<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ANESTA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 87-0424798
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
4745 WILEY POST WAY
PLAZA 6, SUITE 650
SALT LAKE CITY, UTAH 84116
(801) 595-1405
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THOMAS B. KING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ANESTA CORP.
4745 WILEY POST WAY
PLAZA 6, SUITE 650
SALT LAKE CITY, UT 84116
(801) 595-1405
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JAMES C. T. LINFIELD, ESQ. ELIZABETH R. FLINT, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
2595 CANYON BOULEVARD, SUITE 250 650 PAGE MILL ROAD
BOULDER, COLORADO 80302-6737 PALO ALTO, CALIFORNIA 94304-1050
(303) 546-4000 (650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If 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. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of 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, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value..................... 2,300,000 $21.375 $49,162,500 $13,668
- ----------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933 based on the average of the high and low prices of the Company's Common
Stock as reported on the Nasdaq National Market on November 18, 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.
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<PAGE> 2
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 securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1998
[ANESTA LOGO]
2,000,000 SHARES
COMMON STOCK
Anesta Corp. is offering 1,800,000 shares of its Common Stock and the Selling
Stockholders are selling an additional 200,000 shares. Anesta Corp.'s Common
Stock is traded on the Nasdaq National Market under the symbol "NSTA." The last
reported sale price of the Common Stock on the Nasdaq National Market on
November 18, 1998 was $21.375 per share.
------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to the Company..................................... $ $
Proceeds to the Selling Stockholders........................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Anesta Corp. has granted the underwriters a 30-day option to purchase up to an
additional 300,000 shares of Common Stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of Common Stock to
purchasers on , 1998.
------------------------------
BANCBOSTON ROBERTSON STEPHENS VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is November , 1998
<PAGE> 3
[Inside front cover containing the following copy and illustrations: The upper
half is entitled "OT-system for Drug Delivery." Below the title is an
illustration of a person placing an OTS drug matrix into a mouth. Below this
illustration is another illustration featuring a close-up of the OTS drug matrix
inside the person's mouth. The OTS drug matrix is dissolving onto the lining of
the mouth, passing through the oral mucosa, and being absorbed into the vascular
tissues. The parts of the illustration are labeled as "Oral Mucosa," "Vascular
Tissues," "OTS Drug Matrix," and "Saliva" with arrows pointing to the
corresponding features in the illustration. To the right of the two
illustrations is text divided under two headings. Under the heading "Features of
oral mucosa:" are the following bulleted points: "Highly permeable," "Well
vascularized," and "Facilitates rapid absorption." Directly below that, under
the heading "Benefits of OTS delivery:" are the following bulleted points:
"Rapid onset of action," "Controllable, dose-to-effect," and "Cost-effective
versus intravenous.
The lower half of the inside front cover is entitled "Actiq for Breakthrough
Cancer Pain." Below the title is a graphic depicting the magnitude of cancer
pain over time, with an overlay depicting the magnitude over time of pain relief
provided by cancer medication regimes. Generally, the graphic depicts a steady
level of persistent cancer pain over time, with several peaks of greater pain,
or breakthrough cancer pain, exceeding the level of pain relief provided by
around-the-clock medication. The graphic further depicts the level of pain
relief provided by Actiq as conforming to the level of the breakthrough cancer
pain. The graphic is labeled with areas representing "Persistent Cancer Pain"
and "Over Medication." The graphic also has labels "Breakthrough Cancer Pain,"
"Around-the-Clock Medication," and "Actiq(R)" with arrows pointing to the
corresponding features on the graphic. The horizontal axis of the graphic is
labeled as "Time" with an arrow pointing to the right. Directly below the
illustration is the legend "Actiq is indicated only for the management of
breakthrough cancer pain in patients with malignancies who are already receiving
and who are tolerant to opioid therapy."]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
THE "COMPANY," "ANESTA," "WE," "US" AND "OUR" REFER TO ANESTA CORP. AND ITS
SUBSIDIARY.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Certain Information......................................... 12
Use of Proceeds............................................. 12
Price Range of Common Stock................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Dividend Policy............................................. 15
Selected Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 22
Management.................................................. 38
Principal and Selling Stockholders.......................... 42
Description of Capital Stock................................ 44
Shares Eligible for Future Sale............................. 45
Underwriting................................................ 46
Legal Matters............................................... 47
Experts..................................................... 48
Where You Can Find More Information......................... 49
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------
We own or have rights to trademarks or trade names that we use in conjunction
with the sale of our products. We own the Anesta(TM), OTFC(R) and Actiq(R)
trademarks. Abbott Laboratories owns the trademark Fentanyl Oralet(R).
i
<PAGE> 5
SUMMARY
Because this is only a summary, it does not contain all the information that may
be important to you. You should read the entire Prospectus, especially "Risk
Factors" and the Financial Statements and Notes, before deciding to invest in
our Common Stock.
OUR COMPANY
Anesta is a leader in the development of new pharmaceutical products for oral
transmucosal drug administration. Our products are based on our proprietary oral
transmucosal system (OTS) for drug delivery. Our principal product is Actiq,
which was approved for marketing by the U.S. Food and Drug Administration (FDA)
on November 4, 1998. Actiq is the first product specifically designed, studied
and approved for breakthrough cancer pain. Actiq provides rapid pain relief in a
simple, controllable and patient-friendly manner. A newly-formed, dedicated
sales force of Abbott Laboratories (Abbott) will launch Actiq in the United
States with support from our strategic marketing group. Our first approved
product, Fentanyl Oralet, is indicated for use as a premedication before surgery
and for sedation/analgesia prior to painful procedures in children and adults in
a monitored anesthesia setting. We also have three product candidates in
late-stage clinical trials for smoking cessation, acute pain management and
short-acting sedation and several programs in preclinical development.
OUR ORAL TRANSMUCOSAL SYSTEM
The OTS consists of a drug matrix that is mounted on a handle or other
controlling device. We designed this system to achieve rapid absorption of
potent drugs through the oral mucosa, or the lining of the mouth, and into the
bloodstream, producing rapid onset of the desired therapeutic effect. Our system
allows a caregiver or patient to control drug administration until the desired
effect is achieved or side effects appear. Our system can be more cost-
effective and convenient than infusions or injections. We believe this platform
technology can be applied to a range of pharmaceutical compounds.
ACTIQ
Actiq is indicated only for the management of breakthrough cancer pain in
patients with malignancies who are already receiving and who are tolerant to
opioid therapy for their underlying persistent cancer pain. Breakthrough cancer
pain is a sporadic flare of severe pain that "breaks through" the patient's
regular medication for persistent cancer pain. Breakthrough pain is a component
of chronic cancer pain that is particularly difficult to treat due to its
severity, rapid onset and unpredictability. We estimate that more than 800,000
patients in the United States suffer from breakthrough cancer pain. Actiq offers
rapid onset of pain relief in less than 15 minutes in a convenient form that
allows the patient a means of adjusting the dose as needed.
Actiq is expected to be available for physicians to prescribe beginning in March
1999. Abbott will manufacture, distribute and sell Actiq in the United States.
We are also conducting advanced clinical trials for Actiq in the United Kingdom
with the goal of registering Actiq first in the United Kingdom and subsequently
throughout Europe via the European Union's mutual recognition process. We have
entered into distribution relationships with Grupo Ferrer Internacional S.A.
(Grupo Ferrer) for Spain and Portugal, and Laboratoire L. Lafon (Lafon)
1
<PAGE> 6
for France. We plan to complete additional distribution agreements for Actiq in
Europe and other key cancer pain markets.
OUR PIPELINE
We are developing other product candidates based on our proprietary OTS drug
delivery platform. Currently, we have three products in late-stage clinical
development: OT-nicotine for smoking cessation, OT-fentanyl for acute pain, and
OT-etomidate for short-acting sedation. We are also preparing investigational
new drug (IND) applications for two new products, a non-opioid drug to treat
pain and a drug to treat nausea and vomiting, and are conducting additional
preclinical research in treating migraine headache.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company... 1,800,000 shares
Common Stock Offered by the Selling
Stockholders........................ 200,000 shares
Common Stock Outstanding after the
Offering............................ 11,448,687 shares
Use of Proceeds....................... For research and development
activities including preclinical and
clinical testing, developing
manufacturing capabilities,
commercializing Actiq and working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol......... NSTA
</TABLE>
Unless otherwise stated in this Prospectus, all information contained in this
Prospectus assumes no exercise of the over-allotment option granted to the
Underwriters and excludes 1,640,610 shares of Common Stock issuable upon
exercise of stock options at a weighted average exercise price of $11.77 per
share outstanding as of September 30, 1998.
2
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues................. $ 1,677 $ 1,598 $ 189 $ 113 $ 331
Operating costs and expenses:
Cost of goods sold and
royalties................. 22 30 55 35 47
Research and development..... 5,228 8,304 7,889 5,353 5,769
Depreciation and
amortization.............. 158 237 269 178 224
Marketing, general and
administrative............ 2,219 3,537 6,368 4,723 5,367
-------- -------- -------- -------- --------
Loss from operations........... (5,950) (10,510) (14,392) (10,176) (11,076)
Non operating income, net...... 1,250 1,820 1,843 1,449 869
Provision for income taxes..... -- -- -- (2) (5)
-------- -------- -------- -------- --------
Loss before cumulative effect
of change in accounting...... (4,700) (8,690) (12,549) (8,729) (10,212)
Cumulative effect of change in
accounting................... (1,041) -- -- -- --
-------- -------- -------- -------- --------
Net loss....................... $ (5,741) $ (8,690) $(12,549) $ (8,729) $(10,212)
======== ======== ======== ======== ========
Basic and diluted loss per
common share:
Loss before cumulative effect
of change in accounting... $ (0.65) $ (1.02) $ (1.32) $ (0.92) $ (1.06)
Cumulative effect of change
in accounting............. (0.15) -- -- -- --
-------- -------- -------- -------- --------
Net loss per common share...... $ (0.80) $ (1.02) $ (1.32) $ (0.92) $ (1.06)
======== ======== ======== ======== ========
Weighted average shares
outstanding.................. 7,177 8,499 9,500 9,486 9,595
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, marketable debt securities
and certificate of deposit......................... $ 20,049 $ 55,840
Total assets......................................... 22,980 58,771
Long-term obligations, including current portion..... 1,750 1,750
Deficit accumulated during development stage......... (43,174) (43,174)
Stockholders' equity................................. 19,538 55,329
</TABLE>
- ------------
(1) Adjusted to reflect the proceeds from the sale of 1,800,000 shares of Common
Stock by Anesta at an assumed public offering price of $21.375 per share and
after deducting the underwriting discount and estimated offering expenses.
See "Use of Proceeds" and "Capitalization."
3
<PAGE> 8
RISK FACTORS
An investment in this Common Stock offering is very risky. You should carefully
consider the following risk factors in addition to the remainder of this
prospectus before purchasing the Common Stock. This prospectus contains
forward-looking statements that involve risks and uncertainties. Many factors,
including those described below, may cause actual results to differ materially
from anticipated results.
OUR ABILITY TO ACHIEVE PROFITABILITY DEPENDS ON THE SUCCESSFUL LAUNCH OF ACTIQ
We must successfully launch Actiq together with our U.S. strategic partner
Abbott to achieve profitability. Although Actiq was approved by the FDA in
November 1998, the commercial success of the product will depend on many
factors, including:
- Abbott's ability to recruit and train a sales force dedicated to Actiq;
- Abbott's ability to manufacture sufficient quantities of Actiq while
following strict regulatory requirements;
- Abbott's ability to price Actiq at a level that leads to market acceptance;
- Physicians' willingness to prescribe Actiq for breakthrough cancer pain; and
- Use of Actiq by cancer patients who suffer from breakthrough cancer pain.
We do not control any of these factors and cannot assure investors that Actiq
will be successfully launched. We, along with Abbott, must make every effort
through a comprehensive risk management program to reduce the inappropriate use
of Actiq. These and other factors that may prevent successful commercialization
of Actiq are discussed in greater detail in the risk factors that follow. If
Actiq is not commercially successful, we will experience significant operating
losses and our viability will be dependent upon developing other commercial
products.
WE DEPEND ON ABBOTT TO COMMERCIALIZE ACTIQ
The success of Actiq in the United States depends on the efforts of Abbott.
Abbott is currently the only approved commercial manufacturer of Actiq and
Abbott has the exclusive right to sell and distribute Actiq in the United
States.
We do not control how Abbott performs its obligations under our collaboration
agreement. Abbott may not be able to establish and maintain an effective sales
force for Actiq. Abbott may terminate the dedicated Actiq sales force and sell
Actiq through its other sales organizations. Some of Abbott's existing or future
products may compete with Actiq and Abbott may shift sales and marketing
resources to other products. Abbott controls the pricing strategy for Actiq, as
well as the process of securing the approval of government healthcare
authorities, insurance companies and managed care organizations to pay or
reimburse for the use of Actiq. Abbott has not yet determined the pricing of
Actiq, and we cannot assure you that Abbott will price Actiq in a manner that
leads to market acceptance.
The manufacturing process for Actiq is strictly regulated by the FDA and
involves certain supplies, such as child-resistant product packaging, that
involve long lead times. Abbott may not be able to predict or respond to product
demand for Actiq in a timely manner. Abbott has the right to terminate our
collaboration in certain circumstances. We have limited rights to terminate the
Abbott alliance, so even if Abbott does not perform in a satisfactory manner, we
may not be able to seek another partner for Actiq in the United States. We do
not currently have adequate resources to distribute or sell Actiq on our own. If
Abbott does not
4
<PAGE> 9
satisfactorily perform under the collaboration agreement, our financial
condition will be materially and adversely affected.
MARKET ACCEPTANCE OF ACTIQ IS UNCERTAIN
Actiq uses a new method of oral transmucosal drug delivery and we cannot assure
you that physicians or patients will adopt Actiq. To date, a limited number of
clinical trial patients have used Actiq, and it is uncertain whether patients
will use Actiq to treat their breakthrough cancer pain. Physicians will
prescribe Actiq only if they determine, based on experience, clinical data, and
other factors, that it is preferable to other products currently used for
breakthrough cancer pain. Recommendations and endorsements by influential
physicians will be essential for market acceptance of Actiq, and we may not be
able to obtain these recommendations and endorsements. In addition, many other
factors influence the adoption of new pharmaceuticals, including marketing and
distribution restrictions, adverse publicity, product pricing and reimbursement
by third party payors. Third party payors may not agree to reimburse patients
for the cost of using Actiq. If Actiq does not achieve adequate sales, our
business and financial condition would be materially and adversely affected.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION
The FDA must approve our new products before they can be marketed in the United
States. Before we can file a New Drug Application (NDA) with the FDA, the
product candidate must undergo extensive clinical trials. The regulatory process
is expensive and time consuming, and any NDA that we submit may not be approved.
Our product candidates must also be approved by foreign governments before the
product can be sold in other countries as discussed under the heading
"International Commercialization of Actiq Faces Significant Obstacles" below.
Any regulatory approval of a product is limited to specific therapeutic uses for
which the product has demonstrated safety and efficacy in clinical testing. In
addition, approval may be contingent on post-marketing studies. A pharmaceutical
product remains subject to extensive regulation even after approval. The FDA and
state regulatory authorities stringently apply and enforce regulatory
requirements for drug manufacturing and related activities. The FDA or state
regulatory authorities could restrict an approved product or manufacturer, order
withdrawal of a product or shut down a manufacturing facility if they discover a
significant problem or a violation of applicable regulations.
The FDA can impose significant restrictions on the marketing and distribution of
approved products. We have developed with Abbott, in consultation with the FDA,
a comprehensive risk management program for Actiq that includes significant
restrictions on the manner in which Actiq will be marketed and sold. The program
was developed in response to the concerns expressed by the FDA in its
not-approvable letter in November 1997. The program is designed to prevent
accidental ingestion by children, improper patient selection and diversion or
abuse of the product. Developing this program was a time consuming process and
delayed the regulatory approval of Actiq for approximately one year. Because our
future products may also involve the delivery of potent drugs, we may experience
similar delays.
Any products that we develop in the future will be subject to rigorous
regulatory review. We may not be able to establish that any future products are
safe and effective or obtain FDA approval. Regulatory concerns or changes could
delay or prevent approval of new products. For example, the FDA imposed
significant restrictions on Abbott's sales and distribution of
5
<PAGE> 10
Fentanyl Oralet in 1994 after it had approved the product. Although these
restrictions were relaxed in 1996, we believe those restrictions limited the
market acceptance of Fentanyl Oralet. As a part of Actiq's comprehensive risk
management plan, all educational and promotional materials must be submitted to,
and reviewed by, the FDA. Future restrictions on the marketing or sales of our
products could limit sales. See "Business -- Government Regulation."
OUR PRODUCTS CONTAIN CONTROLLED SUBSTANCES
The active ingredient in Actiq and Fentanyl Oralet is fentanyl citrate
(fentanyl), which is a controlled substance regulated by the U.S. Drug
Enforcement Administration (DEA). Fentanyl is listed by the DEA as a Schedule II
substance, which means that its manufacture, shipment, sale and use is subject
to the highest degree of regulation and accountability. The amount of fentanyl
that Abbott can obtain is limited by the DEA and Abbott's quota may not be
sufficient to meet potential demand. Future products may also contain substances
regulated by the DEA.
Products containing controlled substances may generate public controversy.
Opponents of these products may seek restrictions on marketing and withdrawal of
regulatory approval. In addition, these opponents can generate negative
publicity in an effort to bring about rejection of a product by the medical
community. For example, a public interest group attempted to block FDA approval
of Fentanyl Oralet. Following FDA approval of Fentanyl Oralet in 1993, the group
unsuccessfully urged the FDA to withdraw its approval. Political pressures and
adverse publicity could lead to delays and increased expenses and limit or
restrict the introduction and marketing of our products. If the FDA withdrew the
approval of, or placed additional significant restrictions on, the marketing of
Actiq, our business could be materially and adversely affected.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE
The testing, marketing and sale of our products involves significant risks. We
may be held liable for adverse reactions resulting from the use of our products.
Our products involve a new method of delivery for potent drugs that requires
greater precautions to prevent unintended use. For example, we have worked with
Abbott to develop a specific risk management program for Actiq that is designed
to prevent accidental ingestion by children, improper patient selection,
diversion and abuse. The failure of these measures could result in harmful side
effects or death. As a result, consumers, regulatory agencies, pharmaceutical
companies or others might make claims against us. We currently have clinical
trial and product liability insurance with aggregate coverage of $5 million. We
will seek to maintain and appropriately increase such insurance coverage as
development and commercialization of our products progresses. Insurance may not
be available at a reasonable cost or in sufficient amounts to protect us from
liability claims. The obligation to pay any product liability claim in excess of
our insurance coverage or the recall of any of our products could adversely
affect our financial condition.
WE FACE INTENSE COMPETITION AND TECHNOLOGICAL CHANGE
We face intense competition and technological change. Existing and future
products, therapies, technological approaches and delivery systems will compete
directly with our products. Competing products may provide greater therapeutic
benefits for a specific indication, or may offer comparable performance at a
lower cost. Actiq faces competition from
6
<PAGE> 11
inexpensive oral morphine tablets and quick-acting intravenous opioid delivery
systems. Other companies are developing other technologies for rapidly
delivering opioids to treat breakthrough pain are being developed, at least one
of which is in clinical trials.
We compete with fully integrated pharmaceutical companies, smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug delivery products already
approved or in development and operate large, well-funded research and
development programs in these fields. Our competitors may develop safer or more
effective drugs and achieve faster or broader regulatory approval, wider
availability of supply, more effective marketing and sales or superior
proprietary positions. Any products that we develop may become obsolete before
we recover any expenses incurred in connection with development of these
products.
INTERNATIONAL COMMERCIALIZATION OF ACTIQ FACES SIGNIFICANT OBSTACLES
We plan to commercialize Actiq internationally through collaborative
relationships with foreign partners. We have limited foreign regulatory,
clinical and commercial resources. We have entered into relationships with Grupo
Ferrer for Spain and Portugal and with Lafon for France. These and other
potential future partners are critical to our international success. We may not
be able to enter into collaboration agreements with appropriate partners for
important foreign markets on acceptable terms, or at all. Existing or future
collaborations with foreign partners may not be effective or profitable for us.
We will need to obtain approvals from the appropriate regulatory, pricing and
reimbursement authorities to market Actiq internationally. We are conducting
clinical trials in the United Kingdom and will first seek approval for Actiq in
the United Kingdom and subsequently in other European Union countries. We may
not obtain foreign regulatory approval for Actiq. Pursuing foreign regulatory
approvals will be time-consuming and expensive. The regulations can vary among
countries and foreign regulatory authorities may require different or additional
clinical trials than we conducted to obtain FDA approval for Actiq. In addition,
adverse clinical trial results, such as death or injury due to side effects,
could jeopardize not only foreign regulatory approval, but may also lead to
marketing restrictions or product withdrawal in the United States. Actiq may
also face foreign regulatory requirements applicable to controlled substances.
Foreign collaborative partners may not be effective in their efforts to sell
Actiq even if regulatory approvals are obtained. The factors affecting product
pricing strategy and availability of reimbursement vary from country to country,
and we and our partners may not develop a viable strategy to address these
issues. Prevailing practices regarding treatment of cancer pain also differ from
country to country, and factors unique to a particular market may prevent or
limit market acceptance of Actiq. If we do not establish and maintain effective
relationships with foreign collaborative partners, and successfully address the
other challenges of foreign markets, our financial condition could be adversely
affected. It may be difficult and expensive to terminate a relationship with a
foreign collaborative partner, even if termination is permitted by the
collaboration agreement. Doing business abroad involves other risks, including
risk of losses or reduced market opportunities due to tariffs, trade barriers,
changes in currency exchange rates, export or import controls, restrictions on
convertibility of foreign currencies or transfer of funds, and political and
economic risks. Furthermore, international intellectual property rights may not
be as comprehensive or provide the same level of protection as the U.S. laws.
7
<PAGE> 12
OUR ABILITY TO DEVELOP ADDITIONAL PRODUCTS IS UNCERTAIN
Our future success depends, in part, on our ability to develop additional
commercial products. While we have conducted clinical trials for OT-nicotine and
OT-etomidate, we have not yet determined that these or other product candidates
have medical benefits that justify the significant additional costs that would
be necessary to commercialize them. Even if we determine that a product
candidate has medical benefits, the cost of commercializing that product
candidate may be too high to justify development. If health insurance companies
and other third party payors decide not to reimburse patients for purchasing our
products, sales could be severely limited. In addition, competitors may develop
products that are more effective, cost less or are ready for commercial
introduction before our products. If we are unable to develop additional,
commercially viable products, our future prospects will be limited.
CLINICAL TRIALS ARE EXPENSIVE AND UNCERTAIN
Extensive and costly clinical trials must be conducted to demonstrate a
product's safety and efficacy before it can be approved by the FDA or other
regulatory authorities. A product candidate that appears to be safe and
effective in early testing may not ultimately prove to be safe and effective
when tested in a larger number of patients. We may also encounter problems in a
clinical trial that significantly delay or cause us to terminate the clinical
trial program. Any adverse clinical event could cause delays or prevent us from
commercializing additional products.
LIMITED MANUFACTURING EXPERIENCE
We have developed an alternative manufacturing method which we believe could
lower costs and increase applicability to a variety of compounds. We have
manufactured OTS products for clinical trials using this method. We intend to
apply this new manufacturing method to produce products for foreign markets.
However, we have never manufactured commercial quantities of our products using
this or any other method. We have limited experience with regulatory approval of
manufacturing processes. This new method may prove to be too expensive, complex
or unsuited for some applications and may not be approvable by the FDA or other
regulatory authorities. We may not be able to develop a manufacturing process
that produces adequate amounts of our products at an acceptable cost. The FDA
and other regulatory authorities require that our products be manufactured
according to rigorous standards, which may significantly increase our costs and
may even prevent us from making our products in amounts sufficient to meet
market demand. If we change our approved manufacturing process, the FDA will
require a new approval before the process could be used. Failure to develop our
manufacturing capabilities may mean that even if we develop promising new
products, we may not be able to produce them profitably.
WE WILL NEED TO FIND CORPORATE PARTNERS FOR OUR NEW PRODUCTS
To commercialize any of our current product candidates, we will need to
establish relationships with corporate partners. We do not have the sales,
marketing, manufacturing or distribution capabilities that would allow us to
sell our products alone. As a result, we will need to develop relationships with
companies that have these capabilities to commercialize any new products. We may
not be able to find partners who will agree to sell and distribute our products
on favorable terms, or at all. Even if we form corporate partnerships, those
relationships may not be advantageous to us for a variety of reasons, including
inadequate
8
<PAGE> 13
attention or resource commitments by the partner, management turnover, changing
market conditions and competitive developments. If we are unable to form
successful corporate partnerships for a product, we may be unable to
commercialize that product profitably.
OUR SUCCESS DEPENDS ON PROTECTING OUR INTELLECTUAL PROPERTY
Our success will depend, in part, on our ability to obtain and protect patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others in the United States and other countries. Our products are based on
ten U.S. and 96 foreign patents for the OTS, which are held by the University of
Utah and its assignee, University of Utah Research Foundation (collectively
UURF). We have exclusive, world-wide licenses to these patents which cover the
design and types of pharmaceutical compounds in our products. Our success
depends on the continued validity of these patents. If either we or the UURF
fail to file, prosecute or maintain any of the patents, our business could be
severely damaged. We intend to file additional patent applications relating to
our technology, products and processes. We will also direct the UURF to file any
additional patent applications relating to the technology we have licensed.
However, any of these patents or patent applications may be challenged,
invalidated or circumvented by our competitors. These patents may also fail to
provide meaningful competitive advantages to us. For example, another company
may develop a way to deliver potent opioids in a more cost-effective manner than
our products without infringing on our patents.
Intellectual property rights are uncertain and involve complex legal and factual
questions. We may be unknowingly infringing on the proprietary rights of others
and may be liable for that infringement, which could result in significant
liability for us. For example, we are not aware of any third party intellectual
property rights which would prevent our use of our new manufacturing method,
although rights of this type may exist. We could be forced to either seek a
license to intellectual property rights of others or alter our products or
processes so that they no longer infringe the proprietary rights of others. A
license could be very expensive to obtain, or may not be available at all.
Similarly, changing our products or processes to avoid infringing the rights of
others may be costly or impractical.
We are responsible for any patent litigation costs. If we were to become
involved in a dispute regarding intellectual property, whether ours or that of
another company, we may have to participate in interference proceedings declared
by the U.S. Patent and Trademark Office to determine who had the claimed rights
first. We may also be forced to seek a judicial determination concerning the
rights in question. These types of proceedings may be costly and time consuming
for us, even if we eventually prevail. If we do not prevail, we might be forced
to pay significant damages, obtain a license or stop making a certain product.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with collaborative partners, employees and consultants
to protect our intellectual property. Other parties may not comply with the
terms of their agreements with us and we may not be able to adequately enforce
our rights against these people.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND HEALTHCARE REFORM
MEASURES
The availability of reimbursement by governmental and other third party payors
affects the market for any pharmaceutical product. These third party payors
continually attempt to contain or reduce the costs of healthcare. Currently,
Actiq has not been approved for reimbursement by any third party payors. In the
United States and in certain foreign
9
<PAGE> 14
jurisdictions there have been a number of legislative and regulatory proposals
to change the healthcare system, and further proposals are likely. The potential
for adoption of these proposals affects our ability to raise capital, obtain
additional collaborative partners and market our products. We could experience
pricing pressure on our current and future products due to the trend toward
managed health care, the increasing influence of health maintenance
organizations, and additional legislative proposals. We may not be able to sell
our products profitably if reimbursement is unavailable or limited in scope.
WE HAVE NOT BEEN PROFITABLE AND MAY REQUIRE ADDITIONAL FINANCING
We have not been profitable since our inception in August 1985. As of September
30, 1998 we had an accumulated deficit of approximately $43.2 million. We expect
to continue to incur losses through at least 1999. We may never realize
significant revenues or be profitable. Factors that will influence our
profitability include the success of Actiq, the development and
commercialization of additional products, timing and difficulty of obtaining
regulatory approvals and competition.
Most of our funding has come from research and development fees and the sale of
stock. We may have to raise additional funds through collaborative relationships
or public and private financings. Additional financing may not be available on
favorable terms, or at all. If we raise additional funds by selling equity
securities, the share ownership of our existing investors could be diluted or
the new equity purchasers may obtain terms that are better than those of our
existing investors. Lack of financing may delay, reduce or eliminate some of our
programs or force us to relinquish rights to technology, product candidates or
products.
WE NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS AND MANAGE GROWTH
Attracting and retaining qualified employees, consultants and advisors is
critical to our success. We will need to hire additional qualified personnel
with expertise in research and development, clinical testing, government
regulation, manufacturing and marketing. We compete for qualified individuals
with numerous pharmaceutical, health products and biotechnology companies,
universities and other research institutions. We may not be able to attract and
retain these types of individuals.
With the approval of Actiq and continued development of product candidates, our
operations may expand in the future. Any significant growth will place demands
on our management and operational resources. These demands may include hiring
additional people, capital improvements and changing relationships with
corporate partners. In order to manage growth effectively, we must implement and
improve our operational systems, procedures and controls. Failure to properly
manage our growth could result in loss of market opportunities and materially
damage our financial condition.
Universities and medical institutions conduct clinical development under
agreements with us. We depend on principal investigators to conduct our clinical
development activities. These collaborators are not our employees and we do not
control their activities. Our collaborators may also have relationships with
other commercial entities, some of whom may compete with us.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS
Our Certificate of Incorporation and Bylaws contain provisions which may
discourage takeover attempts, including transactions in which stockholders might
receive a premium for
10
<PAGE> 15
their shares. This may limit stockholders' ability to approve a transaction that
stockholders may think is in their best interest. Our Certificate of
Incorporation and Bylaws require that any action required or permitted to be
taken by our stockholders must be taken at a properly called meeting of
stockholders. Special stockholder meetings may be called only by the Board of
Directors, the Chairman of the Board or the President. In addition, the Board of
Directors has the authority, without stockholder action, to fix the rights and
preferences of and issue shares of Preferred Stock, which may have the effect of
delaying or preventing a change in control.
HIGHLY VOLATILE STOCK PRICE
The market price of our Common Stock has been highly volatile and is likely to
continue to be volatile. Factors affecting our stock price include: fluctuations
in our operating results, announcements of technological innovations or new
commercial therapeutic products by us or our competitors, published reports by
securities analysts, progress with clinical trials, governmental regulation,
changes in reimbursement policies, developments in patent or other proprietary
rights, developments in our relationship with collaborative partners, public
concern as to the safety and efficacy of our products and general market
conditions.
OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS
Our research and manufacturing activities involve the controlled use of
hazardous materials. Although we believe that our safety procedures for these
materials comply with governmental standards, we cannot eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident or environmental discharge, we could be held liable for any resulting
damages, which could exceed our financial resources.
ABSENCE OF DIVIDENDS
We intend to retain any future earnings to finance the growth and development of
our business and we do not plan to pay cash dividends in the foreseeable future.
11
<PAGE> 16
CERTAIN INFORMATION
We were incorporated in Utah in August 1985 and changed our state of
incorporation to Delaware in September 1993. Our executive offices are located
at 4745 Wiley Post Way, Plaza 6, Suite 650, Salt Lake City, Utah 84116, and our
telephone number is (801) 595-1405. Our web site is located at www.anesta.com.
Information contained on our website is not part of this Prospectus.
USE OF PROCEEDS
Our proceeds from the sale of the 1,800,000 shares of Common Stock we are
offering are estimated to be $35.8 million ($41.8 million if the Underwriters'
over-allotment option is exercised in full) assuming a public offering price of
$21.375 per share and after deducting the estimated underwriting discount and
our estimated offering expenses. We will not receive any proceeds from the sale
of the 200,000 shares of Common Stock by the Selling Stockholders. See
"Principal and Selling Stockholders."
We intend to use approximately $20 million of the proceeds of the offering for
research and development including clinical and preclinical testing of our
products and hiring additional scientific, clinical and management personnel,
and approximately $10 million to improve and equip our research, development and
manufacturing facilities and for Actiq commercial activities in the United
States and market preparation in Europe. The remaining proceeds will be used for
working capital and general corporate purposes. The amounts actually spent for
each purpose may vary significantly, depending on the progress of our
development programs, the results of clinical studies, the timing of regulatory
approvals, technological advances, determinations of the commercial potential of
our products, status of competitive products, the rate at which operating losses
are incurred, the receipt of funding from collaborative partners and other
factors, many of which are beyond our control. We may also use some of the
proceeds to acquire other companies, technology or products that complement our
business, although we are not currently planning any of these transactions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
12
<PAGE> 17
PRICE RANGE OF COMMON STOCK
Our Common Stock began trading publicly through the Nasdaq National Market on
January 28, 1994 under the symbol "NSTA." The following table lists quarterly
information on the price range of the Common Stock based on the high and low
reported closing bid prices for our Common Stock as reported on the Nasdaq
National Market for the periods indicated below. These prices do not include
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1998:
Fourth Quarter (through November 18, 1998)................ $22.75 $13.88
Third Quarter............................................. 18.63 11.63
Second Quarter............................................ 20.38 13.75
First Quarter............................................. 21.75 15.63
Fiscal 1997:
Fourth Quarter............................................ 27.75 12.50
Third Quarter............................................. 29.00 15.13
Second Quarter............................................ 19.88 10.75
First Quarter............................................. 22.00 14.75
Fiscal 1996:
Fourth Quarter............................................ 20.63 12.25
Third Quarter............................................. 14.75 8.75
Second Quarter............................................ 21.50 10.75
First Quarter............................................. 16.75 9.25
</TABLE>
As of November 18, 1998, there were approximately 171 holders of record of the
Common Stock although there are a larger number of beneficial holders. On
November 18, 1998, the last reported sale price on the Nasdaq National Market
for the Common Stock was $21.375.
13
<PAGE> 18
CAPITALIZATION
The following table reflects our actual capitalization at September 30, 1998,
and as adjusted to reflect the proceeds from the sale of 1,800,000 shares of
Common Stock assuming a public offering price of $21.375 per share and after
deducting the underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of notes payable........................ $ 250 $ 250
-------- --------
Notes payable, non-current portion...................... 1,500 1,500
-------- --------
Stockholders' equity(1):
Preferred stock, $.001 par value; 1,000,000 shares,
authorized; no shares issued or outstanding, actual or
as adjusted........................................... -- --
Common stock, $.001 par value; 15,000,000 shares
authorized; 9,648,687 shares issued, actual;
11,448,687 shares issued, as adjusted................. 10 11
Additional paid-in capital.............................. 62,638 98,428
Deficit accumulated during the development stage........ (43,174) (43,174)
Accumulated other comprehensive income.................. 64 64
-------- --------
Total stockholders' equity............................ 19,538 55,329
-------- --------
Total capitalization.................................. $ 21,288 $ 57,079
======== ========
</TABLE>
- ------------
(1) Excludes 1,640,610 shares of Common Stock issuable upon exercise of stock
options at a weighted average exercise price of $11.77 per share outstanding
as of September 30, 1998.
14
<PAGE> 19
DILUTION
Our net tangible book value as of September 30, 1998 was approximately $19.5
million, or approximately $2.025 per share of Common Stock. Net tangible book
value per share represents the amount of our stockholders' equity, divided by
9,648,687 shares of Common Stock outstanding.
Net tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of the 1,800,000 shares of Common Stock in
this offering and the pro forma net tangible book value per share of Common
Stock immediately after this offering. After giving effect to our sale of
1,800,000 shares of Common Stock in this offering, assuming a public offering
price of $21.375 and after deduction of the underwriting discount and estimated
offering expenses, our pro forma net tangible book value as of September 30,
1998 would have been approximately $55.3 million, or $4.833 per share. This
represents an immediate increase in pro forma net tangible book value of $2.808
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $16.542 per share to purchasers of Common Stock in this
offering.
<TABLE>
<S> <C> <C>
Assumed public offering price per share................ $ 21.375
Net tangible book value per share before offering.... $ 2.025
---------
Increase per share attributable to new investors..... 2.808
Pro forma net tangible book value per share after
offering............................................. 4.833
----------
Net tangible book value dilution per share to new
investors............................................ $ 16.542
==========
</TABLE>
We have reserved 1,640,610 shares of Common Stock for issuance upon exercise of
options outstanding as of September 30, 1998, at a weighted average exercise
price of $11.77. If these options are exercised, there will be further dilution
to new investors.
DIVIDEND POLICY
We intend to retain any future earnings to finance the growth and development of
our business and we do not plan to pay any cash dividends in the foreseeable
future.
15
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1997 and balance sheets at December 31, 1997 and 1996, have been
derived from the financial statements of the Company included elsewhere in this
Prospectus, which have been audited by PricewaterhouseCoopers LLP, independent
accountants, as indicated in their report included elsewhere in this Prospectus.
The statement of operations data for the years ended December 31, 1994 and 1993
and the balance sheet data as of such dates, have been derived from the
financial statements audited by PricewaterhouseCoopers LLP but not included in
this Prospectus. The financial data for the nine months ended September 30, 1997
and 1998 and for the period from inception (August 1, 1985) to September 30,
1998, have been derived from unaudited financial statements included elsewhere
in this Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for these periods. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1998. The data set forth below
should be read in conjunction with the financial statements, including notes
thereto, included elsewhere in this Prospectus and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NINE MONTHS INCEPTION
ENDED (AUGUST 1,
YEAR ENDED DECEMBER 31, SEPTEMBER 30 1985)
-------------------------------------------------- ------------------- TO SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
-------- -------- ------- ------- -------- -------- -------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales..................... $ -- $ 37 $ 61 $ 92 $ 184 $ 110 $ 152 $ 526
Royalty revenue................... -- 1 102 3 5 3 4 115
Contract research/License
agreements...................... 1,584 812 1,514 1,503 -- -- 175 10,154
-------- -------- ------- ------- -------- -------- -------- --------
Total revenues.................. 1,584 850 1,677 1,598 189 113 331 10,795
-------- -------- ------- ------- -------- -------- -------- --------
Operating costs and expenses:
Cost of goods sold and
royalties....................... -- 24 22 30 55 35 47 178
Research and development.......... 1,793 3,210 5,228 8,304 7,889 5,353 5,769 36,503
Depreciation and amortization..... 85 103 158 237 269 178 224 1,321
Marketing, general and
administrative.................. 553 1,328 2,219 3,537 6,368 4,723 5,367 21,093
-------- -------- ------- ------- -------- -------- -------- --------
Loss from operations................ (847) (3,815) (5,950) (10,510) (14,392) (10,176) (11,076) (48,300)
Non operating income, net........... 8 866 1,250 1,820 1,845 1,449 869 6,666
Provision for income taxes.......... -- -- -- -- (2) (2) (5) (30)
-------- -------- ------- ------- -------- -------- -------- --------
Loss before extraordinary item and
cumulative effect of change in
accounting........................ (839) (2,949) (4,700) (8,690) (12,549) (8,729) (10,212) (41,664)
Extraordinary item.................. -- -- -- -- -- -- -- 22
Cumulative effect of change in
accounting........................ -- -- (1,041) -- -- -- -- (1,041)
-------- -------- ------- ------- -------- -------- -------- --------
Net loss............................ $ (839) $ (2,949) $(5,741) $(8,690) $(12,549) $ (8,729) $(10,212) $(42,683)
======== ======== ======= ======= ======== ======== ======== ========
Basic and diluted loss per common
share:
Loss before cumulative effect of
change in accounting............ $ (0.62) $ (0.51) $ (0.65) $ (1.02) $ (1.32) $ (0.92) $ (1.06)
Cumulative effect of change in
accounting...................... -- -- (0.15) -- -- -- --
-------- -------- ------- ------- -------- -------- --------
Net loss per common share........... $ (0.62) $ (0.51) $ (0.80) $ (1.02) $ (1.32) $ (0.92) $ (1.06)
======== ======== ======= ======= ======== ======== ========
Weighted average shares
outstanding....................... 1,345 6,721 7,177 8,499 9,500 9,486 9,595
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
--------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(1)
------- ------- ------- ------- ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, marketable debt
securities
and certificate of deposit................. $ 41 $26,392 $21,844 $41,359 $29,676 $20,049 $ 55,840
Total assets................................. 1,686 28,260 24,242 43,959 32,712 22,980 58,771
Long-term obligations, including current
portion.................................... 83 52 1,516 1,350 2,000 1,750 1,750
Deficit accumulated during development
stage...................................... (2,540) (5,981) (11,723) (20,413) (32,962) (43,174) (43,174)
Stockholders' equity......................... 508 27,052 21,677 41,115 29,198 19,538 55,329
</TABLE>
- ------------
(1) Adjusted to reflect the sale of 1,800,000 shares of Common Stock by the
Company at an assumed public offering price of $21.375 per share and, after
deducting the underwriting discount and estimated offering expenses, and the
application of the proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Anesta has two products that have been approved by the FDA, Actiq and Fentanyl
Oralet, and a number of other product candidates in various stages of
preclinical and clinical development. All of these products and product
candidates use Anesta's proprietary oral transmucosal system for drug delivery.
Actiq is indicated only for the management of breakthrough cancer pain in
patients with malignancies who are already receiving and who are tolerant to
opioid therapy for their underlying persistent cancer pain. Actiq was approved
by the FDA in November 1998 and its commercial launch is expected in March 1999.
Anesta's first product, Fentanyl Oralet, was developed for premedication before
surgery or painful procedures in monitored anesthesia settings and was approved
by the FDA in October 1993. Commercial sales of Fentanyl Oralet have not been
and are not expected to be significant.
Abbott is Anesta's exclusive partner for the commercialization of Actiq and
Fentanyl Oralet in the United States. Abbott manufactures Actiq and Fentanyl
Oralet and sells these products to Anesta at a price that reflects Abbott's cost
of manufacturing. Anesta in turn resells these products to Abbott at a price
related to Abbott's selling price to wholesalers and pharmacies. Anesta's gross
margin therefore is directly affected by Abbott's manufacturing costs and
selling price. Abbott also is obligated to pay Anesta a small royalty on its
sales of Actiq and Fentanyl Oralet, which essentially offsets Anesta's royalty
obligation to the UURF. Anesta recognizes revenue when Abbott ships product
against a customer order.
In 1995, Anesta reacquired from Abbott commercial rights to all OT-fentanyl
products, including Actiq and Fentanyl Oralet, outside the United States. Anesta
intends to commercialize Actiq internationally through collaborations with
corporate partners. Anesta has entered into collaborations with Grupo Ferrer for
distribution in Spain and Portugal, and with Lafon for distribution in France.
Anesta intends to seek additional partners for other major foreign markets.
Anesta is pursuing registration of Actiq in the United Kingdom, the largest
cancer pain market in Europe, and if that registration is obtained, Anesta
intends to seek approvals in other European Union countries under the European
Union's mutual recognition process.
Anesta has devoted most of its resources since its inception in 1985 to research
and development of Fentanyl Oralet, Actiq and product candidates, as well as
commercialization of Fentanyl Oralet and preparations for the commercialization
of Actiq. Anesta, a development stage company, had an accumulated deficit as of
September 30, 1998, of approximately $43.2 million.
17
<PAGE> 22
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues increased by $218,700 to $331,400 for the nine months
ended September 30, 1998 compared with the nine months ended September 30, 1997,
primarily as a result of upfront fees paid by Grupo Ferrer and Lafon upon
execution of their collaboration agreements.
Operating Expenses. Research and development expenses increased by $415,200 or
8% for the nine months ended September 30, 1998 as compared to the corresponding
period in 1997. The increase is due to higher expenditures in 1998 related to
clinical research programs and for the preparation, filing and support of the
amendment for the Actiq NDA. The Company expects that its research and
development expenses will increase in the future as a result of increased
expenses related to the hiring of additional personnel, preclinical studies,
clinical trials, product development and manufacturing process development
activities.
Depreciation and amortization expense increased by $46,300 or 26% for the nine
months ended September 30, 1998 as compared to the corresponding period in 1997.
The increase in 1998 is due to the Company's remodeling of additional facilities
near the end of 1997.
Marketing, general and administrative expenses increased by $644,000 or 14% for
the nine months ended September 30, 1998 as compared to the corresponding period
in 1997. The increase in marketing, general and administrative expenses is due
primarily to higher expenditures for personnel, corporate development
activities, European operations, marketing research, and Actiq pre-launch
marketing activities. The Company expects that its marketing and general and
administrative expenses will increase in the future as a result of the increased
support required for marketing research, Actiq pre-launch market development and
market launch activities, European operations including international clinical
research studies and corporate development activities.
Non Operating Income (Expense). Interest income decreased by $562,500 or 37% for
the nine months ended September 30, 1998 as compared to the corresponding period
in 1997. The decrease is primarily due to a reduction in the amount of invested
funds.
Interest expense increased by $11,200 or 12% for the nine months ended September
30, 1998 as compared to the corresponding period in 1997. The increase is
primarily due to borrowings under the term note and related payments thereon.
Income Taxes. The provision for income taxes in 1998 and 1997 relates solely to
state income taxes. The Company recognized no tax benefit from its losses in
those years.
Net Loss. As a result of the increase in total revenues, the increase in
research and development activities, the increase in marketing, general and
administrative expenses and other factors discussed above, the net loss for the
nine months ended September 30, 1998 was $10,212,100 or $1.06 per share as
compared to $8,729,000 or $0.92 per share for the same period in 1997.
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Revenues. Total revenues decreased by $1,408,900 or 88% during 1997 as compared
to 1996 and by $78,400 or 5% between 1996 and 1995. The decrease in 1997 is
primarily a result of the completion of funding by Abbott in 1996 under a
collaborative funding agreement.
18
<PAGE> 23
Substantially all revenues in 1996 and 1995 were from development funding under
the collaborative agreement with Abbott relating to the Actiq Cancer Pain
Program.
Operating Expenses. Research and development expenses decreased by $414,700 or
5% during 1997 as compared to 1996 and increased by $3,075,400 or 59% between
1996 and 1995. The decrease in 1997 and the increase in 1996 are due to higher
expenditures in 1996 related to clinical research programs and preparation for
filing the Actiq NDA (See Note 10 to Financial Statements). The Company expects
that its research and development expenses will increase in the future as a
result of increased expenses related to the hiring of additional personnel,
preclinical studies, clinical trials, product development, manufacturing process
development activities and clinical trial material manufacturing.
Depreciation expense increased by $32,000 or 13% during 1997 as compared to 1996
and by $80,000 or 51% between 1996 and 1995. The increase in 1997 is due to the
Company's remodeling of additional facilities and the increase in 1996 is
primarily due to a decrease in the estimated useful life of specific leasehold
improvements.
Marketing, general and administrative expenses increased by $2,831,200 or 80%
during 1997 as compared to 1996 and by $1,317,600 or 59% between 1996 and 1995.
The increase in 1997 and 1996 is due primarily to higher expenditures for
personnel, corporate development activities, marketing research, Actiq
premarketing activities, and equipment leasing. The Company expects that its
marketing and general and administrative expenses will increase in the future as
a result of the increased support required for marketing research, Actiq pre-
launch market development and market launch activities, and corporate
development activities.
Non Operating Income (Expense). Interest income increased by $34,700 during 1997
as compared to 1996 and by $592,500 between 1996 and 1995. The increase in 1997
and 1996 is primarily due to income earned on the invested net proceeds from the
Company's secondary offering in June 1996.
Interest expense increased by $27,900 during 1997 as compared to 1996 and by
$11,600 between 1996 and 1995. The increase in both years is primarily due to
interest expense related to borrowings on the Company's revolving/term loan.
Income Taxes. The provision for income taxes for the years ended December 31,
1997, 1996 and 1995 relates solely to state income taxes. The Company recognized
no tax benefit from its losses in those years. The Company's ability to realize
the benefit of the deferred tax asset related to its net operating loss and
research and development tax credit carryforwards will depend on the generation
of future taxable income. Because the Company's operations are not currently
generating taxable income, the Company believes a full valuation allowance
should be provided (See Note 9 to Financial Statements).
Accounting Change. Effective January 1, 1995, the Company changed its method of
accounting for external legal costs related to patents. Prior to the change, the
Company capitalized these costs and amortized them over the term of the related
patent. Under the new method, these costs are expensed as incurred.
Net Loss. As a result of the decrease in total revenues, the increase in
marketing, general and administrative activities and other factors discussed
above, the net loss for 1997 was $12,549,000 or $1.32 per share as compared to
$8,689,800 or $1.02 per share for 1996 and $5,741,800 or $0.80 per share for
1995. The net loss for 1995 includes the cumulative effect of a change in
accounting for patent costs of $1,041,000 or $0.15 per share.
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<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash equivalents totaling
$4,722,300, $1,785,000 in a certificate of deposit used as collateral for a
revolving/term loan and $13,541,400 in marketable debt securities which are
available for sale. Thus cash, cash equivalents, certificate of deposit and
marketable debt securities totaled $20,048,743 as of September 30, 1998. Cash in
excess of immediate requirements is invested according to the Company's
investment policy, which provides guidelines with regard to liquidity and
return, and, wherever possible, seeks to minimize the potential effects of
concentration of credit risk.
The Company used cash in operating activities of $9,837,000 for the nine months
ended September 30, 1998 compared to $9,196,600 for the corresponding period in
1997. The increase in cash used in the period is a direct result of the increase
in net loss, offset by lower working capital requirements in 1998.
The Company's use of cash in operating activities increased by $3,695,500 during
1997 as compared to 1996 and by $3,584,500 between 1996 and 1995. The increase
in cash used is a direct result of the decrease in total revenues, the increase
in marketing, general and administrative activities and other factors discussed
above.
During the nine months ended September 30, 1998, the Company made capital
expenditures of approximately $93,100 as compared to capital expenditures of
$98,900 during the corresponding period in 1997. During the nine months ended
September 30, 1998, the Company received net proceeds from the maturity of
marketable debt securities of $4,371,000. This compares to net purchases in
marketable debt securities of $1,211,700 during the corresponding period in
1997. During the nine months ended September 30, 1997 the Company purchased a
certificate of deposit in the amount of $816,000, of which, $255,000 matured in
1998 and $153,000 in 1997.
During 1997, the Company made capital expenditures of approximately $894,800 as
compared to $53,300 and $1,591,900 in 1996 and 1995 respectively. The increase
in capital expenditures in 1997 and 1995 was due to the Company's remodeling of
facilities. In order to finance the capital expenditures, the Company, in
January 1995, secured a revolving/term loan in the amount of $1,500,000. This
loan converted to a 10 year term loan on May 15, 1995. In March 1997, the
Company borrowed an additional $800,000 for a total term loan of $2,300,000.
During 1997 and 1996, the Company made principal payments of $150,000 each year.
The loan is collateralized by a $2,040,000 certificate of deposit.
During the nine months ended September 30, 1998, the Company realized cash
proceeds of $496,200 relating to the exercise of stock options. During the nine
months ended September 30, 1997 the Company realized cash proceeds of $455,800
relating to the exercise of stock options and $800,000 from issuance of notes
payable. During the nine months ended September 30, 1998 and 1997, the Company
made principal payments on notes payable of $250,000 and $150,000 respectively.
During 1997 the Company made no principal payments on capital lease obligations
as compared to $16,400 and $35,500 in 1996 and 1995, respectively. During 1997
the Company realized cash proceeds of $615,000 relating to the exercise of stock
options as compared to $404,800 and $166,300 in 1996 and 1995 respectively.
The Company's future capital requirements could be substantial and will depend
on, and could increase as a result of, many factors, including progress of the
Company's research and development programs; the results and costs of
preclinical and clinical testing of the
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<PAGE> 25
Company's products, if developed; the time and costs involved in obtaining
regulatory approvals; the costs involved in filing patents; the time and costs
involved in developing and maintaining collaborative research relationships; the
costs associated with potential commercialization of its products; and
administrative and legal costs. The Company believes that the proceeds of this
offering, together with existing capital resources, will be sufficient to meet
the Company's capital needs through at least the end of 1999.
The Company believes that it is prudent to monitor existing cash balances in
order to fund the activities which the Company believes are necessary to
continue its growth. Therefore, the Company periodically evaluates market
conditions and various financing alternatives for obtaining funds to augment
existing cash balances.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are unable to distinguish between the
year 1900 and the year 2000. This is commonly known as the Year 2000 (Y2K)
issue. As a result, business entities are at risk for possible miscalculations
or systems failures causing disruptions in their business operations.
The Company utilizes management information systems and software technology that
may be affected by Y2K issues throughout its business. During fiscal 1998, the
Company began to implement plans to ensure those systems continue to meet
internal and external requirements. The Company currently uses vendor supplied
finance and accounting software, our only mission critical systems software, and
as of September 30, 1998 the Company had received written confirmation that all
finance and accounting software is Y2K compliant. The Company's information
systems group continues to review additional information technology systems and
non-information technology systems to determine the extent of any changes that
may be necessary and believes that there will be minimal changes needed for the
Company's Y2K compliance by June 30, 1999.
The Company has contacted key suppliers and customers regarding their Y2K
compliance to determine any impact on operations. In general, the suppliers and
customers have developed or are in the process of developing plans to address
Y2K issues. The Company will continue to monitor and evaluate the progress of
its suppliers and customers on this critical matter.
Based on the progress the Company has made in addressing its Y2K issues and the
Company's plan and timeline to complete its compliance program, the Company does
not foresee significant risks associated with its Y2K compliance at this time.
However, the Company will continue to discuss Y2K compliance issues with its key
suppliers and customers in an effort to minimize any potential Y2K compliance
impact as it is not possible to guarantee their compliance. As the Company's
plan is to address its significant Y2K issues prior to being affected by them,
it has not developed a comprehensive contingency plan. However, if the Company
identifies significant risks related to its Y2K compliance or its progress
deviates from the anticipated timeline, the Company will develop contingency
plans as deemed necessary at that time.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
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<PAGE> 26
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. The
description contains certain forward-looking statements that involve risks and
uncertainties. When used in this Prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements as a result of certain of the risk factors set forth
below and elsewhere in this Prospectus.
INTRODUCTION
Anesta is a leader in the development of new pharmaceutical products for oral
transmucosal drug administration. The Company's products are based on its
proprietary oral transmucosal system (OTS). Anesta's principal product is Actiq,
an OT-fentanyl product, which was approved by the FDA on November 4, 1998. Actiq
is the first product specifically designed, studied and approved for
breakthrough cancer pain. Actiq is indicated for the management of breakthrough
pain in cancer patients who are already receiving and who are tolerant to opioid
therapy for their underlying persistent cancer pain. Actiq is expected to be
available for physicians to prescribe beginning in March 1999. Abbott
Laboratories will manufacture, distribute and sell Actiq in the United States
under a license from Anesta.
Breakthrough cancer pain is a sporadic flare of severe cancer pain that "breaks
through" the patient's regular medication for persistent cancer pain.
Breakthrough cancer pain is a component of chronic cancer pain that is
particularly difficult to treat due to its severity, rapid onset and
unpredictability. The Company believes that more than 800,000 patients
experience breakthrough cancer pain representing approximately one-half of all
cancer pain patients in the United States.
Anesta's OTS consists of a drug matrix that is mounted on a handle or other
controlling device. The OTS is designed to achieve rapid absorption of certain
potent drugs through the oral mucosa, the lining of the mouth, and into the
bloodstream, producing rapid onset of the desired therapeutic effect. Anesta's
OTS allows the caregiver or patient to monitor the onset of action, remove the
unit and stop administration of the drug once the desired therapeutic effect has
been achieved or side-effects appear.
Anesta has entered into a collaboration with Abbott for all OT-fentanyl products
in the United States. Abbott manufactures Actiq and Fentanyl Oralet for the U.S.
market, and is Anesta's marketing partner for both products in the United
States. In 1998, Anesta entered into collaborations with Grupo Ferrer
Internacional S.A. (Grupo Ferrer) for Spain and Portugal and Laboratoire L.
Lafon (Lafon) for France. These agreements grant exclusive marketing, sales and
distribution rights to Actiq, Fentanyl Oralet and any future OT-fentanyl
product. Anesta plans to enter into additional collaborations for major foreign
markets.
Anesta is also developing other product candidates using its proprietary OTS
drug delivery platform. Anesta's first OT-fentanyl product, Fentanyl Oralet, was
approved by the FDA in October 1993. Fentanyl Oralet is approved for use in
children and adults as a premedication before surgery and for sedation/analgesia
prior to painful procedures in a monitored anesthesia setting. Currently, three
product candidates are in clinical development. The Company has completed
multiple Phase 2 clinical trials for OT-nicotine. OT-fentanyl for acute pain is
the subject of ongoing Phase 2/3 clinical trials. OT-etomidate for short-acting
sedation is in
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<PAGE> 27
Phase 2 clinical trials. Anesta is preparing INDs for two new product
candidates, a non-opioid drug to treat pain and a drug to treat nausea and
vomiting, and is conducting further preclinical research in treating migraine
headaches.
BACKGROUND ON DRUG DELIVERY METHODS
Drug delivery is the method of delivering an active pharmaceutical compound to
the body in a manner which is designed to optimize therapeutic effect and/or
minimize side effects. For many chronic indications, such as certain types of
heart disease, it is often advantageous to have sustained release of the active
compound over a long period of time. However, for many acute indications, the
opposite pharmacokinetic profile is desired: an easily-controlled rapid onset of
action and rapid clearance from the blood stream. By providing for more accurate
dosing, greater convenience, or lower cost, a variety of novel drug delivery
technologies have been widely accepted by physicians, patients, and payors.
Existing drug delivery systems include the following:
Tablets and capsules. Orally delivered tablets or capsules are convenient and
cost-effective, but they generally do not provide rapid onset of action. Also,
some drugs do not achieve adequate bioavailability if administered as a tablet
or capsule due to degradation of the drug by the stomach and liver.
Infusions and injections. Infusions and injections provide rapid onset of
action. Infusion techniques can titrate potent drugs with very rapid changes in
effect. However, infusions and injections are invasive and can be painful to
some patients. Infusions and injections generally must be administered by
trained medical professionals and are often inconvenient and expensive.
Transdermal patches. Transdermal delivery systems, which allow absorption of
drugs through the skin, are convenient and easy to use, and provide a relatively
steady rate of drug delivery. However, a transdermal patch may take four to ten
hours to achieve therapeutic blood levels. In addition, drug absorption into the
bloodstream may continue for hours after removal of the patch. This slower onset
of action and inability to quickly stop absorption limit the usefulness of
transdermal patches in some applications and present safety concerns in some
clinical situations. For example, patients in acute pain cannot wait several
hours for pain relief and may need to be hospitalized to obtain injections or
infusions of fast-acting medication.
Transnasal and inhalation. Nasal spray, dry powder and aerosolized inhalation
delivery systems are designed to provide rapid onset of action or to deliver
drugs that are not orally bioavailable. Nasal sprays can cause irritation and
can be difficult to administer in some patients. In addition, it can be
difficult for a patient to titrate or control the dose of the product using
nasal or inhalation delivery systems.
ANESTA'S PROPRIETARY OTS FOR DRUG DELIVERY
Anesta's proprietary OTS is designed to address the medical need for a
convenient, non-invasive, cost-effective drug delivery system that provides
rapid onset of therapeutic action. The OTS allows the caregiver or patient to
control drug administration until the desired effect is achieved and quickly
stop administration if side effects appear. The OTS consists of a dissolvable,
non-dissolvable, or device-based drug matrix, which is mounted on a handle or
other controlling device. The drug is released from the matrix in the mouth,
allowing rapid absorption through the oral mucosal tissues and into the
bloodstream. There is also slower
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<PAGE> 28
absorption through the gastrointestinal tract. Oral transmucosal drug delivery
achieves rapid absorption of many drugs because the oral mucosa are
significantly more permeable than the skin, have a large surface area and are
highly vascularized. However, not all drugs are appropriate for oral mucosa
delivery with the Company's technology.
For certain drugs or applications, Anesta believes that its OTS can provide one
or more of the following therapeutic advantages over other available methods of
drug administration:
Rapid Onset of Action. The efficacy of many systemic drugs is related to their
blood concentration. The more rapidly an effective blood concentration is
reached, the sooner the drug provides therapeutic effect. The Anesta OTS enables
drugs to cross the oral mucosa and be absorbed rapidly into the bloodstream,
thus achieving a therapeutic blood concentration more rapidly than tablets,
capsules or transdermal patches.
Dose-to-Effect Control. The stomach and the liver may significantly degrade
drugs delivered by tablets or capsules. Thus, tablets and capsules often contain
higher doses of a drug than are necessary to achieve a therapeutic effect,
potentially leading to over-medication and side effects. Continuous infusion
therapy can alleviate these dosing problems, but may lead to increased cost,
patient inconvenience and patient noncompliance with prescribed dosing regimens.
Anesta's OTS allows the caregiver or patient to monitor the onset of action and
remove the unit to stop administration of the drug once the desired therapeutic
effect has been achieved or side effects appear. This can avoid doses that are
higher than necessary to achieve safe and effective therapy, an important and
beneficial element of control.
Rapid Termination of Drug Delivery. In certain applications, it is desirable to
stop drug administration once the desired effect has been obtained. For example,
if a patient receives a sedative in connection with a brief outpatient
procedure, substantially all of the sedative effect should be gone before the
patient can be discharged. The drug contained in a tablet or capsule may
dissolve and continue to be absorbed into the bloodstream over a period of
hours. Similarly, when a transdermal patch is removed, the drug that has already
accumulated within the skin will continue to be absorbed into the bloodstream
for a number of hours. Thus, drug absorption from tablets, capsules and
transdermal patches may continue longer than necessary or desired. By contrast,
once Anesta's OTS is removed, absorption of the drug through the oral mucosal
tissues into the bloodstream stops almost immediately.
Improved Safety. Removing the unit limits further absorption of the drug into
the body if a patient has an adverse reaction. Because the dosage unit can be
removed immediately, the amount of the drug delivered to the patient may be
lower than if a tablet, capsule, transdermal patch or injection had been
administered.
Cost-Effective. Traditionally, when rapid onset of action is critical, infusions
or injections have been required. Infusions and injections generally are given
by a skilled caregiver and may require that a catheter be inserted. In contrast,
the patient simply places the OTS dosage unit in his or her mouth. Thus, Anesta
believes that its OTS may offer a more cost-effective means of delivering
certain drugs that are now given by infusion or injection.
Greater Patient and Caregiver Convenience. The Company's OTS is easily
administered, comfortable, non-threatening and allows a caregiver or the patient
the ability to titrate drug administration.
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<PAGE> 29
ANESTA'S BUSINESS OBJECTIVES AND STRATEGY
Anesta intends to be the leader in the oral transmucuosal delivery of drugs.
Anesta's near-term objective is the successful launch of Actiq, initially in the
United States and then in Europe. Anesta's longer-term strategy is to develop
and commercialize a range of products based upon its proprietary OTS. Anesta is
pursuing these objectives with the following strategies:
Successfully Launch Actiq in the United States. Anesta is working with its
strategic partner Abbott to commercialize Actiq in the United States. Anesta
selected Abbott as its U.S. partner for its OT-fentanyl product line to
capitalize on Abbott's broad pharmaceutical experience and its specific
expertise in pain management. Anesta has developed a strategic marketing group,
including a small regional medical liaison field organization, to support market
introduction of Actiq.
Commercialize Actiq Internationally. Anesta is currently conducting clinical
trials in support of an Actiq registration in the United Kingdom, and intends to
seek approvals in other European countries. Anesta intends to commercialize
Actiq in Europe and other key cancer pain markets worldwide by entering into
distribution partnerships with focused pharmaceutical companies. Anesta has
partnered with Grupo Ferrer for Spain and Portugal, and Lafon for France. Anesta
is actively pursuing partnerships for key cancer pain markets.
Leverage OTS Technology Platform. Anesta plans to leverage its proprietary OTS
platform technology across a number of therapeutic areas. The Company will focus
its product development program on large markets where the Company's OTS
technology offers benefits over existing therapies. The Company intends to
continue developing new pharmaceutical products by applying its OTS to approved
drugs, both proprietary and generic, where existing methods of drug delivery
have therapeutic or clinical limitations. The Company intends to continue to
expand its proprietary position by pursuing patent protection in the United
States and key international markets for its OTS and for dosage forms that
incorporate such technology.
Maximize Value From Products. Anesta intends to capture a substantial portion of
the future economic benefits from its approved products and product candidates.
By selectively investing in multiple aspects of the drug development and
commercialization process, such as manufacturing and clinical development, in
addition to research and formulation, Anesta believes it will be able to form
more economically and strategically attractive partnerships with larger
pharmaceutical companies.
ANESTA'S PRODUCTS AND DEVELOPMENT PROGRAMS
The Company's research and development activities involve formulation and
analytical methods development, in vitro and in vivo proof-of-concept testing,
manufacturing process development, quality control and quality assurance
programs, preclinical and clinical research, regulatory documentation and
interaction with the FDA and other regulatory agencies to gain marketing
approval for its products.
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The following table identifies the potential therapeutic indications for and
current status of Anesta's approved products and the primary products that are
in research and development.
<TABLE>
<CAPTION>
PROGRAMS AND PRODUCTS INDICATION STATUS(1)
--------------------- ---------- ---------
<S> <C> <C>
OT-FENTANYL PROGRAM
Actiq (U.S.)(2) Breakthrough cancer pain NDA Approved
Actiq (International)(3) Breakthrough cancer pain Phase 3
(U.K.)
Fentanyl Oralet(2) Sedation and analgesia; surgical NDA Approved
premedication
OT-fentanyl(2) Acute pain Phase 2/3
OTHER PRODUCT CANDIDATES
OT-nicotine Smoking cessation Phase 2
OT-etomidate Short-acting sedation Phase 2
PRECLINICAL
OTS Pain Preclinical
OTS Nausea and vomiting Preclinical
OTS Migraine headache Preclinical
</TABLE>
- ------------
(1) See "Business -- Government Regulation" for a description of the various
phases of clinical testing.
(2) Abbott is Anesta's manufacturing and marketing partner for this product in
the United States.
See "-- Collaborative Relationships."
(3) Sales and distribution rights to this product have been granted to Grupo
Ferrer for Spain and Portugal and
to Lafon for France.
ACTIQ FOR BREAKTHROUGH CANCER PAIN
Breakthrough Cancer Pain. In recent years, there has been growing awareness that
millions of cancer patients do not receive adequate pain relief. Inadequate pain
management leads to debilitation and reduced quality of life and places
increased stress on interpersonal relationships with family, friends and
caregivers. Many clinicians believe that improving a patient's control over pain
also helps in the patient's ability to fight the underlying disease.
One of the most challenging components of cancer pain is breakthrough pain -- a
transitory flare of moderate to severe pain occurring on a background of
controlled persistent pain in patients receiving chronic opioid therapy.
Breakthrough pain may be related to a specific activity or may occur
spontaneously and be totally unpredictable. When related to a specific activity
such as walking or eating, it may be termed incident pain. The Company believes
that over 800,000 cancer patients in the United States suffer from breakthrough
pain, representing over half of all U.S. cancer patients who experience moderate
to severe pain.
Breakthrough cancer pain typically develops rapidly and often reaches maximum
intensity in three to ten minutes. It has a variable duration of 30 minutes to
several hours. These episodes can be excruciatingly painful and debilitating.
Opioid tablets, capsules and elixirs are not optimal to treat breakthrough
cancer pain because they typically require 30 minutes or more to produce pain
relief. This slow onset of pain relief results in a "pain relief gap" for
patients -- the painful and anxious wait between onset of breakthrough pain and
effective pain relief.
Physicians can attempt to manage breakthrough cancer pain by increasing the dose
of the around-the-clock, long-acting opioid analgesic until the patient no
longer experiences break-
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<PAGE> 31
through pain. However, this approach frequently leads to over-medication and an
increase in undesirable side effects such as drowsiness or severe constipation.
Patients and their physicians often are forced to balance effective pain relief
against the side effects associated with higher opioid doses. As a result,
cancer patients may suffer one to four episodes of breakthrough pain every day.
The only currently available treatments that adequately match the rapid onset of
pain relief to the rapid onset of breakthrough cancer pain are intravenous or
subcutaneous infusions or intramuscular injections of potent opioids. In many
settings, infusions or injections are unacceptable because they are invasive,
uncomfortable, inconvenient for patients and caregivers, and more costly than
less invasive methods. Some current practice guidelines teach against using
invasive means of treating pain if at all possible.
Product Attributes. There is a significant unmet need for a breakthrough cancer
pain treatment that provides rapid pain relief in a simple, oral, controllable,
safe and patient-friendly manner. Anesta believes that Actiq meets these
criteria, by providing onset of pain relief within 15 minutes in a form that
allows the patient to control the dose. Actiq is more convenient, more
user-friendly and less costly than many invasive methods of drug delivery.
Actiq is a drug matrix containing fentanyl, attached to a handle, which
facilitates rapid absorption of the drug across the oral mucosa and into the
blood stream. The analgesic effects of fentanyl are directly related to the
blood level of the drug, with proper allowance for the three to five minute
delay across the blood-brain barrier. The generally observed 50% bioavailability
of Actiq is divided equally between rapid transmucosal and slower
gastrointestinal absorption.
Clinical Program and Data. Anesta's clinical program for breakthrough cancer
pain involved a total of 12 studies at 45 U.S. sites, which evaluated six dosage
strengths of Actiq ranging from 200 to 1600 micrograms. The Company's clinical
trials specific to breakthrough cancer pain enrolled 257 patients who have
received nearly 75,000 doses of Actiq. The average duration of therapy in the
long-term safety study was 149 days, with patients using Actiq to treat an
average of 2.4 episodes of breakthrough cancer pain per day. Some patients have
completed more than 800 days of Actiq therapy.
In the Actiq pivotal study of 130 patients, the efficacy of Actiq was compared
against placebo. Actiq produced significantly larger decreases in pain intensity
and better pain relief scores than placebo at 15, 30, 45, and 60 minutes
(p<0.0001). The most common adverse events observed with Actiq use in
breakthrough cancer pain patients were somnolence, nausea, vomiting and
dizziness, which are generally associated with opioid therapy.
FDA Approval and Commercial Launch Plans. On November 4, 1998, the FDA cleared
Actiq for the management of breakthrough pain in cancer patients who are already
receiving and tolerating opioid therapy. Actiq is the first product specifically
designed, studied and approved for breakthrough cancer pain. The product is
expected to be available during March 1999 in the United States. A newly-formed
dedicated Abbott sales force will launch Actiq in the United States with support
from the Anesta strategic marketing group. The product launch will target high
prescribing medical oncologists and cancer pain specialists and high dispensing
retail pharmacies. These physicians and pharmacies have considerable experience
prescribing and dispensing potent opioids.
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<PAGE> 32
The introduction and marketing of Actiq will be accompanied by a comprehensive
risk management program of educational and safe use messages, which inform
health care professionals, patients and their families of proper use, storage,
handling and disposal of the product. This program is designed to address three
potential risk situations: accidental ingestion by children, improper patient
selection, diversion and abuse. The greatest risk of improper Actiq use is the
potential for respiratory depression, which could be life threatening. As with
all strong pain medicines, steps must be taken to prevent access to Actiq by
anyone other than the person for whom the product was prescribed.
The proposed treatment plan for using Actiq for breakthrough cancer pain will be
simple and consistent with current clinical practice guidelines. Physicians will
prescribe an around-the-clock opioid analgesic for persistent cancer pain, using
conventional products such as sustained-release morphine tablets or fentanyl
transdermal patches. The patient will be instructed to use Actiq when the
patient feels the onset of breakthrough cancer pain. As the drug matrix
dissolves, the Fentanyl is released for rapid absorption through the mucosal
tissues into the blood stream. Actiq will be available in six dosage strengths.
It is anticipated that all patients will start at the lowest dosage level and
will increase to higher dosage strengths as necessary to achieve therapeutic
effect without triggering unacceptable side effects.
Actiq is contraindicated in the management of acute or postoperative pain and
must not be used in opioid non-tolerant patients. It is intended to be used only
in the care of cancer patients by oncologists and pain specialists who are
skilled in the use of schedule II opioids to treat cancer pain.
International Commercialization of Actiq. The Company believes that there is a
significant market opportunity for Actiq to treat breakthrough cancer pain
outside of the United States. However, the prevailing practices regarding use of
potent opioids to treat cancer pain vary significantly from country to country.
In order to address the international market opportunity, Anesta is validating a
new manufacturing process for Actiq. Anesta is currently manufacturing Actiq in
the United States for use in several additional small clinical studies in the
United Kingdom. The Company will seek appropriate regulatory approval for its
manufacturing facility and is preparing registration dossiers for breakthrough
cancer pain in the United Kingdom and other key foreign markets.
Anesta's clinical research in the United Kingdom is expected to be completed in
1999. A Marketing Approval Application is expected to be submitted to the
Medicines Control Authority during 1999. Subject to approval in the United
Kingdom, Anesta will work with its European partners to request approval of
Actiq in the other member states of the European Union via the mutual
recognition process. During 1998, the Company entered into two European
commercial partnerships for Actiq. Anesta expects to enter into additional
collaborations for Actiq in Europe and other key territories.
FENTANYL ORALET (OT-FENTANYL) FOR PREMEDICATION
Anesta's first OT-fentanyl product, Fentanyl Oralet, was approved by the FDA in
October 1993 for use in children and adults as a premedication before surgery
and for sedation/analgesia prior to painful procedures in monitored anesthesia
settings. Fentanyl Oralet is available in four dosage strengths ranging from 100
to 400 micrograms. Most patients experience an onset of analgesia in six to
eight minutes and sedation and reduced anxiety in 20
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<PAGE> 33
to 30 minutes. Side effects are similar to those produced by other opioid
products. Although the market potential for Fentanyl Oralet is limited, Anesta
believes that the commercialization of Fentanyl Oralet has benefited Anesta by
allowing the Company's first product to be studied, approved and introduced in a
carefully controlled clinical setting.
OTHER OTS PRODUCT CANDIDATES
Anesta has three OTS product candidates under clinical development:
OT-nicotine for smoking cessation. Nicotine replacement therapy has become
established as a successful aid to smoking and tobacco cessation programs.
Nicotine replacement products that have been approved include a nicotine gum,
several transdermal nicotine patches, a nicotine nasal spray and a nicotine
inhaler. The nicotine gum and two nicotine transdermal patches have been
approved by the FDA as over-the-counter products. Smoking cessation experts
believe that increasing the availability and number of nicotine replacement
products will provide a public health benefit, as no single therapy will be
effective for all smokers desiring to quit. These experts foresee a need for a
broad range of readily available products and therapies to increase the success
rate of smoking cessation programs.
The pharmacokinetic profile and behavioral characteristics of OT-nicotine are
different from the other nicotine replacement products currently on the market.
Some smokers who have used OT-nicotine have commented that the ability to
control dosing by repeatedly inserting and removing the OT-nicotine unit from
their mouths has given them a greater ability to manage their urge to smoke.
This element of control is different from that offered by these other treatment
modalities. Anesta believes that this ability to titrate the dose of nicotine
and rapidly deliver adequate doses to the individual may more closely displace
the physiologic dependence and psychological craving effects of cigarettes. The
Company believes these properties of OT-nicotine may be especially effective in
the early stages of smoking cessation and in smoking relapse prevention.
Anesta has completed several Phase 2 clinical studies for OT-nicotine and has
studied the results from more than 400 smokers and nonsmokers dosed with
OT-nicotine. These studies have evaluated the effects of different dosage
strengths, the acceptability of different taste formulations, and the ability of
OT-nicotine to aid in smoking cessation with limited, short-term use and with
eight weeks of therapy. In early studies, OT-nicotine has been shown to (1)
increase blood concentrations in proportion to dose, (2) decrease the desire to
smoke at higher doses, and (3) exhibit a high patient acceptance of the product.
Side-effects observed with OT-nicotine were mild and typical of those seen with
nicotine administration. Clinical data from a larger Phase 2 study comparing
smoking quit rates over an 8-week period of use showed that smokers using
OT-nicotine achieved quit rates of 21%, similar to both the nicotine gum (16%)
and the nicotine patch (21%).
OT-fentanyl for acute pain. There are multiple causes of acute pain including
surgery, trauma and conditions such as kidney stones. Acute pain usually
requires the rapid onset of pain relief. Historically, hospitalized patients
have received injections or infusions to receive rapid pain relief. More
recently, patient controlled devices with sophisticated microelectronics have
been introduced which allow patients to self-administer the pain medication
intravenously when they feel the need for pain relief. This method of patient
controlled analgesia has been shown to improve pain management while decreasing
the total daily dose of medication. The Company believes there are psychological
benefits to patients who gain more control over their analgesic therapy.
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OT-fentanyl is also being studied for acute pain. Anesta has completed several
Phase 2/3 clinical studies. A recent clinical study of OT-fentanyl in 133
post-operative patients with acute pain showed that the onset of meaningful pain
relief occurred in under five minutes in over 50% of the patients, and this
onset of meaningful pain relief was similar to that observed with administration
of intravenous morphine. Duration of action for OT-fentanyl ranged from two to
three hours and depended on the doses administered.
OT-etomidate for short acting sedation. OT-etomidate is designed to provide
sedation for patients undergoing various types of outpatient medical or dental
procedures, either where the procedure is not painful or where pain is managed
by other methods such as local or regional anesthesia. Anesta believes that
there is a need for a rapid onset, short duration sedative that allows patients
to have a rapid, clear-headed recovery and prompt discharge after an outpatient
procedure is completed. Target applications include various scope procedures,
biopsies, and dental procedures.
OT-etomidate is in Phase 2 clinical trials. Two Phase 1 clinical studies showed
that OT-etomidate delivers dose-related therapeutic blood levels to produce
onset of sedation in 10 to 20 minutes. Sedation continues for 30 to 40 minutes.
Emergence from sedation to a level indicative of recovery occurs 60 to 90
minutes after taking the drug. Two Phase 2 clinical studies with OT-etomidate
have been completed. These studies were dose-ranging (with placebo) studies of
approximately 80 patients each in patients undergoing sigmoidoscopy or wisdom
tooth extraction.
PRECLINICAL PROGRAMS
Anesta is conducting preclinical research and development with its OTS
technology in several therapeutic areas. Anesta intends to file two new IND
applications for OTS-based products in early 1999: one for non-opioid pain
management and one for treating nausea and vomiting. The Company is also
conducting a preclinical program in the treatment of migraine headaches, and
will continue to evaluate additional products and compounds using the OTS
technology.
RESEARCH AND DEVELOPMENT
Anesta has developed its proprietary OTS products in collaboration with the UURF
and Abbott. Future development projects may involve collaboration with other
research organizations and other established pharmaceutical companies. The
Company's primary emphasis is on basic and applied research, product and process
development, clinical research, regulatory interactions and filings and
commercial market development and preparation. Since its inception, Anesta has
managed most aspects of its clinical trials and has prepared substantially all
U.S. regulatory filings for its products. In 1995, 1996, and 1997, Anesta's
research and development expenditures were $5,228,000, $8,304,000 and $7,889,000
respectively.
COLLABORATIVE RELATIONSHIPS
Anesta's commercial strategy is to develop products independently and
collaborate, where appropriate, with established pharmaceutical companies and
institutions. Collaborative partners may provide financial resources, research
and manufacturing capabilities and marketing infrastructure to aid in the
commercialization of Anesta's product candidates in development. The Company may
license its technology or products to others and retain profit sharing, royalty,
manufacturing, co-marketing, co-promotion or similar rights. Any such
arrangements
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could limit the Company's flexibility in pursuing alternatives for the
commercialization of its product candidates.
ABBOTT LABORATORIES
In 1989, Anesta entered into a research and development, license, supply and
distribution agreement with Abbott. Under the agreement, as amended (1989
Agreement), Anesta granted to Abbott the exclusive right to make, use and market
in the United States OTS products resulting from technology owned or licensed by
Anesta consisting of OT fentanyl or other central nervous system-acting drugs or
intermediates thereof used for pre-medication, sedation, analgesia, diagnostic
procedures, emergency room, post-operative pain, burn treatment or
cancer-related pain management. Abbott's exclusive license terminates upon the
expiration of the last U.S. or Canadian patent relative to such licensed
technology. Under the 1989 Agreement, Abbott has provided development funding
and milestone payments and is obligated to pay royalties and other payments on
product sales. In 1995, the Company entered into two additional funding
agreements with Abbott under which Abbott agreed to provide to the Company
$1,500,000 in each of 1995 and 1996 to fund the development of Actiq for cancer
pain. Through December 31, 1997, Abbott had paid a total of $9,750,000. Abbott
is obligated to pay Anesta an additional $300,000 now that the Actiq NDA has
been approved. In connection with such development funding, Abbott was granted,
and has exercised, warrants to purchase 1,202,840 shares of the Company's common
stock at prices ranging from $1.00 to $2.40 per share. Abbott manufactures and
distributes Anesta's OT-fentanyl products in the United States under Abbott's
trademark Fentanyl Oralet and Anesta's trademark Actiq.
The 1989 Agreement contains provisions regarding the development, manufacture
and commercialization of the Company's future products. The Company intends to
continue to provide information to Abbott regarding its development programs for
new products, and to discuss with Abbott its possible participation in the
commercialization of these products.
The 1989 Agreement can be terminated with respect to a particular market or
indication upon thirty days notice by Abbott if (1) there exists a material
adverse safety concern with respect to a licensed product, (2) there exists a
material adverse concern regarding the efficacy of a licensed product, (3)
action by the FDA precludes the continued testing or commercialization of a
licensed product and such preclusion is more than temporary in nature, or (4) a
third party patent poses an infringement risk with respect to the
commercialization of a licensed product in the United States.
GRUPO FERRER INTERNACIONAL S.A.
In January 1998, the Company entered into an exclusive agreement with Grupo
Ferrer, a leading private Spanish pharmaceutical company, for the marketing,
sales and distribution of Anesta's OT-fentanyl product line in Spain and
Portugal. Grupo Ferrer made a payment to the Company and will have exclusive
rights in Spain and Portugal to market and distribute Actiq and certain other
product applications of OT-fentanyl. Anesta will manufacture such products for
Grupo Ferrer.
LABORATOIRE L. LAFON
In June 1998, the Company entered into an exclusive agreement with Lafon, a
leading private French pharmaceutical company, for the marketing, sales and
distribution of Anesta's
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OT-fentanyl product line in France. Under terms of the agreement, Lafon made a
payment to the Company and will have exclusive rights in France to market and
distribute Actiq and certain other product applications of OT-fentanyl. Anesta
will manufacture such products for Lafon.
UNIVERSITY OF UTAH RESEARCH FOUNDATION
In 1985, the Company obtained an exclusive worldwide license, including the
right to sublicense, from the UURF all of the UURF's technology developed or to
be developed by Dr. Theodore H. Stanley, Founding Chairman of the Company, and
others under his direction at the University of Utah in (1) the field of
anesthetic and other drug delivery systems incorporating a matrix to deliver
compounds to the central nervous system via the mucosal tissues of the mouth,
pharynx and esophagus, (2) drug-based immobilization systems for human and
veterinary applications and (3) transdermal drug delivery systems. The Company
is obligated to pay certain royalties to the UURF subject to certain minimum
royalty payments. In addition, Anesta is obligated to pay to the UURF a higher
percentage of the royalties it receives in the event Anesta sublicenses the
licensed technology without any improvement or added value. The Company also has
an exclusive option with UURF to acquire an exclusive worldwide license to
similar technology and intellectual property that may be conceived, invented or
reduced to practice at the University of Utah after the date of its license
grant. Anesta has exercised such option as to all technology covered by its
patents and pending patent applications. The UURF exclusive worldwide license
terminates as to each country upon the expiration of the last patent in such
country relating to the licensed technology.
MANUFACTURING
Anesta has a manufacturing facility capable of producing quantities of its
proprietary OTS products for research and development, including clinical
studies. Anesta is developing manufacturing capacity to support commercial
distribution of Actiq for international markets. Anesta has licensed U.S.
manufacturing rights to Actiq, Fentanyl Oralet and other OT-fentanyl products to
Abbott, subject to the right of Anesta to manufacture such products under
certain circumstances.
The Company continues to develop manufacturing processes and to expand its
production capacity for OTS products in order to support larger scale clinical
studies and cost effective commercial production. A second generation OTS
manufacturing process has been developed and is designed to enable scale-up to
larger commercial volumes while reducing the unit cost of producing OTS
products. In 1997 and 1998, Anesta increased its manufacturing capacity and
packaging capabilities to support European clinical trials and to supply initial
quantities of OT-fentanyl products to commercial markets outside of the United
States. The Company believes it is in compliance with cGMP regulations enforced
by the FDA's facilities inspection program, as well as requirements imposed by
the U.S. Drug Enforcement Agency (DEA). The Company maintains State and Federal
licenses to conduct research, manufacture and export controlled substances on
Schedules II, III, IIIN, IV and V.
COMPETITION
Anesta faces intense competition and technological change. Existing and future
products, therapies, technological approaches and delivery systems will compete
directly with the Company's products. Competing products may provide greater
therapeutic benefits for a
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specific indication, or may offer comparable performance at a lower cost. Actiq
faces competition from inexpensive oral morphine tablets and quick-acting
intravenous opioid delivery systems. Other technologies for rapidly delivering
opioids to treat breakthrough pain are being developed, at least one of which is
in clinical trials.
The Company competes with fully integrated pharmaceutical companies, smaller
companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug delivery products already
approved or in development and operate large, well-funded research and
development programs in these fields. Anesta's competitors may develop safer or
more effective drugs and achieve faster or broader regulatory approval, wider
availability of supply, more effective marketing and sales or superior
proprietary positions. Any products that Anesta develops may become obsolete
before recovery of any expenses incurred in connection with development of these
products.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company's success will depend, in part, on its ability to obtain and protect
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others in the United States and other countries. Anesta's
products are based on 10 U.S. and 96 foreign patents for the OTS, which are held
by the University of Utah and its assignee, UURF. The Company has exclusive
world-wide licenses to these patents which cover the design and types of
pharmaceutical compounds in its products. The Company's success depends on the
continued validity of these patents. If either Anesta or the UURF fail to file,
prosecute or maintain any of the patents, Anesta could be severely damaged. The
Company intends to file additional patent applications relating to its
technology, products and processes. The Company will also direct the UURF to
file any additional patent applications relating to the technology it has
licensed. However, any of these patents or patent applications may be
challenged, invalidated or circumvented by the Company's competitors. These
patents may also fail to provide meaningful competitive advantages to the
Company. For example, another company may develop a way to deliver potent
opioids in a more cost-effective manner than Anesta's products without
infringing on its patents.
The basic technology underlying the Company's proprietary OTS was invented by
Dr. Stanley and Brian Hague, both employees of the Company, while employed at
the University of Utah. Anesta is the exclusive worldwide licensee of such
technology under patents held by the UURF. The license remains in effect for the
life of the covered patents. The U.S. patents expire on various dates ranging
from 2004 to 2015 and the foreign patents expire on various dates ranging from
2003 to 2016. Anesta maintains, at its expense, all U.S. patent rights with
respect to the licensed technology and files and prosecutes the relevant patent
applications in the U.S. and foreign countries. The OTS technology underlying
Anesta's exclusive license is covered by ten issued U.S. patents, 96 issued
foreign patents, two pending U.S. patent applications and 18 pending foreign
patent applications. The Company also relies upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position. The Company plans to prosecute and defend its
technology and the patents and patent applications being licensed from the UURF.
Intellectual property rights are uncertain and involve complex legal and factual
questions. The Company may be unknowingly infringing on the proprietary rights
of others and may be liable for that infringement, which could result in
significant costs. For example, the Company is not aware of any third party
intellectual property rights which would prevent the Company's use
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of its new manufacturing method, although rights of this type may exist. The
Company could be forced to either seek a license to intellectual property rights
of others or alter its products or processes to that they no longer infringe the
proprietary rights of others. A license could be very expensive to obtain, or
may not be available at all. Similarly, changing products or processes to avoid
infringing the rights of others may be costly or impractical.
The Company is responsible for any patent litigation costs. If the Company were
to become involved in a dispute regarding intellectual property, it may have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine who had the claimed rights first. Anesta may also
be forced to seek a judicial determination concerning the rights in question.
These types of proceedings may be costly and time consuming, even if the Company
eventually prevails. If the Company does not prevail, it might be forced to pay
significant damages, obtain a license or stop making a certain product.
Anesta also relies on trade secrets, proprietary know-how and confidentiality
provisions in agreements with collaborative partners, employees and consultants
to protect its intellectual property. Other parties may not comply with the
terms of their agreements with the Company and it may not be able to adequately
enforce its rights against these people.
It is the Company's policy to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with the Company. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all inventions conceived by the
individual in the course of his or her employment shall be the exclusive
property of the Company.
GOVERNMENT REGULATION
The Company's activities and products are subject to significant regulation by a
number of governmental entities, especially the FDA and DEA in the United States
and by comparable authorities in other countries. These entities regulate, among
other things, research and development activities and the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising,
promotion, distribution and sale of the Company's products. Product development
and approval within this regulatory framework takes a number of years and
involves the expenditure of substantial resources. Many products that appear
promising initially ultimately do not reach the market because they are found to
be unsafe (perhaps too toxic) or lack effectiveness, as demonstrated by testing
required by government regulation during the development process.
The activities required before a pharmaceutical product may be marketed in the
United States primarily begin with preclinical testing. Preclinical tests
include extensive laboratory evaluation of product chemistry and other end
points and animal studies to assess the potential safety of the product as
formulated. The FDA under a series of regulations called the Good Laboratory
Practice (GLP) regulations regulates almost all preclinical studies pertinent to
drug approval. Violations of these regulations can, in some cases, lead to
invalidation of the studies, requiring such studies to be repeated.
The entire body of preclinical development work necessary to administer
investigational drugs to volunteers or patients is submitted in an IND
submission to the FDA. FDA regulations provide that clinical trials may begin 30
days following the submission and receipt of an IND,
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unless the FDA advises otherwise or requests additional information,
clarification or additional time to review the IND submission; it is generally
considered good practice to obtain affirmative FDA acquiescence before
commencing trials. There is no assurance that the submission of an IND will
eventually allow a company to commence clinical trials. Once trials have
commenced, the FDA may stop the trials, or particular types or parts of trials,
by placing a "clinical hold" on such trials because of concerns about, for
example, safety of the product candidate being tested or the adequacy of the
trial design. Such holds can cause substantial delay and in some cases may
require abandonment of a product candidate.
Clinical testing involves the administration of a drug to healthy volunteers or
to patients under the careful supervision of a qualified principal investigator,
usually a physician, pursuant to an FDA-reviewed protocol. Clinical tests
pertinent to an IND are usually conducted in the following sequential phases,
although the phases may overlap. Phase 1 trials generally involve administration
of a drug product to a small number of persons to determine aspects of safety,
tolerance, pharmacokinetic characteristics, and possible early data on
effectiveness. Phase 2 trials generally involve administration of a product to a
limited number of patients with a particular disease to determine dosage,
efficacy and safety. Phase 3 trials generally examine the clinical efficacy and
safety in an expanded patient population at multiple clinical sites. Pivotal
Phase 3 trials are trials designed to demonstrate definitive efficacy and
safety. At least one such trial is required for FDA approval to market a drug.
Each clinical study is conducted under the auspices of an independent
Institutional Review Board (IRB) at every institution at which the study will be
conducted. An IRB will consider, among other things, ethical factors, the safety
of human subjects and the possible liability of the institution.
The regulatory process required to be completed by a company before a new drug
delivery system may be marketed in the United States depends significantly on
whether the drug (which will be delivered by the drug delivery system in
question) has existing approval for use and in what dosage forms. If the drug is
a new chemical entity that has not been approved, then the process includes (1)
preclinical laboratory and animal tests, (2) an IND application which has become
effective, (3) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug in its intended indication and (4) FDA
approval of an NDA. If the drug has been previously approved, then the approval
process is similar, except that certain toxicity tests normally required for the
IND may not be necessary. Even with previously approved drugs, additional
toxicity testing may be required when the delivery form is substantially
changed. Because the Company's OTS, by design, produces high drug concentrations
at the surface of the oral mucosa, new toxicity tests at this site may need to
be performed. In addition to the foregoing, the FDA requires proof that the
product delivers sufficient quantities of the drug to the bloodstream to produce
the desired therapeutic result.
The results of product development, preclinical studies and clinical studies and
other information are submitted to the FDA in an NDA seeking approval for the
marketing and interstate commercial shipment of the drug. The FDA may deny an
NDA if applicable regulatory criteria are not satisfied or may require
additional clinical or other testing. Even if such data are submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria for approval.
If the FDA does ultimately approve the product, it may require, among other
things, post-marketing testing, including potentially expensive Phase 4 studies,
and surveillance to monitor the safety and effectiveness of the drug. In
addition, the FDA may in some circumstances impose labeling and promotion
restrictions on the use of the drug that may be difficult and expensive to
administer. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if serious problems occur after
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the product reaches the market. Finally, the FDA requires reporting of certain
adverse event information that becomes known to a sponsor or manufacturer of an
investigational or approved drug.
Each domestic drug product manufacturing establishment must be registered with,
and essentially approved by, the FDA. In addition, each such establishment must
inform the FDA of every drug product it has in commercial distribution and keep
such list updated. Establishments handling controlled substances must be
licensed and are inspected by the DEA. Anesta has a current DEA license
appropriate for handling the substances it uses in its facilities. Domestic
establishments are also subject to inspection by the FDA for compliance with
cGMP regulations before or after an NDA has been filed and thereafter, at least
biannually. The labeling, advertising and promotion of drug products also must
be in compliance with pertinent FDA regulatory requirements. Failures to comply
with applicable requirements relating to production, distribution or promotion
of a drug product can lead to FDA demands that production and shipment cease,
and, in some cases, that products be recalled, or to enforcement actions that
can include seizures, injunctions and criminal prosecution. Finally,
manufacturers of drug products seeking FDA approval via an NDA are also
required, due to recently introduced user fee requirements, to make payments to
the FDA at various stages of the approval process. In addition, such payments
must also be made in association with annual establishment registration.
To market its products abroad, the Company is also subject to numerous and
varying foreign regulatory requirements, implemented by foreign health
authorities, governing, among other things, the design and conduct of human
clinical trials, pricing regulations and obtaining marketing approval. The
approval procedure may vary among countries and can involve additional testing,
and the time required to obtain approval may differ from that required to obtain
FDA approval. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union certain registration
procedures are available to companies wishing to market a product in more than
one European Union member country. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries.
Various aspects of the Company's business and operations are also regulated by a
number of other governmental agencies including the DEA, United States
Department of Agriculture, the Environmental Protection Agency, the Occupational
Safety and Health Administration as well as by other federal, state and local
authorities. In addition, international sales are regulated by numerous foreign
authorities. The Company currently maintains both State and Federal Controlled
Substance Registration Certificates to conduct research, manufacture and export
scheduled drugs. See "Risk Factors -- We are Subject to Extensive Government
Regulation."
PRODUCT LIABILITY AND PRODUCT LIABILITY INSURANCE
The testing, marketing and sale of Anesta's products involves significant risks.
The Company may be held liable for adverse reactions resulting from the use of
our products. The Company's products involve a new method of delivery for potent
drugs that requires greater precautions to prevent unintended use. For example,
Anesta has worked with Abbott to develop a specific risk management program for
Actiq that is designed to prevent accidental ingestion by children, improper
patient selection, diversion and abuse. The failure of these measures could
result in harmful side effects or death. As a result, consumers, regulatory
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agencies, pharmaceutical companies or others might make claims against Anesta.
The Company currently has clinical trial and product liability insurance
coverage. Anesta will seek to maintain and appropriately increase such insurance
coverage as development and commercialization of products progresses. Insurance
may not be available at a reasonable cost or in sufficient amounts to protect
the Company from liability claims. The obligation to pay any product liability
claim in excess of Anesta's insurance coverage or the recall of any of its
products could adversely affect its financial condition.
Anesta has agreed to indemnify Abbott against certain liabilities arising from
Anesta's negligence or willful misconduct in its research and development
activities under the agreement, or its manufacture, use or handling of licensed
products or its breach of the agreement or errors or inaccuracies in the
technology Anesta licensed to Abbott, if such errors or omissions resulted from
Anesta's negligence or willful misconduct. Abbott has agreed to indemnify Anesta
against certain liabilities arising from Abbott's, or its affiliate's or
sublicensee's, negligence or willful misconduct in the manufacture, use or
distribution of licensed products or its breach of the agreement, except to the
extent such liabilities arise from errors or inaccuracies in Anesta's technology
resulting from Anesta's negligence or willful misconduct.
HUMAN RESOURCES
As of November 12, 1998, Anesta employed 77 individuals, of whom approximately
29 hold Ph.D., M.D. or other advanced degrees. Of its total workforce, 44
employees are engaged in research and development activities and 33 are devoted
to commercial, business development and administrative activities. A significant
number of the Company's management and professional employees have had prior
experience with major international pharmaceutical, biotechnology or medical
products companies. Anesta believes that it maintains good relations with its
employees. The Company's success will depend in large part upon its ability to
attract and retain these and future employees. The Company faces competition in
this regard from other companies, research and academic institutions and
government entities.
PROPERTIES
On November 12, 1998, the Company's administrative offices, research
laboratories, and clinical manufacturing facilities comprised approximately
45,824 square feet, located in Salt Lake City, Utah. The lease covering 51,104
square feet of facilities expires March 31, 2000, with two five-year renewal
options. The Company anticipates that its current facilities will meet the
Company's research and development needs through 1999 and has an option to
occupy an additional 5,280 square feet of subleased space if it requires such
additional space.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of September 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas B. King.................. 43 President, Chief Executive Officer and
Director
William C. Moeller.............. 60 Chairman of the Board, Treasurer and
Director
Theodore H. Stanley, M.D. ...... 58 Founding Chairman, Secretary and
Director
Carl J. Accettura............... 44 Vice President, Manufacturing
Operations
Martha V. Arnold................ 42 Vice President, OTFC(R)Business Unit
Dennis L. Coleman, Ph.D. ....... 51 Vice President, Research and
Development
Roger P. Evans, CPA............. 33 Vice President, Finance and
Administration
Franck P. Kiser................. 39 Vice President, European Operations
Paul A. Litka, M.D. ............ 49 Vice President, Clinical Drug
Development
Steven A. Shoemaker, M.D........ 46 Vice President In the Office of
Development
Edwin M. Kania, Jr.(1)(2)....... 41 Director
Daniel L. Kisner, M.D.(1)....... 51 Director
Richard H. Leazer(1)(2)......... 57 Director
Emanuel M. Papper, M.D., 83 Director
Ph.D..........................
Richard P. Urfer(2)............. 62 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Thomas B. King has been Chief Executive Officer of the Company since January
1998, a Director since December 1994 and has served as its President since
December 1996. Mr. King was the Company's Chief Operating Officer from December
1994 until December 1997 and Executive Vice President from December 1994 until
December 1996. Prior to joining Anesta, he was employed by Somatogen, Inc., a
biotechnology company, from January 1990 to December 1994 as Vice President of
Marketing and Business Development. Prior to joining Somatogen, he was director
of the Cardiovascular Business Unit at Abbott, a pharmaceutical company, from
January 1988 to December 1989 and held various marketing and business
development positions at Anaquest, an anesthesia pharmaceutical company and a
division of BOC HealthCare, from June 1982 to December 1987. Mr. King received
an M.B.A. in finance and marketing from the University of Kansas in 1982.
William C. Moeller has been Chairman of the Board of Directors of the Company
since January 1998. Mr. Moeller served as Chief Executive Officer and Director
of the Company since he co-founded the Company in 1985 until December 1997 and
served as President from August 1985 until December 1996. Prior to joining
Anesta, Mr. Moeller held senior management positions with several medical
companies that manufactured products for orthopedic and cardiovascular surgery
and for anesthesiology. These positions included general management
responsibilities in the large multinational companies of Howmedica, Inc., a
medical devices company, from 1964 to 1973 and The BOC Group, from 1973 to 1981,
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in its medical division. Mr. Moeller was Chief Operating Officer of Symbion,
Inc., a company in the field of artificial organs, from 1982 to 1985. He
received an M.B.A. degree from the Harvard Graduate School of Business
Administration in 1964.
Theodore H. Stanley, M.D. has been Founding Chairman of the Company since
January 1998. Dr. Stanley served as Chairman of the Board of Directors of the
Company since he co-founded the Company in 1985 until December 1997. Dr. Stanley
served as Medical Director of the Company from 1985 to April 1994. He also has
been Professor of Anesthesiology and Professor of Surgical Research at the
University of Utah School of Medicine since 1978. Dr. Stanley has also been an
Adjunct Professor of Anesthesiology at the University of Texas (Houston) since
1985. He has also been a clinical research investigator for numerous
pharmaceutical companies in the investigation of new anesthetic drugs. Dr.
Stanley received an M.D. degree from Columbia University, College of Physicians
and Surgeons in 1965.
Carl J. Accettura joined the Company as Vice President, Manufacturing Operations
in June 1998. Prior to joining Anesta, he was Vice President, Worldwide Supply
Chain Management for the ConvaTec subsidiary of Bristol-Myers Squibb (BMS).
Prior to joining BMS, he was Vice President, Materials Management, for
Hoffman-LaRoche from 1992 to 1997. His previous pharmaceutical industry
experience was with Pfizer Inc. from 1984 to 1992, where he held various
production positions, including Director, Planning. Mr. Accettura received an
M.B.A. with honors from New York University Graduate School of Business in 1980.
Martha V. Arnold joined the Company as Vice President, OTFC Business Unit in
September 1996. Prior to joining Anesta, she was employed by McNeil Consumer
Products Company, a member of the Johnson & Johnson family of companies, where
she served as Director, Smoking Cessation Products from April 1994 to August
1996 and Director, New Products from September 1993 to April 1994. Since May
1983, she has held various marketing and business development positions within
the McNeil and Johnson & Johnson o Merck Consumer Pharmaceuticals organizations.
Ms. Arnold received an M.B.A. degree from the University of Chicago Graduate
School of Business in 1981.
Dennis L. Coleman, Ph.D. has been Vice President, Research and Development of
the Company since March 1992 and served as Director, Technical Marketing at the
Company from April 1991 to February 1992. Prior to joining Anesta, he was a
co-founder of Albion Instruments, a company specializing in the analysis of
anesthetic gases, where he served as Clinical Director from 1981 to August 1990.
He also served as a consultant to Anesta from September 1990 to March 1991. He
served as Research Associate Professor at the College of Pharmacy, Department of
Pharmaceutics from 1985 to 1987 and as Research Assistant Professor, Department
of Surgery, College of Medicine, Division of Artificial Organs from 1981 to 1986
at the University of Utah. Dr. Coleman received a Ph.D. degree in Pharmaceutics
from the University of Utah in 1980.
Roger P. Evans, CPA has been Vice President, Finance and Administration of the
Company since July 1998. Prior to July 1998, Mr. Evans served as the Company's
Corporate Controller since July 1993. Prior to joining Anesta, he was employed
by Coopers & Lybrand LLP from September 1990 to July 1993 where he worked in
both the financial audit and electronic data processing audit areas. Mr. Evans
received a MAcc in accounting from Brigham Young University in 1990.
Franck P. Kiser joined Anesta as Vice President, European Operations in November
1997. Prior to joining Anesta, he was the principal at Group Kiser, Switzerland,
from January 1995 to November 1997, where he specialized in developing and
executing European strategies for
39
<PAGE> 44
international companies. Previously, from September 1989 to September 1994, Mr.
Kiser held various international management, global marketing and business
development positions at Schering-Plough Corporation. Mr. Kiser received a
Masters degree in International Management from the American Graduate School of
International Management, Thunderbird in August 1989.
Paul A. Litka, M.D. joined Anesta in March 1998 as Vice President, Clinical Drug
Development. Prior to joining the Company he served as Senior Vice President,
Clinical Research and Regulatory Affairs at Magainin Pharmaceuticals, Inc., a
pharmaceutical company, from May 1996 to February 1998, and as Vice President,
Clinical Research from April 1995 to May 1996. From April 1994 to April 1995 he
was an independent consultant. From November 1991 to March 1994 he was Senior
Vice President and General Manager of the IBRD Center for Clinical Research, a
contract research organization. From September 1982 to November 1991, Dr. Litka
held various clinical research positions in the United States and United Kingdom
with Smith Kline & French Laboratories, serving as Vice President, Medical
Assurance in 1990 and 1991. He received an M.D. degree from the College of
Medicine and Dentistry of New Jersey-Newark in 1975.
Steven A. Shoemaker, M.D. has been Vice President in the Office of Development
since July 1998. From January 1997 to July 1998, he served as Vice President,
Medical Communications. Dr. Shoemaker served as the Company's Vice President,
Medical Affairs from April 1994 to January 1997. Prior to joining Anesta, he was
employed by Somatogen, Inc., a biotechnology company, from February 1993 to
March 1994 as Senior Vice President and from June 1989 to February 1993 as Vice
President of Drug Development and Medical Affairs. He was Assistant Professor of
Medicine at the University of Colorado Health Sciences Center from July 1985 to
June 1988. He received an M.D. degree from the University of California at Los
Angeles in 1978.
Edwin M. Kania, Jr. has served as director of the Company since April 1987. Mr.
Kania is General Partner of One Liberty Ventures, Inc., which he co-founded in
1995. Previously, he had been General Partner in a predecessor firm, Morgan
Holland Ventures. Mr. Kania serves as a director of several private companies.
He received his M.B.A. degree from the Harvard Graduate School of Business
Administration in 1982.
Daniel Kisner, M.D. has served as a director of the Company since February 1996.
Dr. Kisner has served as Chief Operating Officer of Isis Pharmaceuticals, Inc.,
a biotechnology company, since February 1993, as a Director since March 1991 and
as President since May 1994. From March 1991 until February 1993, he was
Executive Vice President of Isis. From December 1988 until March 1991, he was
Division Vice President of Pharmaceutical Development for Abbott. From March
1988 until November 1988, Dr. Kisner served as the Vice President, International
Clinical Research and Development for Smith Kline & French Laboratories and from
May 1985 until March 1988 he served as Vice President, Clinical Research R & D,
Continental Europe for the same company. Dr. Kisner was an Associate Professor
of Oncology at the University of Texas and an acting Associate Director at the
National Cancer Institute. Dr. Kisner received an M.D. degree from Georgetown
University in 1972. Dr. Kisner serves as a director of Microcide Pharmaceuticals
Inc., a biopharmaceutical company.
Richard H. Leazer has served as Managing Director of the Wisconsin Alumni
Research Foundation, a not-for-profit corporation supporting research at the
University of Wisconsin, since March 1993. Prior to such time, he was President
of Ohmeda, an anesthesia device and
40
<PAGE> 45
equipment manufacturer and a division of BOC HealthCare, from 1988 to September
1992 and was President of Anaquest, an anesthesia pharmaceutical company and a
division of BOC HealthCare, from 1981 to 1988. Mr. Leazer received an M.B.A.
degree from Drexel University in 1966.
Emanuel M. Papper, M.D., Ph.D. has been a director of the Company since July
1990. He has been Professor of Anesthesiology at the University of Miami since
1969 and was Professor of Pharmacology there from 1974 to 1981. Dr. Papper also
served as the Vice President for Medical Affairs and the Dean of the University
of Miami School of Medicine from 1969 to 1981. Prior to that time, Dr. Papper
was a Professor of Anesthesiology and Chairman of the Department of
Anesthesiology at Columbia University from 1949 to 1969. He received an M.D.
degree from New York University in 1938 and a Ph.D. degree in English Literature
from the University of Miami in 1990.
Richard P. Urfer has served as a director of the Company since August 1996. Mr.
Urfer has served as President of BW Capital Markets, Inc., an investment banking
firm, since June 1997. From June 1995 until June 1997, Mr. Urfer served as
Executive Vice President of Resource Investment Advisors, Inc. From May 1987
until June 1995, Mr. Urfer was Managing Director of R.P. Urfer & Co., investment
bankers. From September 1982 until May 1987 he was Chief Operating Officer of
Chase Manhattan Capital Markets Corporation. Mr. Urfer received an M.B.A. degree
from the Harvard Graduate School of Business Administration in 1964.
41
<PAGE> 46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1998, and
as adjusted to reflect the sale of the Common Stock being offered hereby
(assuming no exercise of the Underwriters' over-allotment option) by (1) each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Common Stock, (2) each of the Company's
directors, (3) each of the Company's executive officers, (4) all directors and
executive officers of the Company as a group and (5) the Selling Stockholders.
Except as otherwise noted, the persons or entities in this table have sole
voting and investing power with respect to all the shares of Common Stock owned
by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING NUMBER OWNED AFTER OFFERING
-------------------------- OF SHARES -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1)(2) OFFERED NUMBER PERCENT(1)(2)
------------------------ --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Abbott Laboratories............... 1,202,840 12.5% -- 1,202,840 10.5%
One Abbott Park Road, D-980,
AP30
Abbott Park, IL 60064-3500
Theodore H. Stanley and Stanley
Research Foundation(3).......... 650,058 6.7 65,000 585,058 5.1
4745 Wiley Post Way
Plaza 6, Suite 650
Salt Lake City, UT 84116
William C. Moeller(4)............. 505,443 5.2 100,000 405,860 3.5
4745 Wiley Post Way
Plaza 6, Suite 650
Salt Lake City, UT 84116
Edward M. Kania, Jr.(5)........... 15,167 * -- 15,167 *
Daniel L. Kisner(6)............... 6,667 * -- 6,667 *
Thomas B. King(7)................. 173,917 1.8 15,000 158,917 1.4
Richard H. Leazer(8).............. 19,167 * -- 19,167 *
Emanuel M. Papper(9).............. 19,167 * -- 19,167 *
Richard P. Urfer(10).............. 46,547 * -- 46,547 *
Carl J. Accettura(11)............. 6,249 * -- 6,249 *
Martha V. Arnold(12).............. 16,769 * -- 16,769 *
Dennis L. Coleman(13)............. 85,860 * 10,000 75,860 *
Roger P. Evans(14)................ 6,009 * -- 6,009 *
Franck P. Kiser(15)............... 13,540 * -- 13,540 *
Paul A. Litka(16)................. 9,374 * -- 9,374 *
Steven A. Shoemaker(17)........... 77,731 * 10,000 67,731 *
All executive officers and
directors as a group (15
persons)(3) - (17).............. 1,651,665 16.3% 200,000 1,452,082 12.2%
</TABLE>
- ------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days of September
30, 1998, are deemed outstanding for computing the percentage of the person
or entity holding such securities, but are not outstanding for computing
the percentage of any other person or entity. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Percentage of beneficial ownership is based on 9,648,687 shares of Common
Stock outstanding as of September 30, 1998 and 11,448,687 shares of Common
Stock outstanding after this offering.
42
<PAGE> 47
(3) Includes options exercisable for 31,141 shares of Common Stock. Of the
618,917 shares, Dr. Stanley owns 217,011 shares, Mary Ann Stanley, Dr.
Stanley's spouse, owns 170,876 shares, the Stanley Research Foundation owns
103,065 shares, The Theodore H. Stanley and Mary Ann Stanley Foundation
owns 103,065 shares and Dr. Stanley owns 24,900 shares jointly with Ellen
Stanley.
(4) Includes options exercisable for 69,372 shares of Common Stock, of which
27,769 shares will be sold in the offering. Of the remaining 436,071
shares, Mr. Moeller owns 361,071 shares, The Joanne A. Moeller Family
Living Trust owns 50,000 shares and The William and Joanne Moeller
Foundation owns 25,000 shares. Shares Beneficially Owned After the Offering
includes 417 shares subject to options that had not vested within 60 days
of September 30, 1998 but which will vest within 60 days of the assumed
closing date of the offering.
(5) Includes 1,000 shares held by One Liberty Ventures Retirement Trust for the
benefit of Edwin M. Kania, Jr. and options exercisable for 14,167 shares of
Common Stock.
(6) Consists of options exercisable for 6,667 shares of Common Stock.
(7) Includes options exercisable for 168,422 shares of Common Stock, of which
15,000 shares will be sold in the offering.
(8) Consists of options exercisable for 19,167 shares of Common Stock.
(9) Includes options exercisable for 13,667 shares of Common Stock.
(10) Includes options exercisable for 6,667 shares of Common Stock. Of the
39,880 shares, Mr. Urfer's spouse owns 3,225 shares of Common Stock and Mr.
Urfer's daughter owns 1,655 shares of Common Stock.
(11) Consists of options exercisable for 6,249 shares of Common Stock.
(12) Consists of options exercisable for 16,769 shares of Common Stock.
(13) Includes options exercisable for 40,934 shares of Common Stock.
(14) Includes options exercisable for 5,963 shares of Common Stock.
(15) Consists of options exercisable for 13,540 shares of Common Stock.
(16) Consists of options exercisable for 9,374 shares of Common Stock.
(17) Includes options exercisable for 60,934 shares of Common Stock, of which
10,000 shares will be sold in the offering.
43
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, $.001 par value, and 1,000,000 shares of Preferred Stock, $.001
par value.
COMMON STOCK
At September 30, 1998, there were 9,648,687 shares of Common Stock outstanding
held of record by approximately 168 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors. Subject to preferences that may be applicable to any then
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
The Company has entered into a registration rights agreement with the holders of
2,041,711 shares of Common Stock (Registrable Securities). Under the agreement,
such holders may require the Company to register the Registrable Securities
under the Securities Act. In addition, whenever the Company proposes to register
any of its securities under the Securities Act, the holders of Registrable
Securities are entitled, subject to certain restrictions, to include their
Registrable Securities in such registration. The Company is required to bear all
registration expenses in connection with the registration of Registrable
Securities on the first demand registration and all Company registrations.
Registration rights may be transferred to a transferee of such Registrable
Securities, provided that such transferee acquires at least 100,000 shares of
Registrable Securities. The registration rights may be amended or waived only
with the written consent of the Company and holders of a majority of the
Registrable Securities outstanding. The holders of the Registrable Securities
have waived their rights with respect to this offering. The registration rights
terminate on February 3, 2004.
44
<PAGE> 49
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law (Delaware Law), an anti-takeover law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
The Company's Restated Certificate of Incorporation also requires that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer. The Company's Restated Certificate of
Incorporation also provides that the authorized number of directors may be
changed only by resolution of the Board of Directors, and that directors can
only be removed for cause by a majority vote of the stockholders. These
provisions may have the effect of delaying, deterring or preventing a change in
control of the Company or depressing the market price of Common Stock or
discouraging hostile takeover bids in which stockholders of the Company could
receive a premium for their shares of Common Stock.
TRANSFER AGENT AND REGISTRAR
Boston Equiserve Services is the transfer agent and registrar for the Company's
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,448,687 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 5,500,000 shares sold in the
Company's previous public offerings and the 2,000,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of the Company, as is
defined under the Securities Act. Of the remaining shares, 2,218,741 are subject
to lock-up agreements under which the holders have agreed not to sell or
otherwise dispose of any of their shares for a period of 90 days after the date
of this Prospectus without the prior written consent of BancBoston Robertson
Stephens.
In general, under Rule 144 under the Securities Act, a person (or person whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years, including a person who may be deemed an affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock (approximately 114,487 shares after giving effect to this offering
and assuming no exercise of the Underwriters' over-allotment option) or the
average weekly trading volume of the Common Stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 are
subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned shares for at least two years, would be
entitled to sell such shares without regard to the volume limitations, manner of
sale provisions and other requirements of Rule 144.
45
<PAGE> 50
UNDERWRITING
The Underwriters named below, acting through their representatives, BancBoston
Robertson Stephens Inc., and Volpe Brown Whelan & Company, LLC
(Representatives), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting Agreement,
to purchase the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Volpe Brown Whelan & Company, LLC...........................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of not more than $ per
share, of which $ may be reallowed to other dealers. After the completion of
this offering, the public offering price, concession and reallowance to dealers
may be reduced by the Representatives. No such reduction shall change the amount
of proceeds to be received by the Company and the Selling Stockholders as set
forth on the cover page of this Prospectus.
Over-Allotment Option. The Company has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 300,000 additional shares of Common Stock at the same price per
share as the Company will receive for the 1,800,000 shares that the Underwriters
have agreed to purchase from the Company. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the total number of shares offered hereby. If
purchased, such additional shares will be sold by the Underwriters on the same
terms as those on which the shares are being sold.
Indemnity. The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Lock-Up Agreements. Pursuant to the terms of lock-up agreements, the holders of
2,218,741 shares of the Company's Common Stock (including the Selling
Stockholders), have agreed, for a period of up to 90 days after the date of this
Prospectus, that, subject to certain exceptions, they will not contract to sell
or otherwise dispose of any shares of Common Stock, any options to purchase
shares of Common Stock or any securities convertible into, or exchangeable for,
shares of Common Stock, owned directly by such holders or with respect to which
they have the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion, and at any time or from time to time, without
notice, release all or any portion of the securities subject to lock-up
agreements. All of the shares of Common Stock subject to
46
<PAGE> 51
the lock-up agreements will be eligible for sale in the public market upon the
expiration of the lock-up agreements subject in the case of shares held by
affiliates pursuant to Rule 144.
Future Sales. In addition, the Company has agreed that until 90 days after the
date of this Prospectus, the Company will not, without prior written consent of
BancBoston Robertson Stephens Inc., subject to certain exceptions, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, any options
to purchase any share of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of shares of Common
Stock upon the exercise of outstanding options and the grant of options to
purchase shares of Common Stock under existing employee stock option or stock
purchase plans. See "Shares Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Stabilization. The Representatives have advised the Company that, pursuant to
Regulation M under the Exchange Act, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids which may have the
effect of stabilizing or maintaining the market price of the Common Stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
Common Stock. A "syndicate covering transaction" is the bid for or the purchase
of the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
offering if the Common Stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Passive Market Making. In connection with this offering, certain Underwriter and
selling group members (if any) who are qualified market makers on the Nasdaq
National Market may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M
under the Exchange Act, during the business day prior to the pricing of the
offering, before the commencement of offers or sales of the Common Stock.
Passive market makers must comply with applicable volume and price limitations
and must be identified as such. In general, a passive market maker must display
its bid at a price not in excess of the highest independent bid for such
security; if all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for the Company by Cooley Godward LLP, Boulder, Colorado. Certain legal matters
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, A
Professional Corporation, Palo Alto, California.
47
<PAGE> 52
EXPERTS
The balance sheets as of December 31, 1997 and 1996, and the statements of
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997, and for the period from
inception (August 1, 1985) to December 31, 1997 included and incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report, which includes an explanatory paragraph that refers to a change in
accounting for external legal costs related to patents, of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The portions of this Prospectus entitled "Risk Factors -- Our Success Depends On
Protecting Our Intellectual Property" and "Business -- Patents, Proprietary
Rights and Licenses" have been reviewed and approved by Workman, Nydegger &
Jensen, as experts in patent law. The portions of this Prospectus entitled "Risk
Factors -- We Are Subject To Extensive Government Regulation," "Risk
Factors -- Use of Controlled Substances" and "Business -- Government Regulation"
have been reviewed and approved by Burditt & Radzius, as experts in the law
relating to the FDA.
48
<PAGE> 53
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 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 room. Our SEC filings are also available to the public from the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information 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, and 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 Exchange Act:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
2. Definitive Proxy Statement, filed on March 31, 1998, for the 1998 Annual
Meeting of Shareholders;
3. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998;
4. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998, as amended on November 20, 1998;
5. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998, as amended on November 20, 1998; and
6. The description of the Common Stock set forth in the Registration
Statement on Form 8-A dated December 29, 1993.
You may request a copy of these filings, at no cost, by writing or telephoning
our Vice President, Finance and Administration at the following address:
Anesta Corp.
4745 Wiley Post Way
Plaza 6
Suite 650
Salt Lake City, Utah 84116
(801) 595-1405
This Prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. 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.
49
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations and Comprehensive Loss............. F-4
Statement of Changes in Stockholders' Equity................ F-5
Statements of Cash Flows.................................... F-9
Notes to Financial Statements............................... F-11
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Anesta Corp.:
We have audited the accompanying balance sheets of Anesta Corp. (a development
stage company) as of December 31, 1997 and 1996, and the related statements of
operations and comprehensive loss, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997 and for
the period from inception (August 1, 1985) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anesta Corp. (a development
stage company) as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, and for the period from inception (August 1, 1985) to
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective January 1, 1995
the Company changed its method of accounting for external legal costs related to
patents.
/s/ PricewaterhouseCoopers LLP
COOPERS & LYBRAND L.L.P.
Salt Lake City, Utah
February 11, 1998
F-2
<PAGE> 56
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1996 1998
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 9,760,765 $22,807,608 $ 4,722,298
Current portion of certificate of deposit.......... 255,000 153,000 255,000
Marketable debt securities, available-for-sale..... 17,875,711 17,173,950 13,541,445
Accounts receivable................................ 82,863 485,648 212,137
Prepaid expenses and other current assets.......... 428,490 291,983 323,698
----------- ----------- ------------
Total current assets........................ 28,402,829 40,912,189 19,054,578
----------- ----------- ------------
Property and equipment, at cost:
Furniture and equipment............................ 910,443 847,521 935,526
Leasehold improvements............................. 2,278,941 1,476,743 2,327,372
Accumulated depreciation........................... (870,848) (617,058) (1,079,336)
----------- ----------- ------------
2,318,536 1,707,206 2,183,562
----------- ----------- ------------
Other assets:
Certificate of deposit............................. 1,785,000 1,224,000 1,530,000
Other assets....................................... 205,269 115,474 212,015
----------- ----------- ------------
1,990,269 1,339,474 1,742,015
----------- ----------- ------------
Total assets................................ $32,711,634 $43,958,869 $ 22,980,155
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 433,666 $ 518,965 $ 354,984
Accrued liabilities:
Accrued compensation............................. 477,231 332,020 814,461
Accrued research and development costs........... 200,000 200,000
Other............................................ 52,746 92,503 119,992
Current portion of notes payable................... 250,000 150,000 250,000
----------- ----------- ------------
Total current liabilities................... 1,413,643 1,293,488 1,539,437
Unearned revenues.................................... 350,000 350,000 402,500
Notes payable........................................ 1,750,000 1,200,000 1,500,000
----------- ----------- ------------
Total liabilities........................... 3,513,643 2,843,488 3,441,937
----------- ----------- ------------
Commitments (Note 12)
Stockholders' equity:
Common stock, par value, $.001 per share;
Authorized: 15,000,000 shares; Issued: 9,551,465
in 1997, 9,440,129 in 1996 and 9,648,687 in 1998
(unaudited)...................................... 9,551 9,440 9,648
Additional paid-in capital......................... 62,142,239 61,531,623 62,638,334
Deficit accumulated during the development stage... (32,962,206) (20,413,153) (43,174,342)
Treasury stock (345 shares), at cost............... (4,226)
Notes receivable from issuance of common stock..... (7,000)
Accumulated other comprehensive income (loss)...... 8,407 (1,303) 64,578
----------- ----------- ------------
Total stockholders' equity.................. 29,197,991 41,115,381 19,538,218
----------- ----------- ------------
Total liabilities and stockholders'
equity.................................... $32,711,634 $43,958,869 $ 22,980,155
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 57
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1997 1996 1995 1998 1997
------------ ------------ ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales.................... $ 183,752 $ 92,430 $ 60,725 $ 151,881 $ 109,425
Royalty revenue.................. 5,449 2,700 101,775 4,506 3,243
Revenues from contract
research/license agreements.... 1,503,000 1,514,000 175,000
------------ ------------ ----------- ------------ ------------
Total revenues............. 189,201 1,598,130 1,676,500 331,387 112,668
------------ ------------ ----------- ------------ ------------
Operating costs and expenses:
Cost of goods sold............... 52,082 27,290 18,771 42,686 31,396
Royalties........................ 2,838 2,500 2,500 4,691 3,380
Research and development......... 7,889,021 8,303,756 5,228,392 5,768,521 5,353,295
Depreciation and amortization.... 269,595 237,622 157,647 224,272 177,988
Marketing, general and
administrative................. 6,368,094 3,536,852 2,219,229 5,367,371 4,723,272
------------ ------------ ----------- ------------ ------------
Total costs and expenses... 14,581,630 12,108,020 7,626,539 11,407,541 10,289,331
------------ ------------ ----------- ------------ ------------
Loss from operations............. (14,392,429) (10,509,890) (5,950,039) (11,076,154) (10,176,663)
Non operating income (expense):
Interest income.................. 1,992,739 1,958,073 1,365,605 978,019 1,540,489
Interest expense................. (139,407) (111,514) (99,931) (105,642) (94,440)
Other............................ (8,215) (26,408) (16,327) (3,733) 3,150
------------ ------------ ----------- ------------ ------------
Loss before provision for
income taxes, extraordinary
item and cumulative effect of
change in accounting......... (12,547,312) (8,689,739) (4,700,692) (10,207,510) (8,727,464)
Provision for income taxes......... (1,741) (100) (100) (4,626) (1,539)
------------ ------------ ----------- ------------ ------------
Loss before extraordinary item
and cumulative effect of change
in accounting.................. (12,549,053) (8,689,839) (4,700,792) (10,212,136) (8,729,003)
Extraordinary item -- reduction of
income taxes arising from
carryforward of prior years'
operating losses.................
Cumulative effect of change in
accounting (Note 2).............. (1,041,047)
------------ ------------ ----------- ------------ ------------
Net loss......................... (12,549,053) (8,689,839) (5,741,839) (10,212,136) (8,729,003)
------------ ------------ ----------- ------------ ------------
Other comprehensive income:
Foreign currency translation
adjustment..................... 19,460
Unrealized gain (loss) on
marketable debt securities,
available for sale............. 9,710 (135,192) 143,117 36,711 17,708
------------ ------------ ----------- ------------ ------------
Total other comprehensive
income (loss)............ 9,710 (135,192) 143,117 56,171 17,708
------------ ------------ ----------- ------------ ------------
Comprehensive loss......... $(12,539,343) $ (8,825,031) $(5,598,722) $(10,155,965) $ (8,711,295)
============ ============ =========== ============ ============
Basic and diluted loss per common
share (Note 14) --
Loss before extraordinary item
and cumulative effect of change
in accounting.................. $ (1.32) $ (1.02) $ (0.65) $ (1.06) $ (.92)
Extraordinary item...............
Cumulative effect of change in
accounting..................... (0.15)
------------ ------------ ----------- ------------ ------------
Net loss per common share........ $ (1.32) $ (1.02) $ (0.80) $ (1.06) $ (0.92)
============ ============ =========== ============ ============
Weighted average shares
outstanding...................... 9,500,055 8,499,124 7,177,220 9,595,081 9,485,720
============ ============ =========== ============ ============
<CAPTION>
PERIOD FROM INCEPTION
AUGUST 1, 1985 THROUGH
----------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Product sales.................... $ 374,183 $ 526,064
Royalty revenue.................. 111,040 115,546
Revenues from contract
research/license agreements.... 9,978,931 10,153,931
------------ ------------
Total revenues............. 10,464,154 10,795,541
------------ ------------
Operating costs and expenses:
Cost of goods sold............... 119,771 162,457
Royalties........................ 10,338 15,029
Research and development......... 30,734,783 36,503,304
Depreciation and amortization.... 1,097,151 1,321,423
Marketing, general and
administrative................. 15,725,665 21,093,036
------------ ------------
Total costs and expenses... 47,687,708 59,095,249
------------ ------------
Loss from operations............. (37,223,554) (48,299,708)
Non operating income (expense):
Interest income.................. 6,337,096 7,315,115
Interest expense................. (492,391) (598,033)
Other............................ (47,576) (51,309)
------------ ------------
Loss before provision for
income taxes, extraordinary
item and cumulative effect of
change in accounting......... (31,426,425) (41,633,935)
Provision for income taxes......... (25,146) (29,772)
------------ ------------
Loss before extraordinary item
and cumulative effect of change
in accounting.................. (31,451,571) (41,663,707)
Extraordinary item -- reduction of
income taxes arising from
carryforward of prior years'
operating losses................. 22,296 22,296
Cumulative effect of change in
accounting (Note 2).............. (1,041,047) (1,041,047)
------------ ------------
Net loss......................... (32,470,322) (42,682,458)
------------ ------------
Other comprehensive income:
Foreign currency translation
adjustment.....................
Unrealized gain (loss) on
marketable debt securities,
available for sale............. 8,407 64,578
------------ ------------
Total other comprehensive
income (loss)............ 8,407 64,578
------------ ------------
Comprehensive loss......... $(32,461,915) $(42,617,880)
============ ============
Basic and diluted loss per common
share (Note 14) --
Loss before extraordinary item
and cumulative effect of change
in accounting..................
Extraordinary item...............
Cumulative effect of change in
accounting.....................
Net loss per common share........
Weighted average shares
outstanding......................
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 58
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1985) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK -- VOTING COMMON STOCK ACCUMULATED
--------------------------------- ---------------------------------- DURING THE TREASURY STOCK
PAID-IN PAID-IN DEVELOPMENT -----------------
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STAGE SHARES AMOUNT
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial offering of
common stock for cash
on August 1, 1985 (at
$.02 per share)...... 53,600 $ 535 $ 537
Issuance of common
stock for cash on
September 16, 1985
(at $.20 per
share)............... 290,500 2,906 55,194
Issuance of common
stock for cash on
November 12, 1985 (at
$.70 per share)...... 149,000 1,490 102,810
Issuance of common
stock for a License
Agreement with the
University of Utah on
January 31, 1986 (at
$.70 per share)...... 6,000 60 4,140
Issuance of common
stock for cash on
January 31, 1986 (at
$.70 per share)...... 37,500 376 25,874
Compensation
recognized for
compensatory stock
options.............. 930
Loss from inception to
December 31, 1986.... $ (121,780)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1986............. 536,600 5,367 189,485 (121,780)
Issuance of common
stock for cash on
March 30, 1987, April
14, 1987 and May 30,
1987 (at $1.40 per
share)............... 357,135 3,570 473,420
Compensation
recognized for
compensatory stock
options.............. 1,812
1987 net loss......... (302,842)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1987............. 893,735 8,937 664,717 (424,622)
Exercise of stock
options for cash..... 500 5 345
Issuance of common
stock for consulting
services on December
20, 1988 (at $.20 per
share)............... 3,985 40 757
1988 net loss......... (666,450)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1988............. 898,220 8,982 665,819 (1,091,072)
<CAPTION>
NOTES
RECEIVABLE
FROM
ISSUANCE ACCUMULATED
OF OTHER
COMMON COMPREHENSIVE
STOCK INCOME (LOSS) TOTAL
---------- ------------- ------------
<S> <C> <C> <C>
Initial offering of
common stock for cash
on August 1, 1985 (at
$.02 per share)...... $ 1,072
Issuance of common
stock for cash on
September 16, 1985
(at $.20 per
share)............... 58,100
Issuance of common
stock for cash on
November 12, 1985 (at
$.70 per share)...... 104,300
Issuance of common
stock for a License
Agreement with the
University of Utah on
January 31, 1986 (at
$.70 per share)...... 4,200
Issuance of common
stock for cash on
January 31, 1986 (at
$.70 per share)...... 26,250
Compensation
recognized for
compensatory stock
options.............. 930
Loss from inception to
December 31, 1986.... (121,780)
-------- --------- ------------
Balance at December
31, 1986............. 73,072
Issuance of common
stock for cash on
March 30, 1987, April
14, 1987 and May 30,
1987 (at $1.40 per
share)............... 476,990
Compensation
recognized for
compensatory stock
options.............. 1,812
1987 net loss......... (302,842)
-------- --------- ------------
Balance at December
31, 1987............. 249,032
Exercise of stock
options for cash..... 350
Issuance of common
stock for consulting
services on December
20, 1988 (at $.20 per
share)............... 797
1988 net loss......... (666,450)
-------- --------- ------------
Balance at December
31, 1988............. (416,271)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 59
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1985) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK -- VOTING COMMON STOCK ACCUMULATED
--------------------------------- ---------------------------------- DURING THE TREASURY STOCK
PAID-IN PAID-IN DEVELOPMENT -----------------
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STAGE SHARES AMOUNT
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of senior
promissory and demand
notes and interest to
voting preferred
stock................ 298,908 $ 29,891 $ 1,165,777
Issuance of voting
preferred stock for
cash on September 25,
1989 (at $4.00 per
share)............... 26,545 2,654 103,525
1989 net loss......... $ (550,811)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1989............. 325,453 32,545 1,269,302 898,220 $ 8,982 $ 665,819 (1,641,883)
Issuance of voting
preferred stock for
technology on October
1, 1990 (at $.10 per
share)............... 12,000 1,200
Exercise of stock
options for cash..... 4,594 46 3,280
1990 net income....... 91,445
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1990............. 337,453 33,745 1,269,302 902,814 9,028 669,099 (1,550,438)
Issuance of voting
preferred stock for
cash on January 11,
1991 (at $12.00 per
share)............... 20,834 2,084 247,924
Exercise of stock
options for cash..... 27,500 275 20,475
1991 net loss......... (68,535)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1991............. 358,287 35,829 1,517,226 930,314 9,303 689,574 (1,618,973)
Exercise of stock
options for cash and
notes................ 24,041 241 18,992
Issuance of voting
preferred stock for
cash on December 21,
1992 (at $25.00 per
share)............... 16,000 1,600 398,400
1992 net loss......... (82,813)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1992............. 374,287 37,429 1,915,626 954,355 9,544 708,566 (1,701,786)
Change in par value
upon
reincorporation...... (37,055) 37,055 (13,561) 13,561
Exercise of stock
options for cash and
notes................ 552,362 5,524 436,866
1993 net loss......... (838,580)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1993............. 374,287 374 1,952,681 1,506,717 1,507 1,158,993 (2,540,366)
<CAPTION>
NOTES
RECEIVABLE
FROM
ISSUANCE ACCUMULATED
OF OTHER
COMMON COMPREHENSIVE
STOCK INCOME (LOSS) TOTAL
---------- ------------- ------------
<S> <C> <C> <C>
Conversion of senior
promissory and demand
notes and interest to
voting preferred
stock................ $ 1,195,668
Issuance of voting
preferred stock for
cash on September 25,
1989 (at $4.00 per
share)............... 106,179
1989 net loss......... (550,811)
-------- --------- ------------
Balance at December
31, 1989............. 334,765
Issuance of voting
preferred stock for
technology on October
1, 1990 (at $.10 per
share)............... 1,200
Exercise of stock
options for cash..... 3,326
1990 net income....... 91,445
-------- --------- ------------
Balance at December
31, 1990............. 430,736
Issuance of voting
preferred stock for
cash on January 11,
1991 (at $12.00 per
share)............... 250,008
Exercise of stock
options for cash..... 20,750
1991 net loss......... (68,535)
-------- --------- ------------
Balance at December
31, 1991............. 632,959
Exercise of stock
options for cash and
notes................ $ (7,000) 12,233
Issuance of voting
preferred stock for
cash on December 21,
1992 (at $25.00 per
share)............... 400,000
1992 net loss......... (82,813)
-------- --------- ------------
Balance at December
31, 1992............. (7,000) 962,379
Change in par value
upon
reincorporation......
Exercise of stock
options for cash and
notes................ (58,000) 384,390
1993 net loss......... (838,580)
-------- --------- ------------
Balance at December
31, 1993............. (65,000) 508,189
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 60
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1985) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK -- VOTING COMMON STOCK ACCUMULATED
--------------------------------- ---------------------------------- DURING THE TREASURY STOCK
PAID-IN PAID-IN DEVELOPMENT -----------------
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STAGE SHARES AMOUNT
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock for cash on
January 25, 1994 (at
$12.50 per share),
net of offering costs
of $2,711,650........ 2,500,000 $ 2,500 $28,535,850
Exercise of warrants
for cash on January
25, 1994 (at an
average of $1.19 per
share)............... 1,202,840 1,203 1,424,797
Exercise of stock
options for cash..... 16,499 16 13,095
Issuance of stock
under stock purchase
plan................. 4,532 5 20,701
Payment of dividends
on preferred stock
($1.31 per share).... $ (491,884)
Conversion of
preferred stock to
common stock......... (374,287) $ (374) $(1,952,681) 1,871,435 1,871 1,951,184
Purchase of treasury
stock (at $12.25 per
share)............... 345 $(4,226)
Other comprehensive
loss -- unrealized
loss on marketable
debt securities,
available-
for-sale.............
1994 net loss......... (2,949,225)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1994............. 7,102,023 7,102 33,104,620 (5,981,475) 345 (4,226)
Exercise of stock
options for cash..... 96,328 97 115,695
Issuance of stock
under stock purchase
plan................. 9,365 9 50,533
Collection on notes
receivable from
issuance of common
stock................
Other comprehensive
income...............
1995 net loss......... (5,741,839)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1995............. 7,207,716 7,208 33,270,848 (11,723,314) 345 (4,226)
Exercise of stock
options for cash..... 223,088 223 329,228
Issuance of stock
under stock purchase
plan................. 9,325 9 75,322
<CAPTION>
NOTES
RECEIVABLE
FROM
ISSUANCE ACCUMULATED
OF OTHER
COMMON COMPREHENSIVE
STOCK INCOME (LOSS) TOTAL
---------- ------------- ------------
<S> <C> <C> <C>
Issuance of common
stock for cash on
January 25, 1994 (at
$12.50 per share),
net of offering costs
of $2,711,650........ $ 28,538,350
Exercise of warrants
for cash on January
25, 1994 (at an
average of $1.19 per
share)............... 1,426,000
Exercise of stock
options for cash..... 13,111
Issuance of stock
under stock purchase
plan................. 20,706
Payment of dividends
on preferred stock
($1.31 per share).... (491,884)
Conversion of
preferred stock to
common stock.........
Purchase of treasury
stock (at $12.25 per
share)............... (4,226)
Other comprehensive
loss -- unrealized
loss on marketable
debt securities,
available-
for-sale............. $ (9,228) (9,228)
1994 net loss......... (2,949,225)
-------- --------- ------------
Balance at December
31, 1994............. $(65,000) (9,228) 27,051,793
Exercise of stock
options for cash..... 115,792
Issuance of stock
under stock purchase
plan................. 50,542
Collection on notes
receivable from
issuance of common
stock................ 58,000 58,000
Other comprehensive
income............... 143,117 143,117
1995 net loss......... (5,741,839)
-------- --------- ------------
Balance at December
31, 1995............. (7,000) 133,889 21,677,405
Exercise of stock
options for cash..... 329,451
Issuance of stock
under stock purchase
plan................. 75,331
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 61
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1985) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK -- VOTING COMMON STOCK ACCUMULATED
--------------------------------- ---------------------------------- DURING THE TREASURY STOCK
PAID-IN PAID-IN DEVELOPMENT -----------------
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STAGE SHARES AMOUNT
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock for cash on
June 6, 1996 (at
$15.00 per share),
net of offering costs
of $2,141,775........ 2,000,000 $ 2,000 $27,856,225
Other comprehensive
loss.................
1996 net loss......... $ (8,689,839)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1996............. 9,440,129 9,440 61,531,623 (20,413,153) 345 $(4,226)
Exercise of stock
options for cash and
stock................ 105,716 105 530,788
Issuance of stock
under stock purchase
plan................. 5,965 6 84,054
Retirement of treasury
stock in July
1997................. (345) (4,226) (345) 4,226
Collection on notes
receivable from
issuance of common
stock................
Other comprehensive
income...............
1997 net loss......... (12,549,053)
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at December
31, 1997............. 9,551,465 9,551 62,142,239 (32,962,206)
Exercise of stock
options for cash and
stock (unaudited).... 97,222 97 496,095
Net loss
(unaudited).......... (10,212,136)
Other comprehensive
income (unaudited)...
-------- -------- ----------- --------- -------- ----------- ------------ ------- -------
Balance at September
30, 1998
(unaudited).......... 9,648,687 $ 9,648 $62,638,334 $(43,174,342)
======== ======== =========== ========= ======== =========== ============ ======= =======
<CAPTION>
NOTES
RECEIVABLE
FROM
ISSUANCE ACCUMULATED
OF OTHER
COMMON COMPREHENSIVE
STOCK INCOME (LOSS) TOTAL
---------- ------------- ------------
<S> <C> <C> <C>
Issuance of common
stock for cash on
June 6, 1996 (at
$15.00 per share),
net of offering costs
of $2,141,775........ $ 27,858,225
Other comprehensive
loss................. $(135,192) (135,192)
1996 net loss......... (8,689,839)
-------- --------- ------------
Balance at December
31, 1996............. $ (7,000) (1,303) 41,115,381
Exercise of stock
options for cash and
stock................ 530,893
Issuance of stock
under stock purchase
plan................. 84,060
Retirement of treasury
stock in July
1997.................
Collection on notes
receivable from
issuance of common
stock................ 7,000 7,000
Other comprehensive
income............... 9,710 9,710
1997 net loss......... (12,549,053)
-------- --------- ------------
Balance at December
31, 1997............. 8,407 29,197,991
Exercise of stock
options for cash and
stock (unaudited).... 496,192
Net loss
(unaudited).......... (10,212,136)
Other comprehensive
income (unaudited)... 56,171 56,171
-------- --------- ------------
Balance at September
30, 1998
(unaudited).......... $ 64,578 $ 19,538,218
======== ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 62
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss............... $(12,549,053) $ (8,689,839) $ (5,741,839)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Cumulative effect of
accounting
change............. 1,041,047
Depreciation and
amortization....... 269,595 237,622 157,647
Debt conversion
expense............
Interest converted to
equity.............
Compensatory stock
options and
stock..............
(Gain) loss on
retirement of
assets............. 12,245 25,764 10,985
Increase (decrease)
due to changes in:
Accounts
receivable....... 402,785 (75,216) (393,668)
Prepaid expenses
and other current
assets........... (136,507) (214,849) (12,296)
Other assets....... (89,796) (103,906) 4,418
Accounts payable... (85,299) 287,677 (53,060)
Accrued
liabilities...... 105,454 157,651 296,179
Unearned
revenues......... (100,000)
------------ ------------ ------------
Net cash used in
operating
activities..... (12,070,576) (8,375,096) (4,790,587)
------------ ------------ ------------
Cash flows from investing
activities:
Capital expenditures... (894,791) (53,338) (1,591,940)
Proceeds from sale of
assets............... 1,621 250 1,875
Costs associated with
license agreements...
Advances to
employees............
Purchase of treasury
bills................
Proceeds from maturity
of treasury bills....
Purchase of marketable
debt securities,
available-for-sale... (12,754,249) (10,108,649) (14,606,312)
Maturities of
marketable debt
securities,
available-for-sale... 12,062,198 9,554,650 12,879,228
Purchase of certificate
of deposit........... (816,000) (1,530,000)
Proceeds from maturity
of certificate of
deposit.............. 153,000 153,000
------------ ------------ ------------
Net cash (used
in) provided by
investing
activities..... (2,248,221) (454,087) (4,847,149)
------------ ------------ ------------
<CAPTION>
PERIOD FROM INCEPTION
NINE MONTHS ENDED (AUGUST 1, 1985) TO
SEPTEMBER 30, ----------------------------
------------------------------ DECEMBER 31, SEPTEMBER 30,
1998 1997 1997 1998
--------------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss............... $(10,212,136) $ (8,729,003) $(32,470,322) $ (42,682,458)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Cumulative effect of
accounting
change............. 1,041,047 1,041,047
Depreciation and
amortization....... 224,272 177,988 1,097,151 1,321,423
Debt conversion
expense............ 101,330 101,330
Interest converted to
equity............. 94,104 94,104
Compensatory stock
options and
stock.............. 3,539 3,539
(Gain) loss on
retirement of
assets............. 3,778 859 74,623 78,401
Increase (decrease)
due to changes in:
Accounts
receivable....... (129,274) (19,781) (82,863) (212,137)
Prepaid expenses
and other current
assets........... 104,792 (336,105) (428,490) (323,698)
Other assets....... (6,746) (680,811) (207,847) (214,593)
Accounts payable... (78,682) 40,217 433,666 354,984
Accrued
liabilities...... 204,476 350,079 729,977 934,453
Unearned
revenues......... 52,500 350,000 402,500
------------ ------------ ------------ -------------
Net cash used in
operating
activities..... (9,837,020) (9,196,557) (29,264,085) (39,101,105)
------------ ------------ ------------ -------------
Cash flows from investing
activities:
Capital expenditures... (93,126) (98,871) (3,215,379) (3,308,505)
Proceeds from sale of
assets............... 50 25 11,846 11,896
Costs associated with
license agreements... (1,109,533) (1,109,533)
Advances to
employees............ (1,650) (1,650)
Purchase of treasury
bills................ (1,174,419) (1,174,419)
Proceeds from maturity
of treasury bills.... 1,174,419 1,174,419
Purchase of marketable
debt securities,
available-for-sale... (14,404,574) (6,191,468) (52,381,784) (66,786,358)
Maturities of
marketable debt
securities,
available-for-sale... 18,775,551 4,979,783 34,496,076 53,271,627
Purchase of certificate
of deposit........... (816,000) (2,346,000) (2,346,000)
Proceeds from maturity
of certificate of
deposit.............. 255,000 153,000 306,000 561,000
------------ ------------ ------------ -------------
Net cash (used
in) provided by
investing
activities..... 4,532,901 (1,973,531) (24,240,424) (19,707,523)
------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 63
ANESTA CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance
of notes payable..... $ 800,000 $ 1,500,000
Principal payments on
notes payable........ (150,000) $ (150,000)
Principal payments on
obligations under
capital leases....... (16,363) (35,548)
Proceeds from issuance
of common stock...... 614,954 28,263,007 166,334
Collections on notes
receivable from
issuance of common
stock................ 7,000 58,000
Proceeds from issuance
of preferred stock...
Deferred offering
costs................
Dividends paid on
preferred stock......
------------ ------------ ------------
Net cash provided
by financing
activities..... 1,271,954 28,096,644 1,688,786
------------ ------------ ------------
Effect of exchange rate
changes on cash......
------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents.......... (13,046,843) 19,267,461 (7,948,950)
Cash and cash
equivalents at
beginning of
period............... 22,807,608 3,540,147 11,489,097
------------ ------------ ------------
Cash and cash
equivalents at end of
period............... $ 9,760,765 $ 22,807,608 $ 3,540,147
============ ============ ============
SUPPLEMENTAL SCHEDULE OF
NONCASH ACTIVITIES:
The Company issued
stock and stock
options for:
Purchase of
additional license
agreement..........
Notes receivable.....
The Company purchased
leasehold
improvements using
accounts payable.....
The Company entered
into various capital
lease arrangements...
The Company received
stock as payment of a
note receivable......
The Company converted
senior promissory
notes, demand notes
and interest to
voting preferred
stock................
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
year
for interest......... $ 136,715 $ 112,828 $ 95,370
Cash paid during the
year for taxes....... 1,741 100 100
<CAPTION>
PERIOD FROM INCEPTION
NINE MONTHS ENDED (AUGUST 1, 1985) TO
SEPTEMBER 30, ----------------------------
------------------------------ DECEMBER 31, SEPTEMBER 30,
1998 1997 1997 1998
--------------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance
of notes payable..... $ 800,000 $ 3,337,700 $ 3,337,700
Principal payments on
notes payable........ $ (250,000) (150,000) (337,500) (587,500)
Principal payments on
obligations under
capital leases....... (194,488) (194,488)
Proceeds from issuance
of common stock...... 496,192 455,838 60,407,327 60,903,519
Collections on notes
receivable from
issuance of common
stock................ 65,000 65,000
Proceeds from issuance
of preferred stock... 756,222 756,222
Deferred offering
costs................ (277,103) (277,103)
Dividends paid on
preferred stock...... (491,884) (491,884)
------------ ------------ ------------ -------------
Net cash provided
by financing
activities..... 246,192 1,105,838 63,265,274 63,511,466
------------ ------------ ------------ -------------
Effect of exchange rate
changes on cash...... 19,460 19,460
------------ ------------ ------------ -------------
Net increase (decrease)
in cash and cash
equivalents.......... (5,038,467) (10,064,250) 9,760,765 4,722,298
Cash and cash
equivalents at
beginning of
period............... 9,760,765 22,807,608
------------ ------------ ------------ -------------
Cash and cash
equivalents at end of
period............... $ 4,722,298 $ 12,743,358 $ 9,760,765 $ 4,722,298
============ ============ ============ =============
SUPPLEMENTAL SCHEDULE OF
NONCASH ACTIVITIES:
The Company issued
stock and stock
options for:
Purchase of
additional license
agreement.......... $ 5,400 $ 5,400
Notes receivable..... 71,000 71,000
The Company purchased
leasehold
improvements using
accounts payable..... 251,507 251,507
The Company entered
into various capital
lease arrangements... 204,610 204,610
The Company received
stock as payment of a
note receivable...... 4,226 4,226
The Company converted
senior promissory
notes, demand notes
and interest to
voting preferred
stock................ 1,000,200
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
year
for interest......... $ 112,186 $ 98,293 $ 390,695 $ 502,881
Cash paid during the
year for taxes....... 4,626 1,539 2,341 6,967
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Development Stage Activities
Since its inception in August 1985, Anesta Corp. (Anesta or the Company) has
been a development stage company engaged in the research, development and
commercialization of pharmaceutical products incorporating its proprietary oral
transmucosal drug delivery systems. The Company has been unprofitable to date
and expects to incur additional operating losses over the next few years,
primarily due to the expansion of its research and development programs,
including formulation development, pilot manufacturing capabilities, preclinical
studies, clinical trials and Actiqa premarketing activities. As of December 31,
1997, the Company's accumulated deficit was approximately $33 million.
Anesta is the worldwide licensee of technology obtained pursuant to technology
license agreements with the University of Utah Research Foundation (UURF). The
license agreements, which remain in effect for the life of the applicable
patents, may be assigned only with prior written consent of the UURF (see Note
8).
Revenues recognized to date represent revenues under research and development
contracts and sales of the Company's first product, Fentanyl Oralet. The
Company's ability to achieve profitability depends in part upon its ability
alone, or with others, to commercialize successfully its first product, to
complete development of its proposed products, to obtain required regulatory
approvals and to manufacture and market such proposed products (see Note 10).
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. Substantially all of
the Company's cash and cash equivalents are held in two financial institutions
in San Francisco, California.
Marketable Debt Securities
The Company's marketable debt securities are classified as available-for-sale
and carried at market value, with the unrealized gain or loss, net of deferred
income taxes, reflected as a separate component of stockholders' equity. Gross
realized gains and losses, cost determined using the specific identification
method, have not been material.
Property and Equipment
Expenditures that materially increase asset lives are capitalized at cost, while
normal maintenance and repairs are expensed as incurred. Depreciation is
reported on a straight-line basis over the shorter of the estimated useful lives
of the assets, or the term of the lease, which range from 3 to 15 years.
The cost and related accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts and the gain or loss is reflected in
the statements of operations.
Net Loss Per Share
Basic and diluted earnings per share are computed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share (EPS).
There was no impact on
F-11
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
1997, 1996 or 1995 from the Company's adoption of SFAS No. 128. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from securities or contracts
to issue common stock. Common equivalent shares are excluded from the
computation of diluted EPS when their effect is antidilutive.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting For Income Taxes. Deferred income taxes are provided for differences
between the financial statement and tax bases of assets and liabilities using
enacted future tax rates.
Revenue Recognition
The Company recognized revenues from contract research based on qualifying
expenditures. Research and development expense in the accompanying statements of
operations includes funded and unfunded amounts.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring items) necessary to
present fairly the financial position of the Company as of September 30, 1998
and the results of its operations and its cash flows for the nine month periods
ended September 30, 1998 and 1997. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year.
Comprehensive Income
The Company adopted SFAS No. 130 Reporting Comprehensive Income, at the
beginning of fiscal year 1998. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. In accordance with the provisions of SFAS No. 130, the Company has
presented the components of other comprehensive income (loss) in its Statements
of Operations and Comprehensive Loss. The financial statements for all prior
periods have been restated to conform to requirements of SFAS No. 130.
F-12
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
2. ACCOUNTING CHANGE:
Effective January 1, 1995, the Company changed its method of accounting for
external legal costs related to patents. Prior to the change, the Company
capitalized these costs and amortized them over the term of the related patent.
Under the new method, these costs are expensed as incurred. The Company believes
that the change will provide a better comparison with the Company's industry
peers, the majority of which expense these patent costs.
The cumulative effect of this accounting change for years prior to 1995, which
is shown separately in the statement of operations for 1995, resulted in a
charge to operations of $1,041,047 or $.15 per share of common stock. The effect
of this change on 1995 results of operations was to increase the net loss by
approximately $310,000.
3. MARKETABLE DEBT SECURITIES:
The cost and estimated market value of marketable debt securities,
available-for-sale at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate Term Notes........ $ 3,180,102 $2,381 $ 3,182,483
Federal Home Loan Bank
Notes..................... 4,505,163 842 4,506,005
Federal National Mortgage
Notes..................... 6,401,436 4,408 6,405,844
U.S. Treasury Notes......... 1,498,143 927 1,499,070
Foreign Debt Securities..... 2,005,151 $151 2,005,000
Accrued Interest............ 277,309 277,309
----------- ------ ---- -----------
$17,867,304 $8,558 $151 $17,875,711
----------- ------ ---- -----------
</TABLE>
The cost and estimated market value of marketable debt securities,
available-for-sale at December 31, 1997, by contractual maturity, are shown
below:
<TABLE>
<CAPTION>
ESTIMATED
MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less............................. $15,846,670 $15,854,849
Due after one year through five years............... 2,020,634 2,020,862
----------- -----------
$17,867,304 $17,875,711
----------- -----------
</TABLE>
F-13
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
3. MARKETABLE DEBT SECURITIES (CONTINUED):
The cost and estimated market value of marketable debt securities,
available-for-sale at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate Term Notes.............. $ 3,069,682 $1,551 $ 3,068,131
Federal Home Loan Bank Notes...... 2,501,668 $3,807 2,505,475
Federal National Mortgage Notes... 4,434,274 1,373 4,432,901
U.S. Treasury Notes............... 6,985,171 2,186 6,982,985
Accrued Interest.................. 184,458 184,458
----------- ------ ------ -----------
$17,175,253 $3,807 $5,110 $17,173,950
----------- ------ ------ -----------
</TABLE>
4. RELATED PARTY TRANSACTIONS:
The Company paid expenses of $284,030, $317,349 and $321,539 in 1997, 1996 and
1995, respectively, to the Stanley Research Foundation for preclinical and
clinical research. Stanley Research Foundation and its principal trustee are
shareholders of the Company.
5. NOTE PAYABLE:
The note payable at December 31, 1997 and 1996, and September 30, 1998 is
comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996 1998
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Term note payable to a bank with interest
payable monthly at bank's certificate of
deposit rate (5.60% at September 30,
1998 and 6.00% at December 31, 1997)
plus 1.6%. Principal payments of
$250,000 are due each July through July
2005. The note is collateralized by a
certificate of deposit in the amount of
$2,040,000 at December 31,
1997.................................... $2,000,000 $1,350,000 $1,750,000
Current portion......................... (250,000) (150,000) (250,000)
---------- ---------- ----------
Long-term portion....................... $1,750,000 $1,200,000 $1,500,000
---------- ---------- ----------
</TABLE>
F-14
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
5. NOTE PAYABLE (CONTINUED):
The Company's note payable matures for periods ending December 31, as follows:
<TABLE>
<S> <C>
1998....................................... $ 250,000
1999....................................... 250,000
2000....................................... 250,000
2001....................................... 250,000
Thereafter................................. 1,000,000
----------
$2,000,000
----------
</TABLE>
Rates currently available to the Company for notes payable with similar terms
and maturities are used to estimate the fair value of notes payable. At December
31, 1997 and 1996, the carrying value of the note payable approximates fair
value.
6. STOCK BASED COMPENSATION PLAN:
The Company maintains three stock option plans: the 1989 Stock Option Plan (the
"1989 Plan"), the 1993 Stock Option Plan (the "1993 Plan"), and the 1993
Non-Employee Directors' Stock Option Plan (The "Non-Employee Directors' Plan").
The 1989 Plan provides for the issuance of nonqualified stock options ("NQSOs")
to employees of, directors of and consultants to the Company. The 1993 Plan
provides for the issuance of Incentive Stock Options ("ISOs") to employees of
the Company and NQSOs to employees of, directors of and consultants to the
Company. The Non-Employee Directors' Plan provides for the issuance of NQSOs to
non-employee members of the Company's Board of Directors who are not prohibited
by their employer from receiving options. Additionally, the Company has granted
NQSOs to non-employee Directors and consultants on an individual basis and not
under a plan.
Under the 1989 Plan, NQSOs to purchase a total of 250,000 shares were authorized
for issuance, of which 37,690 were outstanding and exercisable at December 31,
1997, and none were outstanding and exercisable at September 30, 1998. All
options have been granted at the market price of the Company's common stock at
the date of grant. The NQSOs vest over a period not to exceed four years from
the date of grant and terminate five years from the date of grant.
At the 1997 annual meeting, stockholders approved an amendment to the 1993 Plan
to increase the number of shares authorized for issuance from an aggregate of
750,000 shares to an aggregate of 1,500,000 shares, of which 1,207,430 and
1,515,710 options were outstanding and 458,570 and 648,881 options were
exercisable at December 31, 1997 and September 30, 1998, respectively. All
options have been granted at the market price of the Company's common stock at
the date of grant. The ISOs and NQSOs vest over a period not to exceed four
years from the date of grant and terminate from five to ten years from the date
of grant.
Under the Non-Employee Directors' Plan, NQSOs to purchase a total of 150,000
shares were authorized for issuance, of which 83,500 and 114,500 options were
outstanding and 31,500 and 55,335 options were exercisable at December 31, 1997
and September 30, 1998, respectively. At the 1997 annual meeting, stockholders
approved an amendment to the Non-
F-15
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
6. STOCK BASED COMPENSATION PLAN (CONTINUED):
Employee Directors' Plan to increase the annual non-discretionary grant made to
each non-employee director by 3,500 shares, from 1,500 shares to 5,000 shares.
All options have been granted at the market price of the Company's common stock
at the date of grant. The NQSOs vest over a period not to exceed four years from
the date of grant and terminate five years from the date of grant.
The Company has granted NQSOs to purchase shares on an individual basis and not
under a plan, on terms similar to the 1989 Plan. At December 31, 1997 and
September 30, 1998, 11,610 and 10,400 options were outstanding and 8,275 options
and 10,400 were exercisable, respectively.
The Company has adopted the provisions of SFAS No. 123. Under these provisions,
the Company is allowed to continue to apply Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its option plans.
Accordingly, no compensation expense has been recognized as options are granted
at the stock's then market price. Had compensation expense for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under the option plans as recommended by SFAS No. 123,
the Company's net loss and loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C> <C>
Net loss.............. As reported $(12,549,053) $ (8,689,839) $(5,741,839)
Pro forma $(13,282,846) $(10,408,851) $(6,126,558)
Loss per share........ As reported $ (1.32) $ (1.02) $ (.80)
Pro forma $ (1.40) $ (1.22) $ (.85)
</TABLE>
NOTE: Basic and diluted loss per share are the same.
The provisions of SFAS No. 123 have not been applied to options granted prior to
January 1, 1995. The pro forma compensation expense may not be representative of
such expense in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: expected
volatility of 79 - 83 percent, risk-free interest rates of 5.4 - 7.8 percent,
expected lives of .2 - 10 years, and a dividend yield of zero for all years.
F-16
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
6. STOCK BASED COMPENSATION PLAN (CONTINUED):
Changes in all outstanding options are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
FIXED OPTIONS (000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------------- ------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... 1,002 $ 8.63 813 $ 5.16 725 $3.85
Granted............... 458 14.48 432 11.51 213 8.38
Exercised............. (110) 5.48 (223) 1.48 (96) 1.20
Forfeited............. (9) 13.16 (20) 9.57 (29) 8.97
------ ------ -----
Outstanding at end of
year................ 1,341 10.86 1,002 8.63 813 5.16
====== ====== =====
Options exercisable at
year-end............ 536 371 405
Weighted-average fair
value of options
granted during the
year................ $11.96 $11.51 $8.38
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
--------------- ----------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.8000 - $ 1.9250 37,690 0.5 years $ 0.95 37,690 $ 0.95
$ 3.8501 - $ 5.7750 154,254 1.9 5.45 113,900 5.43
$ 5.7751 - $ 7.7000 129,011 1.4 6.80 111,519 6.80
$ 7.7001 - $ 9.6250 60,167 1.8 8.29 45,017 8.17
$ 9.6251 - $11.5500 381,986 7.1 11.01 150,949 10.97
$11.5501 - $13.4750 159,696 7.5 12.62 47,030 12.66
$13.4751 - $15.4000 357,624 9.6 14.10 24,340 13.97
$15.4001 - $17.3250 34,802 8.8 16.50 5,590 16.50
$17.3251 - $19.2500 25,000 4.3 18.72 0 0.00
---------- -------- ---------- ----------- -----------
1,340,230 6.2 $10.86 536,035 $ 8.33
========== ======== ========== =========== ===========
</TABLE>
In November 1993, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan"), authorizing the issuance of 250,000 shares pursuant to
purchase rights granted to employees of the Company. Participants may use up to
10% of their compensation to purchase the Company's common stock at the end of
each year at a price equal to 85% of the lower of the beginning or ending stock
price in the plan period. As of December 31, 1997, there were 220,813 shares
available for issuance under the Purchase Plan. Compensation expense under the
fair value method of SFAS No. 123 is not significant relative to shares
purchased under the Purchase Plan for the years ending December 31, 1997, 1996
and 1995.
F-17
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
7. CAPITAL STOCK:
The Company has 1,000,000 shares of authorized voting preferred shares with a
par value of $.001. At December 31, 1997 and 1996 and September 30, 1998 there
were no voting preferred shares issued and outstanding.
8. TECHNOLOGY LICENSE AGREEMENT:
In September 1985, the Company obtained an exclusive worldwide license from UURF
to use technology and knowledge developed or to be developed under Dr. Theodore
H. Stanley's direction at the University of Utah, for anesthetic and other drug
delivery systems based on oral transmucosal technology. In return, the UURF
received 6,000 shares of Company stock and certain royalty rights based on
product sales incorporating the technology.
The license expires on the date of the last expiring patent which occurs in
2010.
9. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1997, 1996 and
1995 and the nine months ended September 30, 1998 and 1997 relates solely to
state income taxes.
As of December 31, 1997, net operating losses (NOLs) totaling approximately $31
million are available to offset future taxable income, and research and
development (R&D) tax credits totaling approximately $724,000 are available to
offset future tax liabilities. The NOLs and the R&D tax credit carryforwards
expire from 2003 to 2012.
The Company's utilization of NOL carryforwards and R&D credits is limited to
approximately $7,802,000 annually as a result of an ownership change in 1996. In
addition to the limitation imposed in 1996, utilization of approximately
$1,380,000 of the NOLs against future taxable income will be subject to an
annual limitation of approximately $140,000 per year because of a cumulative
change in ownership within a three-year period exceeding 50%. Approximately
$110,000 of the R&D tax credit carryforwards is subject to the same annual
limitation, under the constraint that the total NOLs must be utilized before the
R&D credits may be used. To the extent the $140,000 annual limitation is not
fully utilized in any given year, the unused portion of the NOLs and the R&D tax
credit carryforwards are available for potential utilization in future years.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize the benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company's
operations are not currently generating taxable income, the Company believes
that a full valuation allowance should be provided. The valuation allowance
increased $5,170,000 during 1997 and $2,779,000 during 1996, primarily as a
result of the increase in net operating loss carryforwards.
F-18
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
9. INCOME TAXES (CONTINUED):
The components of the net deferred tax asset as of December 31, 1997 and 1996
under SFAS 109 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards................. $ 11,674,000 $ 6,734,000
Research and development tax credit
carryforwards................................. 724,000 555,000
Book/tax difference related to license
agreements.................................... 533,000 483,000
Other............................................ 87,000 76,000
Valuation allowance.............................. (13,018,000) (7,848,000)
------------ -----------
Net deferred tax asset........................... $ -- $ --
------------ -----------
</TABLE>
10. RESEARCH AND DEVELOPMENT:
In December 1989, the Company entered into a research and development, license,
supply and distribution agreement with Abbott Laboratories Hospital Products
Division (Abbott). Under the agreement as amended, the Company granted to Abbott
the exclusive right to make, use and sell in the U.S., oral transmucosal
products resulting from technology owned or licensed by the Company, consisting
of Oral Transmucosal Fentanyl Citrate (OTFC(R)) or other central nervous system
acting drugs or intermediates thereof used for premedication, sedation,
analgesia, diagnostic procedures, emergency room procedures, post-operative
pain, burn treatment or cancer-related pain management. The first product
developed under this agreement is being marketed for use in surgical
premedication and for sedation/analgesia prior to diagnostic or therapeutic
procedures in hospital settings under Abbott's trademark Fentanyl Oralet. The
second product under the agreement will be marketed for breakthrough cancer pain
by Abbott under Anesta's trademark Actiq. Substantially all of the Company's
revenues, accounts receivable, certain accrued research and development costs,
and unearned advance royalty amounts are a result of the various agreements and
transactions with Abbott.
Under the Company's agreements with Abbott, Abbott manufactures Anesta's
OT-fentanyl product line (Fentanyl Oralet and Actiq) and sells these products to
the Company at a price which reflects Abbott's cost of manufacturing. The
Company then sells the products to Abbott at a price related to Abbott's selling
price which results in a gross profit to the Company ranging from approximately
40-70%. In addition, the Company is entitled to receive a royalty on OT-fentanyl
product sales by Abbott.
Effective March 31, 1995, the Company entered into a 1995 funding agreement with
Abbott, under which Abbott agreed to provide up to $1,500,000 of funding during
1995 to further the clinical development of Actiq to treat cancer-related pain
(the "Actiq Cancer Pain Program"). Additionally, the Company entered into a 1996
funding agreement with Abbott, effective September 8, 1995, under which Abbott
agreed to provide up to an additional $1,500,000 of funding during 1996 for the
Actiq Cancer Pain Program. The funding was to be provided for qualifying work
performed and expenses incurred by the Company during 1995 and 1996 in
connection with the Actiq Cancer Pain Program. Under the agreements, the
F-19
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
10. RESEARCH AND DEVELOPMENT (CONTINUED):
Company agreed to provide additional funding required for this program and to
complete certain program milestones.
By agreement, Abbott has committed to pay a total of $10.05 million to the
Company to fund the clinical development of and to obtain the regulatory
approval for Fentanyl Oralet and Actiq. During 1997, 1996 and 1995, the Company
received $375,000, $1,500,000 and $1,125,000, and incurred $7,834,457,
$5,430,252 and $2,530,215 of costs relating to the agreements, respectively.
Revenue of $1,500,000 related to the agreements was recognized in both 1996 and
1995. At December 31, 1996, accounts receivable relating to the agreements
totaled $375,000. Abbott is also obligated to pay the Company $300,000 upon
receipt of FDA marketing clearance of Actiq to treat breakthrough pain in
chronic pain patients. In connection with such development funding, Abbott was
granted, and has exercised, warrants to purchase 1,202,840 shares of the
Company's common stock at prices ranging from $1.00 to $2.40 per share.
Effective August 31, 1995, the Company entered into another agreement with
Abbott whereby Abbott has agreed to be the Company's contract manufacturer for
clinical and commercial supplies of OT-fentanyl products for territories outside
the U.S. The parties have agreed to consult with each other regarding
collaborative agreements with other companies and negotiate in good faith as to
specific terms regarding product supply by Abbott to any Anesta licensees.
In 1995, the Company amended its agreement with Abbott International (A.I.) to
give the Company the right to terminate or cause to become nonexclusive A.I.'s
license rights to OT-fentanyl products in one or more countries in the world
(except the U.S.). In January 1998, the Company exercised its right to terminate
A.I.'s license rights to OT-fentanyl products in all countries in the world
except the U.S.
On November 14, 1997, the Company received an unfavorable regulatory action
letter from the FDA for Actiq. Additional data analysis, submissions and
negotiations need to be completed before Actiq can be cleared for marketing (See
Note 16).
11. UNEARNED REVENUES:
Effective October 12, 1995, the Company entered into an amendment to a prior
agreement between Abbott International (A.I.) and the Company to provide the
Company the right to terminate or cause to become nonexclusive A.I.'s license
rights to OT-fentanyl products in one or more countries in the world except the
U.S. The amendment also eliminated $100,000 of the $450,000 unearned advance
royalty obligation, which amount was recognized as royalty revenue during the
year ended December 31, 1995.
12. LEASES:
In December 1994, the Company entered into a five year operating lease agreement
for a building which has two additional five year renewal options. During 1997,
1996 and 1995 the Company also entered into operating lease agreements for
furniture and equipment.
F-20
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
12. LEASES (CONTINUED):
Future minimum rental payments under operating leases as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998....................................... $ 694,017
1999....................................... 518,018
2000....................................... 394,859
----------
$1,606,894
==========
</TABLE>
Total expense under operating lease agreements for 1997, 1996 and 1995 was
$726,763, $457,915 and $239,135 respectively.
13. EMPLOYEE BENEFITS:
In October 1995, the Board of Directors approved the adoption of a 401(k)
Retirement Plan (the "401(k) Plan") effective January 1, 1996. Under the terms
of the 401(k) Plan, all full-time employees who are at least 21 years of age and
have 6 months of service are eligible to participate. Participants may
contribute up to 15% of their annual compensation to the 401(k) Plan, subject to
statutory limitations. The Company may make discretionary matching contributions
to the 401(k) Plan equal to 25 percent of participant contributions up to 6% of
participant compensation. For 1997 and 1996, the Company declared and paid
discretionary matching contributions to the 401(k) Plan in the amount of $40,784
and $30,395, respectively.
14. COMPUTATION OF DILUTED LOSS PER SHARE:
As of December 31, 1997, options to purchase 1,340,230 shares of common stock at
prices between $0.80 and $19.25 per share were outstanding. As of December 31,
1996, options to purchase 1,001,600 shares of common stock were outstanding at
prices between $0.80 and $13.50. As of December 31, 1995, options to purchase
812,800 shares of common stock were outstanding at prices between $0.80 and
$12.50. None of these options were included in the computation of diluted loss
per share because the effect would have been antidilutive.
15. SUBSEQUENT EVENTS:
On January 28, 1998, the Company announced the signing of an exclusive agreement
with Grupo Ferrer (Ferrer) for the marketing, sales and distribution of Anesta's
OT-fentanyl product line, including Actiq, in Spain and Portugal. Under terms of
the agreement, Ferrer made a payment to the Company and will have exclusive
rights in Spain and Portugal to market and distribute Actiq and certain other
product applications of OT-fentanyl which will be manufactured for Ferrer by
Anesta. The Company does not believe commercial manufacturing will begin before
December 31, 1999. Ferrer is a leading private Spanish pharmaceutical company.
16. EVENTS SUBSEQUENT TO FEBRUARY 11, 1998 (UNAUDITED)
On June 4, 1998, the Company announced the signing of an exclusive agreement
with Laboratoire L. Lafon (Lafon) for the marketing, sales and distribution of
Anesta's
F-21
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 IS UNAUDITED)
16. EVENTS SUBSEQUENT TO FEBRUARY 11, 1998 (UNAUDITED) (CONTINUED):
OT-fentanyl product line, including Actiq, in France. Under terms of the
agreement, Lafon made a payment to the Company and will have exclusive rights in
France to market and distribute Actiq and certain other product applications of
OT-fentanyl which will be manufactured for Lafon by Anesta. The Company does not
believe commercial manufacturing will begin before December 31, 1999. Lafon is a
leading private French pharmaceutical company.
On November 5, 1998 the Company announced that the U.S. Food and Drug
Administrative (FDA) had cleared Actiq (oral transmucosal fentanyl citrate) for
the management of breakthrough cancer pain in patients with malignancies who are
already receiving and who are tolerant to opioid therapy. Actiq is expected to
be available during March 1999.
In November 1998, the Company entered into an agreement with underwriters for
the proposed public sale of 1,800,000 shares of common stock.
F-22
<PAGE> 76
[Inside back cover containing the following copy and illustrations: A
horizontal bar graph is entitled "Anesta Product Pipeline." Across the top of
the bar graph are labels for the milestones of the Company's product pipeline.
Down the left-hand side of the bar graph are product, product candidate or
program names. Each one has a bar on the graph, labeled for that product,
product candidate or program and extending to the right to depict its stage in
development. The bar for "Actiq (U.S.)" specifies Breakthrough cancer pain, and
extends to Approved. The bar for "Fentanyl Oralet" specifies Premedication and
extends to Approved. The bar for "Actiq (U.K.)" specifies Breakthrough cancer
pain and extends to Phase III. The bar for "OT-fentanyl" specifies Acute pain
and extends to Phase III. The bar for "OT-nicotine" specifies Smoking cessation
and extends to Phase II. The bar for "OT-etomidate" specifies Short-acting
sedation and extends to Phase II. Finally, three "OTS" programs have bars
specifying Pain, Nausea/Vomiting, and Migraine, respectively, and each one
extends to the Preclinical stage. Across the bottom of the back cover is a
banner containing the Anesta logo.]
<PAGE> 77
[ANESTA LOGO]
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee, the NASD filing fee and the Nasdaq National Market
Listing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 13,668
NASD filing fee............................................. 5,417
Nasdaq National Market Listing fee.......................... 17,500
Blue sky qualification fee and expenses..................... 5,000
Printing and engraving expenses............................. 110,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 35,000
Transfer agent and registrar fees........................... 10,000
Custodian fees.............................................. 5,000
Miscellaneous............................................... 73,415
--------
Total............................................. $375,000
========
</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.
The Registrant's Bylaws also provide that the Registrant will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent not permitted by Delaware law.
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 Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
II-1
<PAGE> 79
The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement
contains covenants of indemnity among the Underwriters, the Company and the
Selling Stockholders against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
23.3 Consent of Workman, Nydegger & Jensen.
23.4 Consent of Burditt & Radzius.
24.1 Power of Attorney. Reference is made to page II-4.
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the Registrant
pursuant to the provisions described in Item 15 or otherwise, the Registrant 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. 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.
The undersigned Registrant undertakes that: (1) for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus as filed as part of the registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared effective; (2)
for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and (3) for purposes of determining any liability
under the Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for the filing of on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Salt Lake City, County of Salt Lake City, State of
Utah, on the 20th day of November, 1998.
ANESTA CORP.
By: /s/ THOMAS B. KING
-----------------------------------
Thomas B. King
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Thomas B.
King and Roger P. Evans, and each of them, as his true and lawful
attorneys-in-fact and agents, 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 to the Registration Statement on Form
S-3 (including post-effective amendments or any abbreviated registration
statement, and any amendments thereto, filed pursuant to Rule 462(b) increasing
the amount of securities for which registration is being sought), 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 connection
therewith, as fully 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, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM C. MOELLER Chairman of the Board and November 20, 1998
- --------------------------------------------- Treasurer
William C. Moeller
/s/ THEODORE H. STANLEY, M.D. Founding Chairman of the November 20, 1998
- --------------------------------------------- Board
Theodore H. Stanley, M.D.
/s/ THOMAS B. KING President, Chief November 20, 1998
- --------------------------------------------- Executive Officer and
Thomas B. King Director
(Principal Executive
Officer)
/s/ ROGER P. EVANS Vice President Finance November 20, 1998
- --------------------------------------------- and Administration
Roger P. Evans (Principal Financial and
Accounting Officer)
/s/ EDWIN M. KANIA, JR. Director November 20, 1998
- ---------------------------------------------
Edwin M. Kania, Jr.
</TABLE>
II-3
<PAGE> 81
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DANIEL L. KISNER, M.D. Director November 20, 1998
- ---------------------------------------------
Daniel L. Kisner, M.D.
/s/ RICHARD H. LEAZER Director November 20, 1998
- ---------------------------------------------
Richard H. Leazer
/s/ EMANUEL M. PAPPER, M.D., PH.D. Director November 20, 1998
- ---------------------------------------------
Emanuel M. Papper, M.D., Ph.D.
/s/ RICHARD P. URFER Director November 20, 1998
- ---------------------------------------------
Richard P. Urfer
</TABLE>
II-4
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.............................
5.1 Opinion of Cooley Godward LLP..............................
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants................................................
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1........................................................
23.3 Consent of Workman, Nydegger & Jensen......................
23.4 Consent of Burditt & Radzius...............................
24.1 Power of Attorney. Reference is made to page II-4..........
</TABLE>
<PAGE> 1
Exhibit 1.1
2,000,000 SHARES(1)
ANESTA CORP.
COMMON STOCK
UNDERWRITING AGREEMENT
________, 199__
BANCBOSTON ROBERTSON STEPHENS INC.
VOLPE BROWN WHELAN & COMPANY
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Anesta Corp, a Delaware corporation (the "Company"), and certain
stockholders of the Company named in Schedule B hereto (hereafter called the
"Selling Stockholders" address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
1,800,000 shares of its authorized and unissued common stock, par value $0.001
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 200,000 shares of the
Company's authorized and outstanding common stock, par value $0.001 per share,
to the several Underwriters. The 1,800,000 shares of common stock, par value
$0.001 per share, of the Company to be sold by the Company are hereinafter
called the "Company Shares" and the 200,000 shares of common stock, par value
$0.001 per share, to be sold by the Selling Stockholders are hereinafter called
the "Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Company also proposes to grant to the Underwriters an option to purchase up to
300,000 additional shares of the Company's common stock, par value $0.001 per
share, (the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of common stock, par value $0.001 per share, of the Company
to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock."
- --------
(1)Plus an option to purchase up to 300,000 additional shares from the
Company to cover over-allotments.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
I. The Company and each of the Selling Stockholders represents
and warrants to and agrees with each Underwriter and each Selling Stockholder
that:
(a) A registration statement on Form S-3 (File No.
333-_____) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses"), including all documents
incorporated by reference therein, and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
The Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-3 under the Act.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancBoston Robertson
Stephens Inc., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if BancBoston Robertson Stephens Inc., on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations. The
term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); provided, however, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of BancBoston Robertson Stephens
Inc., on behalf of the several Underwriters, the Company shall have provided to
the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the
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<PAGE> 3
Underwriters by the Company and circulated by the Underwriters to all
prospective purchasers of the Shares (including the information deemed to be a
part of the Registration Statement at the time it became effective pursuant to
Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if any
revised prospectus shall be provided to the Underwriters by the Company for use
in connection with the offering of the Shares that differs from the prospectus
referred to in the immediately preceding sentence (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. If in reliance on Rule 434 of the Rules and Regulations and with the
consent of BancBoston Robertson Stephens Inc., on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement. Any reference to the Registration
Statement or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of the Registration Statement or the Prospectus,
as the case may be, and any reference to any amendment or supplement to the
Registration Statement or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
in this Agreement, the term "Incorporated Documents" means the documents which
at the time are incorporated by reference in the Registration Statement, the
Prospectus or any amendment or supplement thereto.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder; any further Incorporated Documents so filed will, when they are
filed, conform in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder; no such document
when it was filed (or, if an amendment with respect to any such document was
filed, when such amendment was filed), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and no
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<PAGE> 4
such further amendment will contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(c) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate or otherwise) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of the
outstanding capital stock of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and its subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities which are material
to the conduct of its business, all of which are valid and in full force and
effect; neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound; and neither the Company nor its subsidiaries
is in material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than Anesta GmbH.
(d) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties may be bound, (ii) the charter or
bylaws of the Company or any of its subsidiaries, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties. No
consent, approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or their respective
properties is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or any of their respective officers
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<PAGE> 5
or any of their respective properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective officers or properties or otherwise which (i) might result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise or might materially and adversely affect their
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company or any of its
subsidiaries of a character required to be described or referred to in the
Registration Statement or Prospectus or any Incorporated Document or to be filed
as an exhibit to the Registration Statement or any Incorporated Document by the
Act or the Rules and Regulations or by the Exchange Act or the rules and
regulations of the Commission thereunder which have not been accurately
described in all material respects in the Registration Statement or Prospectus
or any Incorporated Document or filed as exhibits to the Registration Statement
or any Incorporated Document.
(f) All outstanding shares of capital stock of the
Company (including the Selling Stockholder Shares) have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus and any Incorporated
Document (and such statements correctly state the substance of the instruments
defining the capitalization of the Company); the Company Shares and the Option
Shares hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable, and will be
sold free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest; and no preemptive right, co-sale right, registration
right, right of first refusal or other similar right of stockholders exists with
respect to any of the Company Shares or Option Shares or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically expire upon and will not apply to the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale or transfer of the
Shares except as may be required under the Act or under state or other
securities or Blue Sky laws. All issued and outstanding shares of capital stock
of each subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and were not issued in violation of or
subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in the
Prospectus and the financial statements of the Company, and the related notes
thereto, included or incorporated by reference in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) PRICEWATERHOUSECOOPERS L.L.P which has examined
the consolidated financial statements of the Company, together with the related
schedules and notes, as of December 31, 1997 and 1996 and for each of the years
in the three (3) years ended December 31, 1997 and the period from inception
(August 1, 1985) to December 31, 1997 filed with the Commission as a part of or
incorporated by reference into the Registration Statement, which are included or
incorporated by reference in the Prospectus, are independent accountants within
the meaning of the Act and the Rules and Regulations; the audited consolidated
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<PAGE> 6
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position and
the results of operations of the Company and its subsidiaries at the respective
dates and for the respective periods to which they apply; and all audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information, filed
with the Commission as part of or incorporated by reference into the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data included or incorporated by reference in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included or
incorporated by reference in the Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration
Statement and Prospectus and any Incorporated Document, (i) each of the Company
and its subsidiaries has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus and any Incorporated
Document as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any of
its subsidiaries is a party described in the Registration Statement and
Prospectus and any Incorporated Document are valid agreements, enforceable by
the Company and its subsidiaries (as applicable), except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) each of the
Company and its subsidiaries has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus and any Incorporated
Document as leased by it, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
(j) The Company and its subsidiaries have timely
filed all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes shown thereon as due, and there is no tax deficiency
that has been or, to the best of the Company's knowledge, might be asserted
against the Company or any of its subsidiaries that might have a material
adverse effect on the condition (financial or otherwise),
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<PAGE> 7
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise; and all tax liabilities are
adequately provided for on the books of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; neither the Company
nor any such subsidiary has been refused any insurance coverage sought or
applied for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, contract
manufacturers, partners, resellers, subcontractors, or international
distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise. No collective bargaining agreement exists with any of the Company's
or any of its subsidiary's employees and, to the best of the Company's
knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to
use all patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus and any
Incorporated Document; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company except as described in
the Registration Statement and Prospectus; the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(n) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market,
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from The Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
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<PAGE> 8
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(q) The Company has not at any time during the last
five (5) years (i) made any unlawful contribution to any candidate for foreign
office or failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each
Selling Stockholder and each beneficial owner of 1,000,000 or more shares of
Common Stock has agreed in writing that such person will not, for a period of 90
days from the date that the Registration Statement is declared effective by the
Commission (the "Lock-up Period"), offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of BancBoston Robertson Stephens Inc. The foregoing restriction
has been expressly agreed to preclude the holder of the Securities from engaging
in any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-up Period,
even if such Securities would be disposed of by someone other than such holder.
Such prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person has also
agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. The Company has provided to
counsel for the Underwriters a complete and accurate list of all securityholders
of the Company and the number and type of securities held by each
securityholder. The Company has provided to counsel for the Underwriters true,
accurate and complete copies of all of the agreements pursuant to which its
officers, directors and stockholders have agreed to such or similar restrictions
(the "Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently existing
or hereafter effected without the prior written consent of BancBoston Robertson
Stephens Inc.
(t) Except as set forth in the Registration Statement
and Prospectus and any Incorporated Document, (i) the Company is in compliance
with all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, (ii) the Company
has received no notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be disclosed
in the Registration Statement and the Prospectus and any Incorporated Document,
(iii) the
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<PAGE> 9
Company will not be required to make future material capital expenditures to
comply with Environmental Laws and (iv) no property which is owned, leased or
occupied by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site
under applicable state or local law.
(u) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus and any Incorporated Document.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.]
II. Each Selling Stockholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Stockholder now has and on the Closing
will have valid marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Stockholder or such
Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing Thomas B. King as attorney-in-fact (the "Attorney") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with The First
National Bank of Boston, as custodian (the "Custodian"); each of the Power of
Attorney and the Custody Agreement constitutes a valid and binding agreement on
the part of such Selling Stockholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; and
each of such Selling Stockholder's Attorneys, acting alone, is authorized to
execute and deliver this Agreement and the certificate referred to in Section
6(h) hereof on behalf of such Selling Stockholder, to determine the purchase
price to be paid by the several Underwriters to such Selling Stockholder as
provided in Section 3 hereof, to authorize the delivery of the Selling
Stockholder Shares under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a stock
power or powers with respect thereto, to accept payment therefor, and otherwise
to act on behalf of such Selling Stockholder in connection with this Agreement.
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<PAGE> 10
(c) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling Stockholder of the Power
of Attorney and the Custody Agreement, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and delivery
of the Selling Stockholder Shares under this Agreement (other than, at the time
of the execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Stockholder or with respect to which such
Selling Stockholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to partners or stockholders of such Selling Stockholder, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of BancBoston Robertson
Stephens Inc. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the Selling Stockholder. Such prohibited hedging or
other transactions would including, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Such Selling Stockholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholder except in compliance
with this restriction.
(e) Certificates in negotiable form for all Shares to be
sold by such Selling Stockholder under this Agreement, together with a stock
power or powers duly endorsed in blank by such Selling Stockholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(f) This Agreement has been duly executed and delivered
by or on behalf of such Selling Stockholder and is a valid and binding agreement
of such Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder hereunder, may be bound or, to the best of such
Selling Stockholders' knowledge, result in any violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
such Selling Stockholder or over the properties of such Selling Stockholder, or,
if such Selling Stockholder is other than a natural person, result in any
violation of any provisions of the charter, bylaws or other organizational
documents of such Selling Stockholder.
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(g) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and
will not distribute any prospectus or other offering material in connection with
the offering and sale of the Shares.
(i) All information furnished by or on behalf of such
Selling Stockholder relating to such Selling Stockholder and the Selling
Stockholder Shares that is contained in the representations and warranties of
such Selling Stockholder in such Selling Stockholder's Power of Attorney or set
forth in the Registration Statement or the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing was or will be, true,
correct and complete, and does not, and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date (hereinafter defined) will not, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information not
misleading.
(j) Such Selling Stockholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the Closing
Date and will advise one of its Attorneys and BancBoston Robertson Stephens Inc.
prior to the Closing if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(h) would be inaccurate
if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or has
waived prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that are to
be sold by the Company or any of the other Selling Stockholders to the
Underwriters pursuant to this Agreement; such Selling Stockholder does not have,
or has waived prior to the date hereof, any registration right or other similar
right to participate in the offering made by the Prospectus, other than such
rights of participation as have been satisfied by the participation of such
Selling Stockholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Stockholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in the
Registration Statement and the Prospectus and any Incorporated Document.
(l) Such Selling Stockholder is not aware that any of
the representations and warranties of the Company set forth in Section 2.I.
above is untrue or inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares as hereinafter set forth and Selling
Stockholder Shares set forth opposite the names of the Company and the Selling
Stockholders in Schedule B hereto. The obligation of each Underwriter to the
Company and to each Selling Stockholder shall be to purchase from the Company or
such Selling Stockholder that number of Company Shares or Selling Stockholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Stockholder in Schedule B hereto as the number of Firm
Shares which is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
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The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company with regard to the Shares being purchased from the Company, and to the
order of the Custodian for the respective accounts of the Selling Stockholders
with regard to the Shares being purchased from such Selling Stockholders (and
the Company and such Selling Stockholders agree not to deposit and to cause the
Custodian not to deposit any such check in the bank on which it is drawn, and
not to take any other action with the purpose or effect of receiving immediately
available funds, until the business day following the date of its delivery to
the Company or the Custodian, as the case may be, and, in the event of any
breach of the foregoing, the Company or the Selling Stockholders, as the case
may be, shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach), at the offices of Cooley
Godward LLP, Boulder, Colorado (or at such other place as may be agreed upon
among the Representatives and the Company, at 7:00 A.M., San Francisco time (a)
on the third (3rd) full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (c) at such other time and date not later
than seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company and the Attorneys may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "Closing Date;" provided, however, that if the Company has not
made available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section II hereof) of the Firm Shares at a public offering price of
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$_____ per share. After the public offering, the several Underwriters may, in
their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters, and
under the second and eighth paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement or any Incorporated
Document, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Stockholders that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
I. The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus or the Incorporated Documents, or, prior
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<PAGE> 14
to the end of the period of time in which a prospectus relating to the Shares is
required to be delivered under the Act, file any document which upon filing
becomes an Incorporated Document, which shall not previously have been submitted
to you a reasonable time prior to the proposed filing thereof or to which you
shall reasonably object in writing, subject, however, to compliance with the Act
and the Rules and Regulations, the Exchange Act and the rules and regulations of
the Commission thereunder and the provisions of this Agreement.
II. The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
III. The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
IV. The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term sheet
under Rule 434, in no event later than the first (1st) full business day
following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, and the Incorporated Documents (three of which will
include all exhibits,) all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if BancBoston Robertson
Stephens Inc., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request.
V. The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
VI. During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and will furnish to you and the other several Underwriters hereunder, upon
request (i) concurrently with furnishing such reports to its stockholders,
statements of operations of the Company for each of the first three (3) quarters
in the form furnished to the Company's stockholders, (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are available,
copies of all reports and financial statements
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<PAGE> 15
furnished to or filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"), (v) every material
press release and every material news item or article in respect of the Company
or its affairs which was generally released to stockholders or prepared by the
Company or any of its subsidiaries, and (vi) any additional information of a
public nature concerning the Company or its subsidiaries, or its business which
you may reasonably request. During such five (5) year period, if the Company
shall have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
VII. The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus and report its use of proceeds in accordance with
the Exchange Act and the rules and regulations thereunder.
VIII. The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
IX. If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement pursuant
to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(b)(i), the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
X. If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
XI. During the Lock-up Period, the Company will not, without
the prior written consent of BancBoston Robertson Stephens Inc., effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized 1989 Stock Option Plan, 1993 Stock option Plan and 1993 Non-Employee
Directors' Stock option Plan (the "Option Plans").
XII. During a period of ninety (90) days from the effective
date of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plans or other employee benefit
plan.
5. Expenses.
I. The Company and the Selling Stockholders agree with each
Underwriter that:
(a) The Company and the Selling Stockholders will pay
and bear all costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements, schedules
and exhibits), Preliminary Prospectuses and the Prospectus and the Incorporated
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Documents and any amendments or supplements thereto; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments related
to any of the foregoing; the issuance and delivery of the Shares hereunder to
the several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus and
the Incorporated Documents, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the sale
of the Shares by the Selling Stockholders will be borne collectively by the
Company and the Selling Stockholders. The provisions of this Section 5(a)(i) are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Selling Stockholders and the Company hereby agree to pay, but shall
not affect any agreement which the Selling Stockholders and the Company may
make, or may have made, for the sharing of any of such expenses and costs. Such
agreements shall not impair the obligations of the Company and the Selling
Stockholders hereunder to the several Underwriters.
(b) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly 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 the Company's obligation to reimburse the Underwriters 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 Underwriters
shall promptly return such payment 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) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(c) In addition to their other obligations under Section
8(b) hereof, each Selling Stockholder agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly 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 such
Selling Stockholder's obligation to reimburse the Underwriters 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 Underwriters shall
promptly return such payment to the Selling Stockholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
II. In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company
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<PAGE> 17
and each Selling Stockholder on a monthly 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
the Underwriters' obligation to reimburse the Company and each such Selling
Stockholder 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 each such Selling Stockholder shall promptly return
such payment to the Underwriters 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 and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
III. It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. 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 an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a), 8(b) and 8(c) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(e)
hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, any Selling Stockholder or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
any Incorporated Document or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment,
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<PAGE> 18
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
the following opinion of counsel for the Company and the Selling Stockholders,
dated the Closing Date or such later date on which Option Shares are to be
purchased addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus;
(iii) The Company and its subsidiaries are duly
qualified to do business as a foreign corporation and are in good standing in
each jurisdiction, if any, in which the ownership or leasing of their respective
properties or the conduct of their businesses requires such qualification,
except where the failure to be so qualified or be in good standing would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries considered
as an enterprise. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other entity,
other than Anesta GmbH;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company (including the Selling Stockholder
Shares) have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this Agreement
have been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly issued
and fully paid and nonassessable, and will not have been issued in violation of
or subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right.
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Act;
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<PAGE> 19
(ix) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial data derived therefrom
as to which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations; and each
of the Incorporated Documents (other than the financial statements (including
supporting schedules) and the financial data derived therefrom as to which such
counsel need express no opinion) complied when filed pursuant to the Exchange
Act as to form in all material respects with the requirements of the Act and the
Rules and Regulations and the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(x) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel and is a
fair summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration Statement
comply with Delaware law;
(xi) The description in the Registration
Statement and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration Statement
or Prospectus or any Incorporated Document or to be filed as an exhibit to the
Registration Statement or any Incorporated Document which are not described or
referred to therein or filed as required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance of
the Company's indemnification obligations hereunder, concerning which no opinion
need be expressed) will not (a) result in any violation of the charter or bylaws
of the Company or any of its subsidiaries or (b) to such counsel's knowledge,
result in a material breach or violation of any of the terms and provisions of,
or constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by which their
respective properties are bound, or any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court, government or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries, or over any of their respective
properties or operations;
(xiv) No consent, approval, authorization or
order of or qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries, or over
any of their respective properties or operations is necessary in connection with
the consummation by the Company of the transactions herein contemplated, except
such as have been obtained under the Act or such as may be required under state
or other securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xv) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the Company or
any of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus or any Incorporated Document by the Act
or the Rules and Regulations or by the Exchange Act or the applicable rules and
regulations of the Commission thereunder, other than those described therein;
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<PAGE> 20
(xvi) To such counsel's knowledge, the Company
and its subsidiaries are not presently (a) in material violation of their
respective charters or bylaws, or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company, its subsidiaries or over any of their
respective properties or operations; and
(xvii) To such counsel's knowledge, except as
set forth in the Registration Statement and Prospectus and any Incorporated
Document, no holders of Common Stock or other securities of the Company have
registration rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of such shares
of Common Stock or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement pursuant to
the exercise of and in full satisfaction of such rights;
(xviii) Each Selling Stockholder which is not a
natural person has full right, power and authority to enter into and to perform
its obligations under the Power of Attorney and Custody Agreement to be executed
and delivered by it in connection with the transactions contemplated herein; the
Power of Attorney and Custody Agreement of each Selling Stockholder that is not
a natural person has been duly authorized by such Selling Stockholder; the Power
of Attorney and Custody Agreement of each Selling Stockholder has been duly
executed and delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of each Selling Stockholder constitutes
the valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(xix) Each of the Selling Stockholders has full
right, power and authority to enter into and to perform its obligations under
this Agreement and to sell, transfer, assign and deliver the Shares to be sold
by such Selling Stockholder hereunder;
(xx) This Agreement has been duly authorized by
each Selling Stockholder that is not a natural person and has been duly executed
and delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the delivery of and payment for the
Shares as contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. In rendering such opinion, such counsel may assume
that the Underwriters are without notice of any defect in the title of the
Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel
has participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto and any Incorporated Document, when such documents became
effective or were filed with
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<PAGE> 21
the Commission (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any amendment
or supplement thereto and any Incorporated Document (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Such counsel shall also state that
the conditions for the use of Form S-3 set forth in the General Instructions
thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
Colorado and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company, the
Selling Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Workman, Nydegger & Jensen, P.C., patent counsel to the Company,
dated the Closing Date or such later date on which Option Shares are to be
purchased addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that such
counsel has reviewed the statements set forth in the Registration Statement and
the Prospectus and the Incorporated Documents under the captions "Risk
Factors--Our Success Depends on Protecting Our Intellectual Property," and
"Business--Patents, Proprietary Rights and Licenses"; and such statements
accurately summarize the matters described therein. In addition, such counsel
shall state that although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto and any Incorporated Document, when such documents became
effective or were filed with the Commission (other than the financial statements
including supporting schedules and other financial and statistical information
derived therefrom, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto and any Incorporated Document
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Burditt & Radzius, special regulatory counsel to the Company,
dated the Closing Date or such later date on which Option Shares are to be
purchased addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company possess all licenses, approvals
and authorizations from the FDA required for its business as currently conducted
or presently intended to be conducted and as described in the Prospectus;
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<PAGE> 22
(ii) The Company is not in violation in any
material respect of any material license, permit, approval or authorization from
the FDA applicable to the business of the Company as currently conducted or
presently intended to be conducted and as described in the Prospectus
(iii) To their knowledge, the Company is in all
material respects with the provisions of all applicable FDA rules, regulations
and orders, compliance with which is necessary to the business of the Company as
currently conducted or presently intended to be conducted and as described in
the Prospectus;
(iv) The statements set forth in the
Registration Statement and the Prospectus under the captions "Risk Factors--We
Are Subject to Extensive Government Regulation," "Risk Factors--Our Products
Contain Controlled Substances," "Business--Anesta's Products and Development
Program" and "Business--Government Regulation" accurately summarize the matters
described therein.
In addition, such counsel shall state that although they have not verified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto and any Incorporated Document,
when such documents became effective or were filed with the Commission (other
than the financial statements including supporting schedules and other financial
and statistical information derived therefrom, as to which such counsel need
express no comment) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date on
which the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
and any Incorporated Document (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Wilson Sonsini Goodrich & Rosati, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(h) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
letter from PricewaterhouseCoopers LLP addressed to the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or
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<PAGE> 23
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from PricewaterhouseCoopers LLP shall be addressed to or for the use of
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of December 31, 1997 and related consolidated statements of
operations, stockholders' equity, and cash flows for the twelve (12) months
ended December 31, 1997, (iii) state that PricewaterhouseCoopers LLP has
performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
PricewaterhouseCoopers LLP as described in SAS 71 on the financial statements
for each of the quarters in the three-quarter period ended September 30, 1998
(the "Quarterly Financial Statements"), (iv) state that in the course of such
review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and (v)
address other matters agreed upon by PricewaterhouseCoopers LLP and you. In
addition, you shall have received from PricewaterhouseCoopers LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1997, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(i) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be purchased, as
the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto and the Incorporated Documents, when such Incorporated
Documents became effective or were filed with the Commission, contained all
material information required to be included therein by the Act and the Rules
and Regulations or the Exchange Act and the applicable rules and regulations of
the Commission thereunder, as the case may be, and in all material respects
conformed to the requirements of the Act and the Rules and Regulations or the
Exchange Act and the applicable rules and regulations of the Commission
thereunder, as the case may be, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the Prospectus, and any
amendment or supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and, since the effective date of the
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<PAGE> 24
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not insured) to the property
of the Company or any of its subsidiaries which has been sustained or will have
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise.
(j) You shall be satisfied that, and you shall have
received a certificate, dated the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, from the Attorneys for
each Selling Stockholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and warranties made by
such Selling Stockholder herein are not true or correct in any material respect
on the Closing Date or on any later date on which Option Shares are to be
purchased, as the case may be; or
(ii) Such Selling Stockholder has not complied
with any obligation or satisfied any condition which is required to be performed
or satisfied on the part of such Selling Stockholder at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be.
(k) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, each Selling
Stockholder and each beneficial owner of 1,000,000 or more shares of Common
Stock in writing prior to the date hereof that such person will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or stockholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
BancBoston Robertson Stephens Inc. The foregoing restriction shall have been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
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<PAGE> 25
(l) The Company and the Selling Stockholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholders herein, as to the
performance by the Company and the Selling Stockholders of its their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling Stockholders
will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
300,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company). In the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach. Such delivery and
payment shall take place at the offices of Cooley Godward LLP, Boulder, Colorado
or at such other place as may be agreed upon among the Representatives and the
Company (i) on the Closing Date, if written notice of the exercise of such
option is received by the Company at least two (2) full business days prior to
the Closing Date, or (ii) on a date which shall not be later than the third
(3rd) full business day following the date the Company receives written notice
of the exercise of such option, if such notice is received by the Company less
than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
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<PAGE> 26
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Stockholders herein, to the accuracy of the statements of the Company, the
Selling Stockholders and officers of the Company made pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of its
their respective obligations hereunder, to the conditions set forth in Section 6
hereof, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be satisfactory in form and substance to you and to Underwriters' Counsel,
and you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and completeness
of any of the representations, warranties or statements, the performance of any
of the covenants or agreements of the Company and the Selling Stockholders or
the satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, including any Incorporated
Document, or 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, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement thereto, in reliance upon, and
in conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter, directly or through you, specifically for use
in the preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the
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<PAGE> 27
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject (including, without limitation, in its capacity as an Underwriter
or as a "qualified independent underwriter" within the meaning of Schedule E or
the Bylaws of the NASD) under the Act, the Exchange Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such Selling
Stockholder herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including any Incorporated Document, or 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, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by such Selling
Stockholder, directly or through such Selling Stockholder's representatives,
specifically for use in the preparation thereof, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement provided in
this Section 8(b) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company and each Selling Stockholder against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such Selling Stockholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including any Incorporated Document, or 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, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Stockholder for any legal or other expenses
reasonably incurred
-27-
<PAGE> 28
by the Company and each such Selling Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Stockholder and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, 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 otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that 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 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 the indemnifying party's 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 8 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
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that, except as set forth in Section 8(f) hereof, the Underwriters severally and
not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public offering
price, and the Company and the Selling Stockholders are responsible for the
remaining portion, provided, however, that
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<PAGE> 29
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares purchased by
such Underwriter exceeds the amount of damages which such Underwriter has
otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company or any Selling
Stockholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge
that they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of its their officers, directors or controlling persons within the meaning
of the Act or the Exchange Act, and shall survive the delivery of the Shares to
the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the
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<PAGE> 30
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this Section
10, (i) the Company shall have the right to postpone the time of delivery for a
period of not more than seven (7) full business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement,
supplements to the Prospectus or other such documents which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company or any Selling Stockholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such
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<PAGE> 31
character as to interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraph (i) above,
the Company shall remain obligated to pay costs and expenses pursuant to
Sections 4(j), 5 and 8 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 4745 Wiley Post Way, Plaza 6, Suite 650,
Salt Lake City, Utah 84116, telecopier number (801) 595-1406. Attention: Thomas
B. King, Chief Executive Officer; if sent to one or more of the Selling
Stockholders, such notice shall be sent mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Thomas B. King,
as Attorney-in-Fact for the Selling Stockholders, at 4745 Wiley Post Way, Plaza
6, Suite 650, Salt Lake City, Utah 84116, telecopier number (801) 595-1406.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Stockholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or entity, other than the parties hereto and
their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or entity. No purchaser of any of the Shares from any Underwriter
shall be construed a successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
BancBoston Robertson Stephens Inc. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE> 32
If the foregoing correctly sets forth the understanding among
the Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
ANESTA CORP.
By
--------------------------------------------
SELLING STOCKHOLDERS
By
--------------------------------------------
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
VOLPE BROWN WHELAN & COMPANY
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By
------------------------------
Authorized Signatory
-32-
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriters To Be Purchased
------------ ---------------
<S> <C>
BancBoston Robertson Stephens Inc. .............................
Volpe Brown Whelan & Company
[NAMES OF OTHER UNDERWRITERS]
---------
Total ............................................ 2,000,000
=========
</TABLE>
<PAGE> 34
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Company Shares To Be Sold
------- -----------------
<S> <C>
---------
Total .................................................. 1,800,000
=========
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
Name of Selling Stockholder Number of
Selling Stockholder
[__________________________ Shares To Be Sold
-----------------
<S> <C>
---------
Total .................................................. 200,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
November 20, 1998
Anesta Corp.
4745 Wiley Post Way
Plaza 6, Suite 650
Salt Lake City, UT 84116
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Anesta Corp. (the "Company") of a Registration Statement on
Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), including a prospectus to be filed with the
Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended, and the underwritten public offering of up
to 2,300,000 shares of the Company's Common Stock (the "Shares") including
200,000 shares of Common Stock to be sold by certain stockholders of the Company
(the "Selling Stockholders") and 300,000 shares for which the underwriters have
been granted an over-allotment option.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, (ii) reviewed the Company's Restated Certificate of
Incorporation and Bylaws, as amended, and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment were necessary or appropriate to enable us to
render the opinion expressed below, (iii) assumed that the Shares to be sold to
the underwriters by the Company will be sold at a price established by the Board
of Directors of the Company or the Pricing Committee thereof in accordance with
Section 153 of the Delaware General Corporation Law and (iv) examined and relied
upon a certificate executed by an officer of the Company to the effect that
consideration for the Shares being sold by the Selling Stockholders pursuant to
the Underwriting Agreement was received by the Company in accordance with the
applicable Board of Directors' resolutions and any plan or agreement relating to
the issuance of such Shares, and we have undertaken no independent verification
with respect thereto.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares (when issued and paid for in accordance with the underwriting
agreement filed as an exhibit to the Registration Statement) will be, 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.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ JAMES C. LINFIELD
--------------------------------
James C. T. Linfield
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in this registration
statement on Form S-3 of our report, which includes an explanatory paragraph
that refers to a change in accounting for external legal costs related to
patents, as discussed in Note 3 to the financial statements, dated February 11,
1998, on our audits of the financial statements of Anesta Corp. We also consent
to the references to our firm under the captions "Experts" and "Selected
Financial Data."
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
November 20, 1998
<PAGE> 1
[WORKMAN NYDEGGER & SEELEY LETTERHEAD]
EXHIBIT 23.3
CONSENT OF WORKMAN, NYDEGGER & SEELEY
-------------------------------------
We hereby consent to the following language in reference to our firm under
the caption "Experts" in the Registration Statement on Form S-3 of Anesta
Corporation and related prospectus in connection with statements under the
captions "Our Success Depends on Protecting Our Intellectual Property," and
"Patents, Proprietary Rights and Licenses."
The aforementioned portions of this Prospectus have been reviewed by
Workman, Nydegger & Seeley and are subject to an opinion to be rendered to the
Underwriters.
DATED this 19th day of November, 1998.
WORKMAN, NYDEGGER & SEELEY
By: /s/ MICHAEL F. KRIEGER
-------------------------------------
Michael F. Krieger
<PAGE> 1
EXHIBIT 23.4
[BURDITT & RADZIUS LETTERHEAD]
November 19, 1998
Thomas B. King
President and CEO
Anesta Corporation
4745 Wiley Post Way
Plaza 6, Suite 650
Salt Lake City, UT 84116
Dear Tom:
With reference to the Registration Statement on Form S-3 of Anesta Corp.
(the "Company") proposed to be filed with the Securities and Exchange
Commission for the registration of the Company's Common Stock and to the
related Prospectus, this law firm hereby consents to the reference to our firm
in such Prospectus under the heading "Experts" -- our expertise in this
instance being confined to regulatory/administrative law matters, including
Government Regulation.
Sincerely,
/s/ Charles L. Morin
Charles L. Morin
CLM:jtc
