry, there are a number of companies developing
peptide-based drugs, including companies exploring a number of different
approaches to making conformationally-constrained peptides for use as
therapeutic drugs. The Company is likely to encounter significant competition
with respect to its proposed products currently under development. Many of the
Company's competitors, including those developing antibody- and peptide-based
radiopharmaceutical products, products for the treatment of MED and
peptide-based therapeutic products, have substantially greater financial and
technological resources and marketing capabilities than the Company, and have
significantly greater experience in research and development. Accordingly, the
Company's competitors may succeed in developing products and underlying
technologies more rapidly than the Company, and in developing products that are
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more effective and useful and are less costly than any that may be developed by
the Company, and may also be more successful than the Company in manufacturing
and marketing such products. Furthermore, the Company will compete with many
other companies that currently have extensive and well-funded marketing,
distribution and sales operations. Academic institutions, hospitals,
governmental agencies and other public and private research organizations are
also conducting research and seeking patent protection and may develop competing
products or technologies on their own or through strategic alliances or
collaborative arrangements. There can be no assurance that, even if the Company
is successful in receiving FDA market approval for any of its proposed products,
the Company or its collaborators or licensees will be able to successfully
compete.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT. Successful sales of the
Company's proposed products in the United States and other countries will depend
on the availability of adequate reimbursement from third-party payors such as
governmental entities, managed care organizations and private insurance plans.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that use of a product is safe and
efficacious, neither experimental nor investigational, medically necessary,
appropriate for the specific patient and cost effective. Since reimbursement
approval is required from each payor individually, seeking such approvals is a
time-consuming and costly process. Third-party payors routinely limit
reimbursement coverage and in many instances are exerting significant pressure
on medical suppliers to lower their prices. There is significant uncertainty
concerning third-party reimbursement for the use of any pharmaceutical product
incorporating new technology, and there is no assurance that third-party
reimbursement will be available for the Company's proposed products, or that
such reimbursement, if obtained, will be adequate. Less than full reimbursement
by governmental and other third-party payors for the Company's products would
adversely affect the market acceptance of these products and would also have a
material adverse effect on the Company. Further, health care reimbursement
systems vary from country to country, and there can be no assurance that
third-party reimbursement will be made available for the Company's proposed
products under any other reimbursement system.
HEALTH CARE REFORM. The health care industry is undergoing
fundamental change in the United States as a result of economic, political and
regulatory influences. There exists a powerful trend toward managed care that is
motivated by a desire to reduce costs and prices of health care. The Company
anticipates that the health care industry, particularly insurance companies and
other third-party payors, will continue to promote cost containment measures and
alternative health care delivery systems, and political debate of these issues
will most likely continue. The Company cannot predict which specific reforms
will be proposed or adopted by industry or government or the precise effect that
such proposals or adoption may have on the Company. There can be no assurance
that health care reform initiatives will not have a material adverse effect on
the Company.
CONDUCTING BUSINESS ABROAD. To the extent the Company conducts
business outside the United States, it may do so through licenses, joint
ventures or other contractual arrangements for the development, manufacturing
and marketing of its proposed products. No assurance can be given that the
Company will be able to establish suitable arrangements, that the necessary
foreign regulatory approvals for its proposed product will be obtained, that
foreign patent coverage will be available or that the development and marketing
of its proposed products through such licenses, joint ventures or other
contractual arrangements will be successful. The Company might also have greater
difficulty obtaining proprietary protection for its proposed products and
technologies outside the United States and enforcing its rights in foreign
courts. Furthermore, international operations and sales may be limited or
disrupted by the imposition of governmental controls regulation of medical
products, export license requirements, political instability, trade
restrictions, changes in tariffs, exchange rate fluctuations and difficulties in
managing international operations.
RISK OF LIABILITY; ADEQUACY OF INSURANCE COVERAGE; RISK OF PRODUCT
RECALL. The Company's business may be affected by potential product liability
risks which are inherent in the testing, manufacturing and marketing of proposed
pharmaceutical products to be developed by the Company. There can be no
assurance that product liability claims will not be asserted against the
Company, its collaborators or licensees. The use of proposed products developed
by the Company in clinical trials and the subsequent sale of such proposed
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products is likely to cause the Company to bear all or a portion of those risks.
Such litigation claims could have a material adverse effect on the Company. The
Company has liability insurance providing up to $5,000,000 coverage per
occurrence and in the aggregate as to certain clinical trial risks, and will
seek to obtain additional product liability insurance before the
commercialization of its products. There can be no assurance, however, that
insurance will be available to the Company on acceptable terms, if at all, or
that such coverage once obtained would be adequate to protect the Company
against future claims or that a medical malpractice or other claim would not
materially and adversely affect the Company. Furthermore, there can be no
assurance that any collaborators or licensees of the Company will agree to
indemnify the Company, be sufficiently insured or have a net worth sufficient to
satisfy any such product liability claims. In addition, products such as those
proposed to be sold by the Company may be subject to recall for unforeseen
reasons. Such a recall could have a material adverse effect on the Company.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL; LIMITED
PERSONNEL; DEPENDENCE ON CONTRACTORS. The Company is highly dependent upon the
efforts of its management. The loss of the services of one or more members of
management could impede the achievement of development objectives. The Company's
Chairman of the Board, Chief Executive Officer and President, and the Company's
Vice President and Chief Financial Officer, also serve as the Chairman of the
Board and the Chief Financial Officer of Derma Sciences, Inc. ("Derma
Sciences"), a publicly traded medical technology company. These individuals
devote their business time to the business and interests of both companies as is
necessary to perform their duties for such companies. The Board of Directors
does not believe that there is a conflict of interest between the business of
the Company and Derma Sciences because, among other things, the Company is in
the business of discovery and development of pharmaceuticals and Derma Sciences
is in the business of selling devices and products for wound care. Due to the
specialized scientific nature of the Company's business, the Company is also
highly dependent upon its ability to attract and retain qualified scientific and
technical personnel. There is intense competition for qualified personnel in the
areas of the Company's activities and there can be no assurance that the Company
can presently, or will be able to continue to, attract and retain the qualified
personnel necessary for the development of its existing business and its
expansion into areas and activities requiring additional expertise. In addition,
the Company's intended or possible growth and expansion into areas requiring
additional skill and expertise, such as marketing, including sales and
distribution, will require the addition of new management personnel and the
development of additional expertise by existing management personnel. The loss
of, or failure to recruit, scientific, technical and marketing and managerial
personnel could have a material adverse effect on the Company.
The Company relies, in substantial part, and for the foreseeable
future will rely, on certain independent organizations, advisors and consultants
to provide certain services, including substantially all aspects of
manufacturing and certain aspects of regulatory approval and clinical
management. There can be no assurance that the services of independent
organizations, advisors and consultants will continue to be available to the
Company on a timely basis when needed, or that the Company could find qualified
replacements. The Company's advisors and consultants generally sign agreements
that provide for confidentiality of the Company's proprietary information.
However, there can be no assurance that the Company will be able to maintain the
confidentiality of the Company's technology, the dissemination of which could
have a material adverse effect on the Company.
POSSIBLE "YEAR 2000" PROBLEMS. Although the Company believes that its
computer systems and software products are fully Year 2000 compatible, it is
possible that certain computer systems or software products of the Company's
suppliers and contractors may not accept input of, store, manipulate and output
dates prior to the Year 2000 or thereafter without error or interruption. The
Company is requesting assurances from all software vendors from which it has
purchased or from which it may purchase software that such software will
correctly process all date information at all times. Furthermore, the Company is
querying its suppliers and contractors as to their progress in identifying and
addressing problems that their computer systems will face in correct processing
date information as the Year 2000 approaches. However, there can be no assurance
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that the Company will identify all date-handling problems of its suppliers and
contractors in advance of their occurrence, or that the Company will be able to
successfully remedy problems that are discovered. The expense of the Company's
efforts to identify and address such problems, or the expenses or liabilities to
which the Company may become subject as a result of such problems, could have a
material adverse effect on the Company.
HAZARDOUS MATERIALS; COMPLIANCE WITH ENVIRONMENTAL REGULATIONS. The
Company's research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity. In
addition, there can be no assurance that current or future environmental laws,
rules, regulations or policies will not have a material adverse effect on the
Company.
CERTAIN INTERLOCKING RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST.
One of the directors of the Company is an officer of Paramount Capital, Inc. and
of Paramount Capital Investments, LLC ("Paramount Capital Investments").
Paramount Capital Investments is a merchant bank and venture capital firm
specializing in biotechnology and biopharmaceutical companies. In the regular
course of its business, Paramount Capital Investments identifies, evaluates and
pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither Paramount Capital Investments nor
any other person is obligated pursuant to any agreement or understanding with
the Company to make any additional products or technologies available to the
Company, and there can be no assurance, and purchasers of the Common Stock
should not expect, that any biomedical or pharmaceutical product or technology
identified by Paramount Capital Investments or any other person in the future
will be made available to the Company. In addition, certain of the officers,
directors, consultants and advisors to the Company do and may from time to time
serve as officers, directors, consultants or advisors to other pharmaceutical or
biotechnology companies, or to investment banking, venture capital or similar
firms. There can be no assurance that such other companies or firms will not in
the future have interests in conflict with those of the Company.
POTENTIAL VOLATILITY OF PRICE; LOW TRADING VOLUME. The market price
of the Common Stock, like that of many other development-stage public
pharmaceutical or biotechnology companies, has been highly volatile and may be
so in the future. Factors such as announcements of technological innovations or
new commercial products by the Company or its competitors, disclosure of results
of preclinical and clinical testing, adverse reactions to products, governmental
regulation and approvals, developments in patent or other proprietary rights,
public or regulatory agency concerns as to the safety of products developed by
the Company, litigation and general market conditions may have a significant
adverse effect on the market price of the Common Stock. In addition, in general,
the Common Stock has been thinly traded, which may affect the ability of the
Company's stockholders to sell shares of the Common Stock in the public market.
There can be no assurance that a more active trading market will develop in the
future. Further, the stock market has from time to time experienced extreme
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. Such fluctuations may adversely affect the price of the
Common Stock.
CONTROL BY OFFICERS, DIRECTORS, AND EXISTING STOCKHOLDERS. The
Company's executive officers, directors, five percent (5%) stockholders and
affiliated entities together hold approximately 26.2% of the voting power based
on Common Stock and Series A Convertible Preferred Stock outstanding as of the
date of this Prospectus, and hold options or warrants to acquire a significant
additional number of shares of Common Stock and Series A Convertible Preferred
Stock. As a result, these stockholders, acting together, will be able to
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influence significantly most matters requiring approval by the stockholders of
the Company, including the election of directors. Such a concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices.
ANTI-TAKEOVER CONSIDERATIONS. The Company's Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), authorizes the
issuance of up to 10,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock"), of which 264,000 are authorized for issuance as shares of
Series A Convertible Preferred Stock and 18,856 are authorized for issuance as
shares of Series B Convertible Preferred Stock. The Company's Board of Directors
has the authority, without action by the Company's stockholders, to issue shares
of preferred stock, and to fix the rights and preferences of such preferred
stock, except as limited in the Certificates of Designations relating to the
Series A Convertible Preferred Stock and the Series B Convertible Preferred
Stock. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue a new series of preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of Common Stock. Such authority, together with
certain provisions of Delaware law and of the Company's Certificate of
Incorporation and bylaws, may have the effect of delaying, deterring or
preventing a change in control of the Company, may discourage bids for the
Company's Common Stock at a premium over the market price and may adversely
affect the market price, and the voting and other rights of the holders, of the
Common Stock. Although the Company has no present intention to issue any
additional shares of its preferred stock, other than those already authorized
for issuance upon exercise of certain outstanding warrants to purchase Series A
Convertible Preferred Stock, there can be no assurance that the Company will not
do so in the future.
IMMEDIATE AND SUBSTANTIAL DILUTION. An investor in this Offering will
experience immediate and substantial dilution. As of June 30, 1998, the Company
had a net tangible book value of approximately $3,389,547, or approximately
$0.50 per share of Common Stock, assuming conversion of all outstanding Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock and no
exercise of any warrants or options.
NO DIVIDENDS. The Company has not paid cash dividends on its Common
Stock since its inception and does not intend to pay any dividends on its Common
Stock in the foreseeable future. The Series A Convertible Preferred Stock and
the Series B Convertible Preferred Stock have dividend preferences.
SHARES ELIGIBLE FOR FUTURE SALE; EXERCISE OF OPTIONS AND WARRANTS MAY
HAVE A DILUTIVE EFFECT ON MARKET; EFFECT ON ABILITY TO RAISE CAPITAL. Of the
4,676,352 shares of Common Stock outstanding, 4,601,268 are freely tradable, and
are not subject to any restrictions, either under securities laws or under
lock-up or other restrictive agreements. There are currently 77,972 shares of
Series A Convertible Preferred Stock outstanding which are currently convertible
into 1,601,067 shares of Common Stock at a conversion rate which is subject to
adjustment under certain circumstances. There are currently 18,875 shares of
Series B Convertible Preferred Stock outstanding which are currently convertible
into 536,221 shares of Common Stock at a conversion rate which is subject to
adjustment under certain circumstances. Additional Common Stock, including up to
1,875,160 shares issuable upon the exercise of outstanding options and warrants,
may become eligible for sale in the public market from time to time in the
future. The Company has filed two registration statements on Form S-3 to
register up to 7,320,794 shares of Common Stock, including Common Stock issuable
on conversion of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock, and on exercise of certain warrants, and has filed a
registration statement on Form S-8 to register up to 1,279,144 shares of Common
Stock available for issuance under certain option grants, including the
Company's 1996 Stock Option Plan. The Company's outstanding options and warrants
will provide, during their term, an opportunity for the holder to profit, upon
exercise, from a rise in any market price of the Company's Common Stock, with
resulting dilution in the ownership interest in the Company held by the then
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present stockholders. Many of the options and warrants are likely to be
exercised at a time when the Company might be able to obtain additional equity
capital on more favorable terms. While those options and warrants are
outstanding, they may adversely affect the terms on which the Company could
obtain capital. The Company cannot predict the effect, if any, that market sales
of Common Stock, the exercise of any options or warrants, or the availability of
such Common Stock for sale will have on the market price prevailing from time to
time.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Registered Shares.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 75,000,000 shares of Common Stock
and 10,000,000 shares of Preferred Stock.
COMMON STOCK
As of the date of this Prospectus, there are 4,676,352 shares of
Common Stock outstanding and a maximum of 4,009,406 shares of Common Stock
issuable on conversion or exercise of securities convertible into or exercisable
for Common Stock at conversion and exercise rates effective as of the date of
this Prospectus, including shares of Common Stock issuable on conversion of all
outstanding Preferred Stock. Holders of Common Stock have one vote per share and
have no preemption rights. Holders of Common Stock have the right to participate
ratably in all distributions, whether of dividends or assets in liquidation,
dissolution or winding up, subject to any superior rights of holders of
Preferred Stock outstanding at the time.
PREFERRED STOCK
Two series of Preferred Stock have been established: 264,000 shares
of Series A Convertible Preferred Stock, of which 77,972 shares are outstanding
and 13,778 shares are issuable upon exercise of outstanding warrants to purchase
Series A Convertible Preferred Stock; and 18,875 shares of Series B Convertible
Preferred Stock, of which all 18,875 shares are outstanding.
SELLING STOCKHOLDERS
This Prospectus offers the Registered Shares for resale by the
Selling Stockholders.
Common Stock ownership information in the following table is based
solely upon (i) information furnished to the Company by the Selling
Stockholders, (ii) reports furnished to the Company pursuant to the rules of the
Commission and (iii) the Company's stock ownership records.
The following table sets forth as of the date of this Prospectus (i)
the name of the Selling Stockholder, (ii) the number of shares of Common Stock
which the Selling Stockholder owns or are issuable before the Offering, (iii)
the number of shares of Common Stock included in this Registration Statement,
(iv) the number of shares of Common Stock which the Selling Stockholder will own
or which are issuable following the completion of the Offering (assuming the
sale of all Registered Shares and no other dispositions or acquisitions of
Common Stock) and (v) the percentage of shares of Common Stock which the Selling
Stockholder will own or which are issuable following the completion of the
Offering (assuming the sale of all Registered Shares and no other dispositions
or acquisitions of Common Stock). Except as noted, the Selling Stockholders have
not had, within the past three years, any position, office or other material
relationship with the Company or any of the Company's predecessors or
affiliates.
15
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF PERCENT OF
COMMON STOCK OWNED COMMON STOCK OWNED COMMON STOCK OWNED
BEFORE OFFERING OR ISSUABLE REGISTERED OR ISSUABLE OR ISSUABLE
NAME OF SELLING STOCKHOLDER BEFORE OFFERING SHARES AFTER OFFERING (1) AFTER OFFERING (1)
- --------------------------- ----------------- ---------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
TheraTech, Inc. (2) 363,636 363,636 0 *
Timothy McInerney (3) (4) 103,970 10,000 93,970 2%
- -------------------------
</TABLE>
* indicates less than one percent
(1) Assumes sale of all Registered Shares offered hereby.
(2) In March 1998, the Company entered into a License and Development
Agreement with TheraTech in connection with, among other things, the
development of PT-14. One of the directors of the Company is also a
director of TheraTech.
(3) Employee of Paramount Capital, Inc. ("Paramount Capital"). Paramount
Capital has acted as finder or placement agent in connection with
various financings of the Company, including the offerings of Series
A Convertible Preferred Stock and Series B Convertible Preferred
Stock, and is a party to an introduction agreement under which
Paramount Capital acted as the Company's non-exclusive financial
advisor. One of the directors of the Company is also an officer of
Paramount Capital.
(4) Includes shares of Common Stock and shares of Series A Convertible
Preferred Stock (as if converted) issuable upon exercise of warrants,
but does not include any additional shares issuable in the event of
an adjustment in the number of shares obtainable upon the exercise of
certain warrants or a decrease in the conversion price applicable to
the Series A Convertible Preferred Stock.
PLAN OF DISTRIBUTION
The Selling Stockholders may, from time to time, sell all or a
portion of the Registered Shares on the Nasdaq SmallCap, in privately negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices. The Registered
Shares may be sold by the Selling Stockholders by one or more of the following
methods, without limitation: (a) block trades in which the broker or dealer so
engaged will attempt to sell the Registered Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction, (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus, (c) an exchange distribution in
accordance with the rules of such exchange, (d) ordinary brokerage transactions
and transaction in which the broker solicits purchasers, (e) privately
negotiated transactions, (f) short sales and (g) combinations of any such
methods of sale. In effecting sales, brokers and dealers engaged by a Selling
Stockholder may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from a Selling Stockholder (or, if
any such broker-dealer acts as agent for the purchaser of such shares, from such
purchaser) in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with a
Selling Stockholder to sell a specified number of such Registered Shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for such Selling Stockholder, to purchase as a principal
any unsold Registered Shares at the price required to fulfill the broker-dealer
commitment to such Selling Stockholder. Broker-dealers who acquire Registered
Shares as a principal may thereafter resell such Registered Shares from time to
time in transactions (which may involve block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Registered Shares commissions
as described above. Selling Stockholders may also sell the Registered Shares in
accordance with Rule 144 under the Securities Act, rather than pursuant to this
Prospectus.
16
<PAGE>
There can be no assurance that the Selling Stockholders will sell any
or all of the Registered Shares offered by it hereunder.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the sale of the Registered Shares
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the Registered Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
The Company has, as of the date of this Prospectus, informed the
Selling Stockholders that the anti-manipulation provisions of Regulation M
promulgated under the Exchange Act may apply to the sales of Registered Shares.
The Company has also advised the Selling Stockholders of the requirement for
delivery of this Prospectus in connection with any sale of the Registered
Shares.
The Selling Stockholders may from time to time purchase shares of
Common Stock in the open market. The Company has, as of the date of this
Prospectus, informed the Selling Stockholders that they should not commence any
distribution of the Registered Shares unless they have terminated purchasing of,
bidding for and attempting to induce any other person to bid for or purchase
Common Stock in the open market as provided in applicable securities
regulations, including Regulation M.
The Company has registered the Registered Shares (the "Registration")
under the Securities Act on behalf of the Selling Stockholders, and in the case
of TheraTech, pursuant to registration rights contained in the agreement by
which TheraTech acquired the Registered Shares. The Company will pay all
expenses of the Registration, and of qualification or exemption of the
Registered Shares under state securities laws. The Company is obligated, as to
TheraTech, to use its best efforts to keep the Registration effective until the
earlier of (i) the second anniversary of the effective date of the Registration
or (ii) the date on which all the Registered Shares have been sold pursuant to
the Registration or (iii) when all the Registered Shares have been sold pursuant
to Rule 144 under the Securities Act or may be sold under Rule 144(k) under the
Securities Act (or any similar provisions then in force).
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company has obtained a directors' and officers' liability
insurance policy which covers, among other things, certain liabilities arising
under the Securities Act.
In the agreement with TheraTech pursuant to which the Company has
registered the Registered Shares in the Registration Statement, the Company has
agreed, to the extent permitted by law, to indemnify such Selling Stockholder
(including control persons, officers, directors, employees and agents of such
Selling Stockholder) against liabilities arising out or based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact contained in the Registration Statement or this
Prospectus, except to the extent that the untrue statement or omission is based
on written information provided by such Selling Stockholder for inclusion in the
Registration Statement or this Prospectus, but not to the extent that the untrue
statement or omission was completely corrected in an amendment or supplement to
this Prospectus, which amendment or supplement was furnished to the Selling
Stockholder, and such Selling Stockholder thereafter failed to deliver this
Prospectus as so amended or supplemented, prior to or concurrently with the sale
of Registered Shares to the person asserting such loss, claim, damage, liability
or expense. Such Selling Stockholder has agreed to indemnify the Company
(including its directors, officers, and control persons) to the same extent as
the indemnity from the Company to such Selling Stockholder, but only with
respect to written information provided by such Selling Stockholder for
inclusion in the Registration Statement or this Prospectus, and only in an
amount no greater than the net proceeds received by such Selling Stockholder
upon the sale of the Registered Shares giving rise to the indemnification
obligation.
17
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
Certain legal matters relating to the Registered Shares offered
hereby will be passed upon for the Company by Graham & James LLP, New York, New
York, counsel to the Company. Certain members of Graham & James LLP have been
granted options under the 1996 Stock Option Plan to purchase an aggregate of
12,500 shares of Common Stock at an exercise price of $8.00 per share, which
options are immediately exercisable and expires on January 3, 2007, and an
option to purchase 5,000 shares of Common Stock at an exercise price of $6.00
per share, which option is partially exercisable and expires on January 21,
2008.
EXPERTS
The consolidated financial statements incorporated by reference in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. Reference is made to
said report, which includes an explanatory paragraph regarding the Company's
ability to continue as a going concern.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR
TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
Item Page Number
------------ ---------------
Available Information.........................................Inside Front Cover
Documents Incorporated By Reference...........................Inside Front Cover
Business Summary.......................................................1
Risk Factors...........................................................5
Use of Proceeds.......................................................15
Description of Securities.............................................15
Selling Stockholders..................................................15
Plan of Distribution..................................................16
Indemnification for Securities Act Liabilities........................17
Legal Matters.........................................................18
Experts...............................................................18
Table of Contents.............................................Outside Back Cover
-------------------
373,636
COMMON STOCK
[LOGO OMITTED]
PALATIN TECHNOLOGIES, INC.
-------------------
PROSPECTUS
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