As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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ORPHAN MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1784594
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
13911 Ridgedale Drive, Suite 475
Minnetonka, Minnesota 55447
(612) 513-6900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
John Howell Bullion Copy to: John T. Kramer, Esq.
Chief Executive Officer Dorsey & Whitney LLP
Orphan Medical, Inc. 220 South Sixth Street
13911 Ridgedale Drive, Suite 475 Minneapolis, Minnesota 55402-1498
Minnetonka, Minnesota 55305 (612) 340-8702
(612) 513-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Approximate date of commencement of proposed sale to the public: FROM
TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Title of each maximum maximum Amount of
class of securities Amount to be offering price aggregate registration
to be registered registered(1) per share(2) offering price(2) fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 61,878 $10.00 $618,780 $183.00
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(1) This amount represents shares to be offered by the selling
securityholder from time to time after the effective date of this Registration
Statement at prevailing market prices at time of sale.
(2) Estimated in accordance with Rule 457(c) under the Securities Act
of 1933 solely for purposes of computing the registration fee on the basis of
the average of the high and low prices reported by Nasdaq National Market on
July 27, 1998.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 30, 1998
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ORPHAN MEDICAL, INC.
61,878 Shares
Common Stock
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This Prospectus relates to 61,878 shares (the "Shares") of common stock,
$.01 par value (the "Common Stock"), of Orphan Medical, Inc. ("Orphan" or the
"Company") offered for the account of Chronimed, Inc. (the "Selling
Shareholder"). The Shares may be sold from time to time by the Selling
Shareholder. The Company will not receive any of the proceeds from the sale of
the Shares. The Company has agreed to pay expenses incurred in registering the
Shares, including legal and accounting fees.
The Shares were acquired by the Selling Shareholder in a private
transaction on June 30, 1998 pursuant to a Termination Agreement dated June 27,
1997. The Shares are "restricted securities" under the Securities Act of 1933,
as amended (the "Act"), prior to their sale hereunder. This Prospectus has been
prepared for the purpose of registering the Shares under the Act to allow for
future sales by the Selling Shareholder to the public without restriction. To
the knowledge of the Company, the Selling Shareholder has made no arrangement
with any brokerage firm for the sale of the Shares. The Selling Shareholder may
be deemed to be an "underwriter" within the meaning of the Act. Any commissions
received by a broker or dealer in connection with resales of the Shares may be
deemed to be underwriting commissions or discounts under the Act. See "Plan of
Distribution."
The Shares have not been registered under the securities laws of any state
or other jurisdiction as of the date of this Prospectus. Brokers or dealers
should confirm the existence of an exemption from registration or effectuate
such registration in connection with any offer and sale of the Shares.
The Common Stock is traded on the Nasdaq National Market under the symbol
"ORPH." On July 27, 1998, the closing sale price of the Common Stock reported by
the Nasdaq National Market was $10.375 per share.
SEE "RISK FACTORS" AT PAGES 2-12 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is , 1998
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION
APPEARING IN THIS PROSPECTUS. CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS
THAT ARE NOT RELATED TO HISTORICAL RESULTS ARE FORWARD-LOOKING STATEMENTS.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED OR IMPLIED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING RISK FACTORS.
LACK OF REVENUES AND PROFITABLE OPERATIONS; UNCERTAINTY OF FUTURE FINANCIAL
RESULTS.
The Company has been unprofitable since its inception in January 1993 and
had an accumulated deficit of $30,265,691 as of June 30, 1998. From inception
through June 30, 1998, the Company reported Elliotts B Solution, Cystadane,
Antizol-Vet, and Antizol sales of $3,160,120 and gross profit on such sales of
$2,460,811, which is not sufficient to sustain future product development or
business growth. The Company expects operating losses to continue into 1999
because gross profit from its five approved products, including Sucraid, is not
expected to offset additional spending required to complete the development
plans for Busulfex and Xyrem, and for additional sales and marketing spending
for the new product introductions. The amount of these losses may vary
significantly from year-to-year and quarter-to-quarter and will depend on, among
other factors, the timing of product development and regulatory approval. There
can be no assurance that the Company will ever generate material product
revenues or achieve profitability.
DEVELOPMENT STAGE COMPANY.
The Company is in the development stage and its operations and the
development of its proposed products are subject to all of the risks inherent in
the establishment of a new business enterprise, including reliance on key
personnel, the lack of fully-developed products, insufficient capital, a
competitive environment characterized by numerous well-established and
well-capitalized competitors, expected operating losses into 1999, a market
subject to extensive regulatory oversight, and reliance on outside contractors
for the manufacture and distribution of its proposed products. The likelihood of
the success of the Company must be considered in light of the problems, expenses
and delays frequently encountered in connection with the development of new
pharmaceutical products or medical products and the competitive and regulatory
environment in which the Company operates.
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE.
The Company's cash, cash equivalents, and short-term investments as of
June 30, 1998 plus the $7.1 million in net cash proceeds from the July 23, 1998
sale of a private placement are expected to be sufficient to fund the Company's
operations through 1999. However, should the Company realize any material
reduction in product revenues and/or a delay in the FDA approval and market
launch of Busulfex, the Company may require additional funding to fully
implement its development plan for Xyrem. Adequate funds for the Company's
operations, whether from financial markets or from other sources, may not be
available when needed on terms attractive to the Company, or at all. Lack of
funding could cause the Company to delay, scale back or eliminate some or all of
its products currently under development, including acquisition and licensing
programs, or prevent the commercial introduction of some or all of its products
altogether.
DEPENDENCE ON LICENSE AND ACQUISITION STRATEGY.
The Company has adopted a license and acquisition strategy to build its
product portfolio. The Company's strategy for growth is dependent upon its
continued ability to identify and acquire new pharmaceutical products targeted
at niche markets within selected strategic therapeutic market segments ("STMS").
Because the Company does not engage in proprietary research and development of
new pharmaceutical products, it must rely upon the willingness of others to sell
or license pharmaceutical product opportunities to the Company. Other companies,
including those with substantially greater resources, are competing with the
Company to acquire such products. There can be no assurance that the Company
will be able to acquire rights to additional products on acceptable terms, if at
all. The failure of the Company to acquire or license new pharmaceutical
products within a
<PAGE>
selected STMS or to promote and market commercially successful products within
an existing STMS could have a material adverse effect on the Company's business
and its prospects.
The Company has contractual production rights to certain compounds through
various license agreements. These agreements are generally terminable by the
licensor for cause upon short notice or in the event the Company is insolvent or
bankrupt, does not apply minimum resources and efforts to develop the compound
under license or does not achieve certain minimum royalty payments. There can be
no assurance that the agreements will not be so terminated and, if terminated,
that the Company will be able to enter into similar agreements on terms as
favorable to the Company as those contained in its existing license agreements.
FOREIGN MARKETING ALLIANCES; NO ASSURANCE OF FOREIGN LICENSEES.
The Company's strategy for the exploitation of foreign markets for its
products is to enter into marketing alliances with multinational and foreign
pharmaceutical companies. From inception through June 30, 1998, the Company has
entered into distribution agreements to sell Cystadane in Australia and New
Zealand, and Antizol in Europe. Sales of Cystadane for Australia and New Zealand
have not been nor are they expected to be material. Distribution of Antizol in
Europe will initially be done on a "named patient" or "emergency use" basis
until full regulatory approval is obtained, and the Company does not expect such
"emergency use" distribution to result in material sales. Distribution of
Antizol in Europe through normal or the usual distribution channels will not
commence until the product has received marketing approval in each European
country into which the distributor expects to sell the product. The Company
typically receives upfront fees for entering into such arrangements and expects
to realize future benefits because the Company will be the exclusive supplier of
the product sold to the distributor in these foreign markets. However, there can
be no assurance that the Company will be able to negotiate additional alliances
for its other products on acceptable terms, if at all, or that such alliances
will be successful. The Company will be substantially dependent upon the
companies it has contracted with to date for the successful distribution of
Cystadane and Antizol outside the U.S. and, if these companies are unsuccessful
in their distribution efforts, it would be difficult for the Company to contract
with other distributors for these products within the licensed territories.
GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVALS.
Government regulation in the United States and abroad will be a
significant factor in the production, testing and marketing of the Company's
current and future products. Prior to marketing, each of the Company's products
must undergo an extensive regulatory approval process conducted by the United
States Food and Drug Administration (the "FDA") and by comparable agencies in
other countries. The approval process can take many years and require the
expenditure of substantial resources, and there can be no assurance that any
product that the Company may develop will be approved by the FDA or any foreign
regulatory authority in a timely manner, or at all. Generally, only a very small
percentage of newly discovered pharmaceutical compounds that enter pre-clinical
development are approved for sale. The Company will not be permitted to market
any medicine it may develop as a prescription product in any jurisdiction in
which the product does not receive regulatory approval. Once approved, the
Division of Drug Marketing, Advertising and Communication ("DDMAC"), the FDA's
marketing surveillance department within the Center for Drugs, must approve
marketing claims, which are the basis for a product's labeling, advertising and
promotion. There can be no assurance that the claims the Company is seeking will
be approved by DDMAC. The failure to obtain acceptable marketing claims on a
product from DDMAC could have a material adverse effect on the Company and its
prospects.
The Company depends on external laboratories and medical institutions to
conduct its pre-clinical and clinical testing in compliance with clinical and
laboratory practices established by the FDA. The data obtained from pre-clinical
and clinical testing are subject to varying interpretations that could delay,
limit or prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in FDA policy for drug approval during the period
of development and by the requirements for regulatory review of each submitted
New Drug Application ("NDA"). Moreover, even if the FDA approves a product, such
approval may entail commercially unacceptable limitations on the uses, or
"indications," for which a product may be marketed, and further studies may
<PAGE>
be required to provide additional data on safety or effectiveness. The FDA also
requires post-marketing adverse event surveillance programs to monitor the
product's side effects.
An approved FDA product and the product's manufacturer are subject to
continual regulatory review and the later discovery of previously unknown
problems with a product or manufacturer may result in restrictions or sanctions
on such products or manufacturer, including the withdrawal of such product from
the market. Most changes in the manufacturing procedures for any of the
Company's approved products and any change in manufacturers will require the
approval of the FDA prior to their implementation. Obtaining the FDA's approval
for a change in manufacturing procedures or change in manufacturers could cause
production delays and loss of sales, which would have a material adverse effect
the Company's business and its prospects.
In certain countries, the sales price of a product must also be approved
after marketing approval is granted. No assurance can be given that satisfactory
prices can be obtained in foreign markets even if marketing approval is granted
by foreign regulatory authorities.
ORPHAN DRUG STATUS.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 people in
the United States. Orphan drug designation must be requested before submitting
an NDA, and after the FDA grants orphan drug designation, the generic identity
of the therapeutic agent and its potential orphan use are publicized by the FDA.
Under current law, orphan drug status is conferred upon the first company to
receive FDA approval to market the designated drug for the designated
indication, which also grants United States marketing exclusivity for a period
of seven years following approval by the NDA, subject to certain limitations.
Orphan drug designation does not convey any advantage in, or shorten the
duration of, the regulatory approval process. Moreover, although obtaining FDA
approval to market a product with orphan drug status can be advantageous, there
can be no assurance that the scope of protection or the level of marketing
exclusivity that is currently afforded by orphan drug status and marketing
approval will remain in effect in the future. Busulfex and Xyrem have orphan
drug designation; while Antizol, Elliotts B Solution, Cystadane, and Sucraid
have orphan drug status. There can be no assurance, however, that any product
candidates will receive an orphan drug designation or that any of the Company's
products with such a designation will be the first to be approved by the FDA for
the designated indication, thereby obtaining orphan drug status (i.e., marketing
exclusivity). Orphan drug designation does not prevent other manufacturers from
attempting to develop the same drug for the designated indication or from
obtaining the approval of an NDA for their drug prior to the approval of the
Company's NDA. If another sponsor's NDA for the same drug and the same
indication is approved first, that sponsor is entitled to exclusive marketing
rights if that sponsor has received orphan drug designation for its drug. In
that case, the FDA would refrain from approving an application by the Company to
market its competing product for seven years, subject to certain limitations.
There can be no assurance that competing products will not receive orphan drug
designations and FDA marketing approval before the Company's products.
NDA approval of a drug with an orphan drug designation does not prevent
the FDA from approving the same drug for a different indication, or a molecular
variation of the same drug for the same indication. Because doctors are not
restricted by the FDA from prescribing an approved drug for uses not approved by
the FDA, it is also possible that another company's drug could be prescribed for
indications for which the Company's product has received orphan drug designation
and NDA approval. Such prescribing of approved drugs for unapproved uses
(commonly referred to as "off label" use) could adversely affect the marketing
potential of products that have received orphan drug designation and NDA
approval. In addition, NDA approval of a drug with an orphan drug designation
does not provide any marketing exclusivity in foreign markets.
The possible amendment of the Orphan Drug Act by the United States
Congress has been the subject of frequent discussion. Although no significant
changes to the Orphan Drug Act have been made for a number of years, members of
Congress have from time to time proposed legislation that would limit the
application of the Orphan Drug Act. There can be no assurance as to the precise
scope of protection that may be afforded by orphan drug designation and
marketing approval in the future or that the current level of exclusivity will
remain in effect.
<PAGE>
RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
The Company's success will depend, in part, on its ability to enjoy, obtain and
enforce protection for its products under United States and foreign patent laws
and other intellectual property laws, preserve the confidentiality of its trade
secrets and operate without infringing the proprietary rights of third parties.
The patent position of pharmaceutical firms is often highly uncertain and
generally involves complex legal and factual questions. At June 30, 1998,
Busulfex is the only product that the Company has under development for which
the use of or treatment methods licensed by the Company are covered by United
States patents. The Company evaluates the desirability of seeking patent or
other forms of protection for its products in foreign markets based on the
expected costs and relative benefits of attaining such protection. There can be
no assurance that any patents will be issued from any applications or that any
issued patents will afford adequate protection to the Company. Further, there
can be no assurance that any issued patents will not be challenged, invalidated,
infringed or circumvented or that any rights granted thereunder will provide
competitive advantages to the Company. Parties not affiliated with the Company
have obtained or may obtain United States or foreign patents or possess or may
possess proprietary rights relating to the Company's products. There can be no
assurance that patents now in existence or hereafter issued to others will not
adversely affect the development or commercialization of the Company's products
or that the Company's planned activities will not infringe patents owned by
others.
The Company could incur substantial costs in defending itself in
infringement suits brought against it or any of its licensors or in asserting
any infringement claims that the Company may have against others. The Company
could also incur substantial costs in connection with any suits relating to
matters for which the Company has agreed to indemnify its licensors or
distributors. An adverse outcome in any such litigation could have a material
adverse effect on the Company's business and prospects. In addition, the Company
could be required to obtain licenses under patents or other proprietary rights
of third parties. No assurance can be given that any such licenses would be made
available on terms acceptable to the Company, or at all. If the Company is
required to, and does not obtain any such required licenses, it could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of its products.
Busulfex and Xyrem are in the development stage. Even if the development
of such products is successful and marketing clearance from the FDA is obtained,
there can be no assurance that applicable patent coverage, if any, will not have
expired or will not expire shortly after such approval. Any such expiration
could have a material adverse effect on the sales and profitability of such
product. Further, some of the compounds the Company has developed or intends to
develop (Cystadane, Elliotts B Solution, Antizol, Antizol-Vet, Xyrem and
Sucraid) are believed to be in the public domain or not presently subject to
patent protection in the United States.
The Company also seeks to protect its proprietary information and
technology in part by confidentiality agreements and inventors' rights
agreements with its employees. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach or that the Company's trade secrets will not otherwise be disclosed to or
discovered by its competitors.
COMPETITION; RAPID TECHNOLOGICAL CHANGE.
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies, most of which have substantially greater
capital resources, marketing experience, research and development staffs and
facilities than the Company. Although the Company seeks to limit potential
sources of competition by developing products that are eligible for orphan drug
designation and NDA approval or other forms of protection, there can be no
assurance that the Company's competitors will not succeed in developing similar
technologies and products more rapidly than the Company or that these competing
technologies and products will not be more effective than any of those that are
being or will be developed by the Company.
<PAGE>
The Company is aware of products being developed by potential competitors
that have received orphan drug designations for the same respective indications
as Busulfex and Xyrem. If these drugs are approved for marketing before the
Company's products, the Company would be required to obtain a license from these
entities before its own competing products could be marketed. There can be no
assurance that any required license would be available on commercially
acceptable terms, or at all.
The pharmaceutical industry has experienced rapid and significant
technological change. The Company expects that pharmaceutical technology will
continue to develop rapidly, and the Company's future success will depend, in
large part, on its ability to develop and maintain a competitive position.
Technological development by others may result in the Company's products
becoming obsolete before they are marketed or before the Company recovers a
significant portion of the development and commercialization expenses incurred
with respect to such products. In addition, alternative therapies or new medical
treatments could alter existing treatment regimes, and thereby reduce the need
for one or more of the Company's products, which would adversely affect the
Company's business and its prospects.
RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY.
Only five of the Company's products have been approved for marketing by
regulatory authorities in the United States or elsewhere. Even if the balance of
the Company's products are approved for sale, there can be no assurance that
they will be commercially successful or that they will obtain the results
expected. The Company may encounter unanticipated problems relating to the
development, manufacturing, distribution and marketing of its products, some of
which may be beyond the Company's financial and technical capacity to solve. The
failure to adequately address any such problems could have a material adverse
effect on the Company's business and its prospects.
No drug development portfolio can be completely insulated from potential
failures, and it is likely that some products selected for development by the
Company will not produce the results expected during clinical studies, not
receive FDA approval or fail to generate product sales of an acceptable level.
The Company has terminated the development of eleven products from its portfolio
since inception: L-Cycloserine in 1994, Glucaric Acid in 1996, and nine products
in 1997. With respect to the nine products terminated in 1997, the Company took
this action in order to focus its development efforts on those products that fit
within three selected STMS: Antidote, Oncology Support, and Sleep Disorders. The
Company recorded a one-time charge of $780,000 in the third quarter of 1997 for
the estimated cost of winding down the development plans for nine development
products. In addition, the Company believes that several of the products
terminated in 1997 may have value to another pharmaceutical company and it will
seek to license or sell its rights relating to these products. The termination
of the development of any one or more of the Company's current products could
have a material adverse effect on the Company and its prospects.
Most orphan drugs have a potential United States market of less than $10
million annually and many address annual markets of less than $1 million. There
can be no assurance that the Company's sales of its products will be profitable
even if accepted and used by patients and medical specialists.
DEPENDENCE UPON OTHERS FOR CLINICAL TESTING AND MANUFACTURING.
The Company does not have and does not intend to establish any internal
product testing, manufacturing or distribution capabilities. Accordingly, the
Company will be required to enter into arrangements with other companies for the
clinical testing, manufacture and distribution of its products. The inability of
the Company to retain third-parties for these purposes on acceptable terms could
adversely affect the Company's ability to develop and market its products. Any
failures by third-parties to adequately perform their responsibilities may delay
the submission of products for regulatory approval, impair the Company's ability
to deliver its products on a timely basis or otherwise impair the Company's
competitive position. In addition, the Company's dependence on third-parties for
the development, manufacture and distribution of its products may adversely
affect its potential profit margins and its ability to develop and deliver its
products on a timely basis.
The manufacture of drugs can be an expensive, time consuming and complex
process and may require the use of materials with limited availability or a
dependence on sole suppliers. In addition, several of the Company's products
have not yet been manufactured in commercial quantities, and there
<PAGE>
can be no assurance that such products can be so manufactured in a
cost-effective manner. Manufacturers of the Company's products will be subject
to applicable good manufacturing practices ("GMP") prescribed by the FDA or
other rules and regulations prescribed by foreign regulatory authorities. There
can be no assurance that the Company will be able to enter into or maintain
relationships either domestically or abroad with manufacturers whose facilities
and procedures comply or will continue to comply with GMP or applicable foreign
requirements. Should manufacturing agreements be entered into, the Company will
be dependent on such manufacturers for continued compliance with GMP and
applicable foreign standards. Failure by a manufacturer of the Company's
products to comply with GMP or applicable foreign requirements could result in
significant time delays or the inability of the Company to commercialize or
continue to market a product and could have a material adverse effect on the
Company and its prospects. In the United States, failure to comply with GMP or
other applicable legal requirements can lead to federal seizure of violative
products, injunctive actions brought by the federal government, and potential
criminal and civil liability on the part of a company and its officers and
employees.
DEPENDENCE UPON OTHERS FOR DISTRIBUTION.
The Company has an exclusive agreement with Cardinal Health, Inc.
("Cardinal"), whereby Cardinal, through its Specialty Companies, will provide a
variety of services to support the effective distribution of Orphan Medical's
products. Cardinal will provide integrated distribution and operations services
to process and support transactions between Orphan Medical and wholesalers,
specialty distributors, and direct customers; reimbursement management; patient
assistance and information hotline services; and specialty distribution and
marketing services to physician practices. Elliotts B Solution, Antizol, and
Sucraid are currently distributed by Cardinal, which also will distribute the
Company's proposed products should those products receive marketing clearance
from the FDA in the future. The Company will, therefore, be substantially
dependent upon Cardinal's ability to successfully distribute Elliotts B
Solution, Antizol, Sucraid and all of the Company's proposed products that
receive marketing clearance from the FDA.
Cystadane is currently distributed in the U.S. by Chronimed Inc.
("Chronimed"), which distributes this product directly to patients through its
mail order pharmacy. The Company is substantially dependent upon Chronimed's
ability to successfully distribute Cystadane directly to patients in the U.S.
Antizol-Vet is currently distributed exclusively through W.A. Butler
Company ("Butler"), the largest distributor of veterinary pharmaceuticals in the
United States. The Company is substantially dependent upon Butler's ability to
successfully distribute Antizol-Vet. The management of this product and reliance
on the sales efforts of a contract distributor has proven to be more difficult
than the Company originally expected and the Company is presently reviewing its
options with respect to the Antizol-Vet product, which could include the sale or
licensing of its rights to this product.
There can be no assurance that other distribution companies would be
available or continue to be available on commercially acceptable terms, if at
all. The loss of a distributor or failure to renew agreements with an existing
distributor could have a material adverse effect on the Company and its
prospects.
UNCERTAIN EXTENT OF PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT.
The Company's ability to commercialize its products successfully will
depend in part on the price it may be able to charge for its products and on the
extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities,
private health insurers and other third-party payors. Government officials and
private health insurers are increasingly challenging the price of medical
products and services. Significant uncertainty exists as to the pricing
flexibility suppliers will have with respect to, and the reimbursement status
of, newly approved health care products.
In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement government control of pricing
and profitability of prescription pharmaceuticals. Cost controls, if mandated by
a government agency, could decrease the price the Company receives for its
products or products it may develop in the future and, by preventing the
<PAGE>
recovery of development costs, which could be substantial, and an appropriate
profit margin, could have a material adverse effect on the Company. Furthermore,
federal and state regulations govern or influence the reimbursement to health
care providers in connection with medical treatment of certain patients. If any
actions are taken by federal and/or state governments, such actions could
adversely affect the prospects for sales of the Company's products. There can be
no assurance that actions taken by federal and/or state governments, if any,
with regard to health care reform will not have a material adverse effect on the
Company and its prospects.
Certain third-party payors may attempt to further control costs by
selecting exclusive providers of their pharmaceutical products. If such
arrangements were made with competitors of the Company, such payors would not
reimburse patients for purchases of the Company's competing products. This lack
of reimbursement would diminish the market for the Company's products and could
have a material adverse effect on the Company and its prospects.
RISK OF PRODUCT RECALL.
Product recalls may be issued at the discretion of the Company, the FDA,
the U.S. Federal Trade Commission, or other government agencies having
regulatory authority for product sales, and may occur due to disputed labeling
claims, manufacturing issues, quality defects, or other reasons. No assurance
can be given that product recalls will not occur. The Company does not carry any
insurance to cover the risk of a potential product recall. Any product recall
could have a material adverse effect on the Company and its prospects.
PRODUCT LIABILITY AND INSURANCE RISKS.
The testing and sale of human health care products by the Company entails
an inherent risk that product liability claims may be asserted against the
Company. As the Company expands the scope of its clinical testing, the Company
will be exposed to increasing potential liabilities. The pharmaceutical industry
has experienced increasing difficulty in maintaining product liability insurance
coverage at reasonable levels, and substantial increases in insurance premium
costs in many cases have rendered coverage economically impractical. The Company
currently carries product liability coverage in the aggregate amount of $10
million for all claims made in any policy year. Although to date the Company has
not been the subject of any product liability or other claims, there can be no
assurance that the Company will be able to maintain product liability insurance
on acceptable terms or that its insurance will provide adequate coverage against
potential claims. The successful assertion of any uninsured product liability or
other claim against the Company could have a material adverse effect on the
Company's business and prospects.
DEPENDENCE ON CERTAIN OFFICERS AND KEY MANAGEMENT PERSONNEL.
The Company's success will be largely dependent upon the efforts of its
executive officers and key management personnel. The loss of the services of an
executive officer or one or more key employees, or the inability of the Company
to attract and retain skilled management and marketing personnel in the future,
could have a material adverse effect on the Company and its prospects.
YEAR 2000 READINESS ISSUE.
The Company has assessed and continues to assess the impact of the so
called "Year 2000 Readiness Issue" on its reporting systems and operations. The
Year 2000 Readiness Issue relates to the ability of computer hardware, software,
and firmware products to accurately process date/time data (including
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations. In addition, it relates to the ability to properly exchange
time/date data between such products. When the year 2000 occurs, systems that
are not year 2000 compliant might recognize the year 2000 as the year 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause the Company's systems, or the systems used by the Company's suppliers,
distributors, customers or regulatory agencies (i.e., FDA) to process critical
financial and operational information incorrectly, or not at all.
The Company's strategy is and has been to replace its older, inefficient
systems with current technology, which is both year 2000 compliant and more
efficient. In addition, the Company has
<PAGE>
purchased and implemented financial and operational software upgrades that are
year 2000 compliant. Because the Company has been active in upgrading computer
systems, including related operating and application software, to provide for
greater employee efficiency and customer responsiveness, direct expenses related
to specific Year 2000 Readiness Issues should not be material to the Company's
financial statements. In addition, the Company has confirmed with its principal
vendors and distributors that they have implemented Year 2000 Readiness
programs. However, there can be no assurance that the systems of third parties
on which the Company currently relies or may rely on in the future will be year
2000 compliant, or that the failure of a third party's system due to the Year
2000 Readiness Issue would not have a material adverse effect on the Company and
its prospects.
RESTRICTIONS, COVENANTS AND RIGHTS RELATED TO SENIOR CONVERTIBLE PREFERRED
STOCK.
On July 23, 1998 (the "First Issuance Date"), the Company completed the sale to
UBS Capital II LLC ("UBS Capital") of a private placement of $7.5 million of
Senior Convertible Preferred Stock (the "Preferred Shares"). The private
placement agreement also gives UBS Capital the right to invest up to an
additional $4.5 million within 90 days of the First Issuance Date. In
conjunction with the issuance of the Preferred Shares, the Company agreed to
several restrictions and covenants, and granted certain voting and other rights
to the holders of the Preferred Shares, including but not limited to the
following:
1. The Company is restricted from issuing additional equity securities,
including convertible debt instruments, warrants, and stock options, except for
a "Permitted Issuances", are is limited to: (A) shares of Common Stock issued
after the First Issuance Date to Chronimed, Inc. pursuant to the terms of the
Termination Agreement between the Company and Chronimed, Inc., (B) shares of
Common Stock issued upon exercise of stock options that are outstanding on the
First Issuance Date, (C) stock options granted and shares of Common Stock
issuable upon exercise of such options pursuant to the terms of stock option
plans approved by the Company's Board of Directors; provided that the aggregate
number of shares of Common Stock issued, or issuable, under (A), (B) and (C)
shall not exceed two million shares, (D) Common Stock issued upon the exercise
of currently outstanding warrants that, as of June 30, 1998, entitled holders to
purchase an aggregate of 213,255 shares of Common Stock, (E) Common Stock issued
upon the conversion of the Preferred Shares, and (F) securities issued pursuant
to any public offering of the Company's securities registered under the
Securities Act. In addition, the sale of any private placement of equity
securities must be approved by a majority vote of the holders of the Preferred
Shares and, if approved by the holders, UBS Capital has the right of first
refusal with respect to the purchase or sale of any such securities.
2. As of the First Issuance Date, the Preferred Shares are convertible, at the
option of the holders, into shares of the Company's Common Stock at a per share
price equal to the lesser of $11.78 or 110% of the average last sale price of
the 20 trading days prior to October 21, 1998, but not less than $8.50 per
share. If and whenever, on or after the First Issuance Date, the Company issues
or sells, or is deemed to have issued or sold, any shares of its Common Stock
for consideration per share less than the conversion price in effect for the
Preferred Shares immediately prior to the time of such issue or sale, then,
unless such issuance or sale was a Permitted Issuance (as described above),
immediately upon such issue or sale or deemed issue or sale the conversion price
shall be reduced to the conversion price determined by dividing (i) the sum of
(1) the product derived by multiplying the conversion price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
deemed outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received by the Company upon such issue or sale, by (ii)
the number of shares of Common Stock deemed outstanding immediately after such
issue or sale.
3. The dividend rate on the Preferred Shares is 7.5 percent per annum, which is
payable at the option of the Company in either cash or by issuing additional
Preferred Shares (on the first four dividend payment dates) or by issuing Common
Stock (after the fourth dividend payment date). However, unless waived by a
majority of the holders of Preferred Shares, the dividend rate will increase to
20 percent per annum, payable solely in cash, if either (i) at any time during
any 730-day period individuals who constituted the Board of Directors at the
beginning of such period, or the First Issuance Date (whichever is later), cease
for any reason to constitute a majority of the Board of Directors then in office
or (ii) the Board of Directors fails to declare and pay in full, on any semi
annual Dividend Payment Date (as defined in Section 4 (c) of Exhibit 3.1.1).
<PAGE>
4. The Company is restricted from incurring any indebtedness unless after giving
effect to the additional indebtedness the aggregate indebtedness of the
Corporation and its subsidiaries outstanding as of the date of such incurrence,
excluding financing that is secured by accounts receivable but not by the
Corporation's intellectual property licenses or other intellectual property
rights, does not exceed two and one-half times EBITDA of the Company for the
twelve month period immediately prior to the date of such incurrence for which
there are quarterly financial statements available. For purposes of this
restriction, EBITDA shall mean the sum of (i) net income, (ii) interest expense
(iii) depreciation and amortization, and other non-cash items properly deducted
in determining net income and (iv) federal, state and local income taxes,
computed and calculated in accordance with generally accepted accounting
principles.
5. The Company is restricted from paying with respect to its issued and
outstanding Common Stock any cash dividends, cash distributions not classified
as dividends, or cash payments on the redemption of such Common Stock. This
restriction shall apply as long as at least 20 percent of the issued Preferred
Shares remain outstanding.
6. For as long as 20% of the Initial Shares (as defined under Section 7(b) of
Exhibit 3.1.1) remain outstanding, the holders of a majority of the Preferred
Shares, voting separately as a single class in the election of directors of the
Company, to the exclusion of all other classes of the Company's Common Stock and
with each share of the Preferred Shares entitled to one vote, shall be entitled
to elect one (1) director to serve on the Company's Board of Directors until his
successor is duly elected by holders of a majority of the Preferred Shares or he
is removed from office by holders of a majority of the Preferred Shares.
7. The holders of the Preferred Shares shall vote separately as a single class,
and approval of holders of a majority of the outstanding shares of Preferred
Shares shall be required, whenever a shareholder vote is required pursuant to
Section 302A.671 of the Minnesota Business Corporation Act, or any successor
provision thereto, for the purpose of according voting rights with respect to
shares acquired or to be acquired in a control share acquisition (as defined in
Section 302A.011 Subdivision 38 of the Minnesota Business Corporation Act). In
addition, holders of Preferred Shares are entitled to vote on all other matters
requiring shareholder approval on an "as if" converted basis.
8. Ten years from the First Issuance Date, the Company must elect to either (1)
require the holder to convert all remaining unconverted Preferred Shares into
Common Stock upon the payment by the Company of a Conversion Fee to the holder,
payable in cash or Common Stock, or (2) redeem for cash the holder's unconverted
Preferred Shares for $1,000 per share plus accrued dividends. The conversion fee
cannot exceed $3.0 million and will be reduced prorata to the extent the number
of unconverted Preferred Shares at the end of the ten year term is less than the
number of Preferred Shares issued to the holders during the ten year term.
RELATIONSHIP WITH CHRONIMED.
Although the Company believes the agreements that it had with Chronimed
since its July 1, 1994 spin-off were commercially reasonable, such agreements
were not the product of arms-length negotiations. In June 1997, the Company
terminated these agreements (the "Termination Agreement"), except for the
Cystadane Agreement. The Termination Agreement provides that the Company pay
Chronimed compensation equal to $2,500,000, consisting of cash and shares of the
Company's Common Stock. The October 1996 Cystadane Agreement between the Company
and Chronimed applies solely to the domestic distribution of Cystadane. Several
of the Company's directors and executive officers are current or former
employees, shareholders and/or directors of Chronimed. The Termination Agreement
and the October 1996 Cystadane Agreement were approved by all of the independent
outside members of the Company's Board of Directors.
POSSIBLE VOLATILITY OF STOCK PRICE AND DILUTION OF STOCK - TERMINATION AGREEMENT
WITH CHRONIMED.
The Company paid $250,000 on signing the Termination Agreement in June
1997, and had a remaining obligation to compensate Chronimed with cash and
Common Stock having a total value of $2,250,000. Cash payments against this
remaining obligation are to be based on a 3 percent temporary royalty on the
Company's product sales, which the Company began paying quarterly on September
30, 1997. Unregistered shares of Common Stock equal to 1 percent of the
Company's outstanding shares at
<PAGE>
each quarter end, which the Company began issuing on March 31, 1998, are to be
issued quarterly to Chronimed. The Company is obligated to continue paying the
royalties and issuing Common Stock until the sum of all royalty payments and the
market value (as defined below) of all issued Common Stock equals $2,250,000.
The Company is obligated file a registration statement with the Securities and
Exchange Commission to register such shares. The market value of shares issued
to Chronimed as payment against the remaining obligation of $2,250,000 will be
determined as follows: (i) the market value of any such shares sold within 90
days after the effective date of a registration statement covering such shares
will be equal to the net proceeds realized by Chronimed from the sale of such
shares, or (ii) the market value of any such shares not sold within 90 days
after the effective date of a registration statement covering such shares will
be equal to the average last bid price for shares of the Company's Common Stock
as reported on Nasdaq for the last five days within the 90 day period. The
Company anticipates Chronimed will sell in the open market the shares it
receives from the Company within the 90 day period. The Company has the option,
regardless of the market price of its Common Stock, to buy-out for cash the
remaining obligation to Chronimed. Through June 30, 1998, the Company has paid
Chronimed approximately $81,000 in royalties and issued 123,056 shares of Common
Stock, of which 61,178 shares have been sold by Chronimed in market transactions
for net cash proceeds of $576,183. At June 30, 1998, the Company's unpaid
obligation to Chronimed has an estimated value of approximately $1,146,666,
which is classified as a "Current Liability".
There is risk that the Company's current shareholders' ownership could be
substantially diluted and/or the market value of their shares adversely affected
in the event any one or a combination of the following events occur: (1) sales
by Chronimed of the Company's Common Stock cause the price of the Company's
Common Stock to decrease; (2) in the event of a decline in the value of the
Company's Common Stock, the Company would be required to issue more shares in
subsequent periods to satisfy its remaining obligation to Chronimed; or (3) the
Company's sales of future products are significantly less than forecast, which
would decrease the temporary royalty payments that would be applied against the
remaining obligation and, thereby, increase the number of shares required to be
issued to Chronimed. The realization of any one or combination of these risks,
or the decision by the Company to exercise its option to effect a cash buy-out
of the remaining obligation, could have a material adverse effect on the
Company's business, its prospects and its shareholders.
POSSIBLE VOLATILITY OF STOCK PRICE AND REDUCED LIQUIDITY OF THE MARKET FOR THE
STOCK - LOSS OF NASDAQ NATIONAL MARKET LISTING.
There is risk that the market value and the liquidity of the public float
for the Company's Common Stock could be adversely affected in the event the
Company no longer meets the Nasdaq's requirements for continued listing on the
National Market tier. For continued listing on the Nasdaq National Market, a
company must satisfy a number of requirements, which in the Company's case
includes either: (1) net tangible assets in excess of $4.0 million as reported
on Form 10-Q or Form 10-K or (2) a market capitalization of at least $50.0
million. At June 30, 1998, the Company's net tangible assets equaled $669,579
and its market capitalization was approximately $66.0 million (based on the last
sale price of $10.563 and 6,249,718 shares outstanding as of June 30, 1998). Net
tangible assets are defined as total assets less total liabilities. Market
capitalization is defined as total outstanding shares multiplied by the last
sales price quoted by Nasdaq. After giving effect to the July 23, 1998 private
placement of Preferred Shares, which netted the Company approximately $7.1
million in additional net tangible assets (i.e., cash), the Company estimates
that it will have net tangible assets in excess of the $4.0 million (thereby
satisfying Nasdaq's net tangible asset listing requirement) through at least the
end the third quarter of 1998. In the event UBS Capital exercises its right,
which expires on October 21, 1998, to invest up to an additional $4.5 million,
the Company's estimated net tangible assets are expected to exceed $4.0 million
through the end of 1998. Should the Company fail to satisfy at least one of the
two aforementioned Nasdaq listing requirements at any time after the third
quarter of 1998 (or after 1998 in the event of an additional investment by UBS
Capital of at least $2.0 million), the Company's Common Stock would no longer
qualify for listing on the Nasdaq National Market, but would qualify for
quotation on the Nasdaq Small Cap Market provided it had net tangible assets in
excess of $2.0 million. The Company's ability to raise additional capital and
the market value of the Company's Common Stock could be adversely affected by
failing to meet Nasdaq's requirements for listing on either the National Market
or the Small Cap Market. The realization of any one or combination of these
risks could have a material adverse effect on the Company's business, its
prospects and its shareholders.
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE - GENERAL.
There is generally significant volatility in the market prices of
securities of early stage pharmaceutical companies. Contributing to this
volatility are various factors and events, such as the announcements by the
Company or its competitors of new product developments, clinical testing
results, governmental approvals, regulations or actions, developments or
disputes relating to patents or proprietary rights, public concern over the
safety of therapies and fluctuations in financial performance from period to
period. These and other factors and events may have a significant impact on the
Company's business and on the market price of the Common Stock.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, such as Orphan. The address of such site is
"http://www.sec.gov."
The Common Stock is traded on the Nasdaq National Market under the symbol
"ORPH." Reports, proxy and information statements and other information
concerning Orphan can be inspected at the offices of the National Association of
Securities Dealers, 1735 K. Street N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the offering
of the Company's Common Stock hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus:
(a) the Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(c) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998; and
(d) the description of the Common Stock contained in any registration
statement or report filed by the Company under the Exchange Act,
including any amendment or report filed for the purpose of updating
such description filed subsequent to the date of this Prospectus and
prior to the termination of the offering described herein.
In addition, all documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the respective dates of filing of such documents. Any
statement contained herein or in a document all or part of which is incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Such requests
should be directed to John Howell Bullion, Chief Executive Officer, Orphan
Medical, Inc., 13911 Ridgedale Drive, Suite 475, Minnetonka, Minnesota 55447,
telephone: (612) 513-6900.
<PAGE>
SELLING SHAREHOLDER
The Shares offered hereby are being sold pursuant to this Prospectus by the
Selling Shareholder. The following table sets forth certain information with
respect to the ownership of the Company's Common Stock by the Selling
Shareholder as of June 30, 1998 and as adjusted to reflect the sale of the
Shares.
Maximum
Number Number
of Shares of Shares
Beneficially to be Sold Shares
Owned Prior Pursuant to Beneficially Owned
Name to Offering (1) this Prospectus After Offering (2)
- ----------------- --------------- --------------- ------------------
Chronimed, Inc. 0 61,878 0
- ----------------------
(1) Consists of 61,878 shares of Common Stock issued to Chronimed pursuant to
a Termination Agreement dated June 27, 1997.
(2) Assumes the sale of all of the Shares offered by this Prospectus.
PLAN OF DISTRIBUTION
The Shares to which this Prospectus relates will be offered and sold by
the Selling Shareholder for its own accounts. The Company will not receive any
proceeds from the sale of the Shares pursuant to this Prospectus. All expenses
of registration of the Shares, estimated to be approximately $8,000 shall be
borne by the Company.
The Selling Shareholder may offer and sell the Shares from time to time on
the Nasdaq National Market in regular brokerage transactions, in transactions
directly with market makers or in privately negotiated transactions at prices
relating to prevailing market prices or at negotiated prices, as applicable.
Sales may be made to or through brokers or dealers who may receive compensation
in the form of discounts, concessions or commissions from the Selling
Shareholder or the purchasers of Shares for whom such brokers or dealers may act
as agent or to whom they may sell as principal, or both. As of the date of this
Prospectus, the Company is not aware of any agreement, arrangement or
understanding between any broker or dealer and the Selling Shareholder. There is
no assurance that the Selling Shareholder will sell any or all of the Shares
offered by it.
The Selling Shareholder and any brokers or dealers who participate in the
sale of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profits realized by
them on the resale of Shares may be deemed to be underwriting discounts or
commissions under the Securities Act.
The Company has agreed to maintain the effectiveness of this Registration
Statement until the earlier of nine months from the date on which the Selling
Shareholder acquired the Shares (June 30, 1998) or the resale of all the Shares
registered hereunder.
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Stock offered
hereby will be passed upon for the Company by Dorsey & Whitney LLP, Minneapolis,
Minnesota.
EXPERTS
The financial statements of Orphan Medical, Inc. appearing in the Orphan
Medical, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Selling Shareholder
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy to any person in any jurisdiction in which such
offer or solicitation would be unlawful or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that the information contained herein is
correct as of any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Risk Factors ......................................................... 2
Available Information................................................. 13
Incorporation of Certain Documents
by Reference ...................................................... 13
Selling Shareholder .................................................. 14
Plan of Distribution ................................................. 14
Legal Matters ........................................................ 14
Experts .............................................................. 14
================================================================================
ORPHAN MEDICAL, INC.
61,878 SHARES
COMMON STOCK,
PAR VALUE $.01 PER SHARE
---------------
PROSPECTUS
---------------
, 1998
================================================================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee..................................... $ 200.00
Accounting Fees and Expenses............................. 2,000.00
Legal Fees and Expenses.................................. 5,000.00
Miscellaneous ........................................... 800.00
----------
Total........................................... 8,000.00
All fees and expenses other than the SEC registration fee are estimated.
The expenses listed above will be paid by the Company.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interests
of the corporation in the case of acts or omissions in such person's official
capacity for the corporation or reasonably believed that the conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
The Bylaws of Orphan provide that Orphan shall indemnify officers and directors
under such circumstances and to the extent permitted by Section 302A.521 as now
enacted or hereafter amended.
ITEM 16. LIST OF EXHIBITS
4.1 Specimen certificate for shares of Common Stock of the Company
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-3, No. 333-51287).
5.1 Opinion of Dorsey & Whitney LLP regarding legality.
23.1 Consent of Independent Auditors.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to this
Registration Statement).
24.1 Power of Attorney.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
<PAGE>
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
to such information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act if, in the
aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change in the information
set forth in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing 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 Minnetonka, State of Minnesota, on July 29, 1998.
ORPHAN MEDICAL, INC.
By /s/ John Howell Bullion
----------------------------------
John Howell Bullion
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ John Howell Bullion Chief Executive Officer, July 29, 1998
- ----------------------------- - Secretary (principal executive,
John Howell Bullion financial and accounting officer)
and Director
* Director
- -----------------------------
William A. Adams
* Director
- -----------------------------
Maurice R. Taylor, II
* Director
- -----------------------------
Lawrence C. Weaver, Ph.D.,
D.Sc. (Hon.)
* Director
- -----------------------------
W. Leigh Thompson, Ph.D. M.D.
* Director
- -----------------------------
William M. Wardell, Ph.D., M.D.
*By: /s/ John Howell Bullion July 29, 1998
------------------------
John Howell Bullion
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
4.1 Specimen certificate for shares of Common Stock of the Company
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-3, No. 333-51287).
5.1 Opinion of Dorsey & Whitney LLP regarding legality.
23.1 Consent of Independent Auditors.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to this
Registration Statement).
24.1 Power of Attorney.
EXHIBIT 5.1
[Dorsey & Whitney LLP Letterhead]
Orphan Medical, Inc.
13911 Ridgedale Drive, Suite 475
Minnetonka, Minnesota 55447
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Orphan Medical, Inc., a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the sale of
up to 61,878 shares of common stock of the Company, par value $.01 per share
("Common Stock"), of which all such shares will be sold from time to time by the
Selling Shareholder named in the Registration Statement, on the Nasdaq National
Market or otherwise, directly or through underwriters, brokers or dealers.
We have examined such documents and have reviewed such
questions of law as we have considered necessary and appropriate for the
purposes of our opinions set forth below. In rendering our opinions set forth
below, we have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures and the conformity to authentic
originals of all documents submitted to us as copies. We have also assumed the
legal capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other than
the Company, that such parties had the requisite power and authority (corporate
or otherwise) to execute, deliver and perform such agreements or instruments,
that such agreements or instruments have been duly authorized by all requisite
action (corporate or otherwise), executed and delivered by such parties and that
such agreements or instruments are the valid, binding and enforceable
obligations of such parties. As to questions of fact material to our opinions,
we have relied upon certificates of officers of the Company and of public
officials.
Based on the foregoing, we are of the opinion that the shares
of Common Stock to be sold by the Selling Shareholder pursuant to the
Registration Statement have been duly authorized by all requisite corporate
action and, are validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the
State of Minnesota.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement, and to the reference to our firm under the
heading "Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: July 30, 1998
Very truly yours,
/s/ Dorsey & Whitney LLP
Dorsey & Whitney LLP
JTK
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of Orphan Medical,
Inc. for the registration of 61,878 shares of its common stock and to the
incorporation by reference therein of our report dated February 4, 1998, with
respect to the financial statements of Orphan Medical, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 27, 1998
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John Howell Bullion, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities to sign a Registration Statement on Form S-3 of Orphan
Medical, Inc. (the "Company") and any and all amendments thereto, including
post-effective amendments, for the sale of shares of the Company by a certain
selling shareholder, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
and with such state securities commissions and other agencies as necessary;
granting unto said attorney-in-fact and agent, full power and authority to do
and perform to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or the substitutes for such attorney-in-fact and agent, may lawfully do
or cause to be done by virtue hereof.
Name Title Date
---- ----- ----
/s/ William A. Adams Director July 13, 1998
- ----------------------------------
William A. Adams
/s/ Maurice R. Taylor, II Director July 13, 1998
- ----------------------------------
Maurice R. Taylor, II
/s/ Lawrence C. Weaver Director July 11, 1998
- ----------------------------------
Lawrence C. Weaver, Ph.D.,
D.Sc. (Hon.)
/s/ W. Leigh Thompson Director July 9, 1998
- ----------------------------------
W. Leigh Thompson, Ph.D. M.D.
/s/ William M. Wardell Director July 15, 1998
- ----------------------------------
William M. Wardell, Ph.D., M.D.
