As filed with the Securities and Exchange Commission on October 30, 1998
Registration No. 333-
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 55305
(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>
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
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 62,915 $6.438 $405,047 $113.00
</TABLE>
(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
October 27, 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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1998
Orphan Medical, Inc.
13911 Ridgedale Drive, Suite 475
Minnetonka, Minnesota 55305
(612) 513-6900
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ORPHAN MEDICAL, INC.
62,915 Shares
Common Stock
======================================
This Prospectus covers the sale of up to 62,915 shares of Common Stock of Orphan
Medical, Inc. offered for the account of Chronimed, Inc., the selling
shareholder. The Company will not receive any part of the proceeds from the
sale.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"ORPH." The closing sale price of the Common Stock reported by the Nasdaq
National Market on October 28, 1998 was $6.625 per share.
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The information in this Prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
SEE THE SECTION TITLED "RISK FACTORS" BEGINNING ON PAGE 3 TO READ ABOUT CERTAIN
FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998
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ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement that Orphan
Medical, Inc. (the "Company," "we" or "us") filed with the Securities and
Exchange Commission ("SEC"). The Prospectus relates to 62,915 shares (the
"Shares") of common stock of the Company (the "Common Stock") offered for the
account of Chronimed, Inc. ("Chronimed"), the selling shareholder. Chronimed may
sell the Shares at various times. We will not receive any of the proceeds from
such sales. We have agreed to pay expenses incurred in registering the Shares,
including legal and accounting fees.
Chronimed acquired the Shares in a private transaction on June 30, 1998
pursuant to a Termination Agreement between Chronimed and the Company dated June
27, 1997. The Shares are "restricted securities" under the Securities Act of
1933, as amended (the "Act"), prior to their sale pursuant to this Prospectus.
We prepared this Prospectus to register the Shares under the Act to allow
Chronimed to sell the Shares to the public without restriction. To our
knowledge, Chronimed has not made arrangements with any brokerage firm to sell
the Shares. See the section titled "PLAN OF DISTRIBUTION" for more information
on this issue.
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.
This Prospectus provides you with certain risk factors that you should
consider before purchasing the Shares. You should read this Prospectus together
with the additional information described under the heading "WHERE YOU CAN FIND
MORE INFORMATION." The registration statement that contains this Prospectus
(including the exhibits to the registration statement) contains additional
information about the Company and the securities offered under this Prospectus.
That registration statement can be read at the SEC's web site or at the SEC
offices mentioned under the heading "WHERE YOU CAN FIND MORE INFORMATION."
ABOUT ORPHAN MEDICAL, INC.
Orphan Medical, Inc. is a development stage company that acquires,
develops and markets products of high medical value intended to address
inadequately treated or uncommon diseases with selected strategic therapeutic
market segments. Our activities have consisted primarily of obtaining the rights
for pharmaceutical products, hiring the personnel required to implement our
business plan, managing the development of these products, preparing for the
commercial introduction of five products and fund raising. At September 30,
1998, five of our products (Elliotts B Solution, Cystadane, Antizol-Vet,
Antizol and Sucraid) have been approved by the Food and Drug Administration for
marketing and are commercially available and two products (Busulfex and Xyrem)
were in development. We expect to continue reporting as a development stage
company into 1999.
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RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A NUMBER OF RISKS, INCLUDING
AMONG OTHERS RISKS ASSOCIATED WITH DEVELOPMENT STAGE COMPANIES AND COMPANIES
THAT OPERATE IN THE PHARMACEUTICAL INDUSTRY, WHICH ARE SUBSTANTIAL AND INHERENT
IN THE OPERATIONS OF THE COMPANY. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
INFORMATION ABOUT THESE RISKS, TOGETHER WITH THE INFORMATION IN THE REST OF THIS
PROSPECTUS, BEFORE BUYING SHARES OF COMMON STOCK. YOU SHOULD ALSO BE AWARE THAT
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 SUCH FORWARD-LOOKING STATEMENT.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THE FOLLOWING RISK FACTORS.
LOW REVENUES AND LACK OF PROFITABLE OPERATIONS.
The Company has been unprofitable since it began operations in January
1993. As of September 30, 1998, the Company had an accumulated deficit of
$32,615,067. Through September 30, 1998, we sold $3,986,978 and made a gross
profit of $3,072,934 on the following products: Elliotts B Solution, Cystadane,
Antizol-Vet, Sucraid and Antizol. These levels of sales and gross profits are
insufficient to sustain future product development and business growth.
UNCERTAINTY OF FUTURE FINANCIAL RESULTS.
Operating losses of the Company are expected to continue through 1999
because gross profit from our five approved products and from new product
introductions in 1999 are not expected to offset expected additional spending.
We will need to continue to spend on the development plans for Busulfex and
Xyrem, plus additional sales and marketing efforts for the new product
introductions. The amount of future losses may vary significantly at various
times and will depend on several factors, including the timing of product
development and regulatory approval. We cannot give any assurance that the
Company will ever generate significant product revenues or become profitable.
DEVELOPMENT STAGE COMPANY.
We are a development stage company. As such, our operations and our
product development are subject to all of the risks inherent in establishing a
new business enterprise. These risks include the following:
* reliance on key personnel;
* a lack of fully-developed products;
* insufficient capital;
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* competition from numerous well-established and
well-capitalized competitors;
* expected operating losses through 1999;
* a market subject to extensive regulatory oversight; and
* reliance on outside contractors for the manufacture and
distribution of our proposed products.
You should weight the likelihood of our success against the problems, expenses
and delays typically encountered when developing new pharmaceutical or medical
products. You should also consider the highly competitive and heavily regulated
environment in which we operate.
FURTHER FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE OF AVAILABILITY OF FUTURE
CAPITAL.
We expect that our cash, cash equivalents, and short-term investments
as of September 30, 1998 plus the anticipated cash flows from the sale of the
five products that are approved and expected new product introduction in 1999
will be sufficient to fund the Company's operations through 1999. However, if we
encounter any large reduction in product revenues or a delay in the FDA approval
and market launch of Busulfex, we may require additional funding to fully
implement our development plan for Xyrem. We may be unable to obtain adequate
funds for the Company's operations, whether from financial markets or from other
sources, on terms attractive to the Company. A lack of funding could cause us to
delay, scale back or eliminate some or all the products currently under
development, including acquisition and licensing programs. A lack of funding may
also prevent the commercial introduction of some or all of its products
altogether.
DEPENDENCE ON LICENSE AND ACQUISITION STRATEGY.
We have adopted a license and acquisition strategy to build our product
portfolio. Our growth strategy depends upon our continued ability to identify
and acquire new pharmaceutical products targeted at niche strategic therapeutic
markets. We rely on the willingness of others to sell or license pharmaceutical
product opportunities to us because we do not conduct our own proprietary
research and development of new pharmaceutical products. Other companies,
including many with much greater resources, compete with us to acquire such
products. We may not be able to acquire rights to additional products on
acceptable terms, if at all. If we are unable to acquire or license new
pharmaceutical products within a selected niche market or to promote and market
commercially successful products within the selected niche market our business
and prospects could be materially and adversely affected.
We have contractual production rights to certain compounds through
various license agreements. Most of these agreements give the licensors the
right to terminate the license with a short notice for a number of events that
are categorized as "for cause" under the license agreements. These
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agreements are also terminable by the licensor if 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. The
agreements may be terminated and, if terminated, we may not be able to enter
into similar agreements on terms as favorable to us as those contained in its
existing license agreements.
DEPENDENCE ON FOREIGN MARKETING ALLIANCES; NO ASSURANCE OF FOREIGN LICENSEES.
Our strategy for deriving revenues for the sale of our products in
foreign markets is to enter into marketing alliances with multinational and
foreign pharmaceutical companies. From inception through September 30, 1998, we
have entered into distribution agreements to sell Cystadane in Australia, New
Zealand and Europe and Antizol in Europe. Sales of Cystadane for Australia, New
Zealand and Europe have not been and are not 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. We do 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 begin until the product has received marketing approval in
each European country where our distributor expects to sell the product. We
typically receive upfront fees for entering into such distribution arrangements.
We expect to realize future benefits because we will be the exclusive supplier
of the product sold to the distributor in these foreign markets. However, we
cannot provide any assurance that we will be able to negotiate additional
alliances for our other products on acceptable terms, if at all, or that such
alliances will be successful. In addition, the successful distribution of
Cystadane and Antizol outside of the United States is highly dependent on our
marketing partners. If our marketing partners are unsuccessful in their
distribution efforts, we would have difficulty in contracting other distributors
for these products within the licensed territories.
STRINGENT GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVALS.
Government regulation in the United States and abroad is a significant
factor in the production, testing and marketing of our current and future
products. Prior to marketing, each of our products must undergo an extensive
regulatory approval process conducted by the FDA in the United States and by
comparable agencies in other countries. The approval process can take many years
and require the expenditure of substantial resources. We cannot provide any
assurance that the FDA or any foreign regulatory authority will approve in a
timely manner, or at all, any product that we may develop. Generally, only a
very small percentage of newly discovered pharmaceutical compounds that enter
pre-clinical development are approved for sale. We are not allowed to market
medicines that we may develop as a prescription product in jurisdictions in
which the products do not receive regulatory approval. Once approved, a
department of marketing surveillance within the Center for Drugs, an FDA
division, must approve marketing claims, which are the basis for a product's
labeling, advertising and promotion. We cannot provide any assurance that the
FDA's marketing surveillance department will approve the marketing claims that
we are seeking. The failure to obtain approval of acceptable marketing claims on
a product could have a material adverse effect on the Company and its prospects.
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The Company depends on external laboratories and medical institutions
to conduct its pre-clinical and clinical testing in compliance with
FDA-established clinical and laboratory practices. The data obtained from
pre-clinical and clinical testing are subject to different interpretations that
could delay, limit or prevent regulatory approval. In addition, a product may be
delayed or rejected based upon changes in FDA policy for drug approval during
the period of development. Products may also be delayed or rejected because of
changes in 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. Further studies may also be required to
provide additional data on safety or effectiveness. The FDA also requires
manufacturers to monitor an approved product's side effects through post-
marketing adverse event surveillance programs.
An FDA approved product and its manufacturer are subject to continual
regulatory review. A 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. FDA
approval is required before we can implement most changes in the manufacturing
procedures for any of our approved products, as well any change in manufacturers
of such products. 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 on 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. We cannot give any assurance that
satisfactory prices can be obtained in foreign markets even if the appropriate
marketing approval is obtained.
RELIANCE ON 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." Generally, a "rare
disease or condition" is regarded as one that affects populations of less than
200,000 people in the United States. Orphan drug designation must be requested
before submitting an NDA. Once the FDA grants orphan drug designation, it will
publish the generic identity of the therapeutic agent and its potential orphan
use. Under current law, the first company to receive FDA approval to market the
designated drug for the designated indication is conferred orphan drug status.
The orphan drug status grants United States marketing exclusivity for a period
of seven years following approval by the FDA, subject to certain limitations.
However, orphan drug designation does not convey any advantage in the regulatory
approval process or shorten its duration. Moreover, although obtaining FDA
approval to market a product with orphan drug status is advantageous, we cannot
provide any assurance that the scope of protection or the level of marketing
exclusivity that the orphan drug status and marketing approval currently provide
will continue.
Currently, two of our products (Busulfex and Xyrem) have orphan drug
designation, while four of our products (Antizol, Elliotts B Solution, Cystadane
and Sucraid) have orphan drug status. We
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cannot provide any assurance that any future product candidates will receive an
orphan drug designation or that any of our 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 our NDA. If another sponsor's NDA for
the same drug and the same indication is approved first, and that sponsor has
received orphan drug designation for its drug, that sponsor is entitled to
exclusive marketing rights. In that case, the FDA would delay the approval of
our application to market our competing product for seven years, subject to
certain limitations. We cannot provide any assurance that our products will
receive orphan drug designations and FDA marketing approval before our
competitors' 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. Also, doctors are not
restricted by the FDA from prescribing an approved drug for uses not approved by
the FDA. Therefore, it possible that a competitor's drug could be prescribed for
indications for which the Company's product has received orphan drug designation
and NDA approval. The prescription 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 United States Congress' possible amendment of the Orphan Drug Act
has been frequently discussed. Although the Orphan Drug Act has not been subject
to significant changes for a number of years, members of Congress have at
various times proposed changes that would limit the application of the Orphan
Drug Act. We cannot provide any assurance as to the precise scope of protection
that orphan drug designation and marketing approval may afford in the future or
that the current level of exclusivity will remain in effect.
RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS.
Obtaining patent and trade secret protection for new technologies,
products and processes is very important in the pharmaceutical industry. Our
success will depend, in part, on our ability to obtain, enjoy and enforce
protection for our products under U.S. and foreign patent laws and other
intellectual property laws, preserve the confidentiality of our trade secrets
and operate without infringing the proprietary rights of third parties. A
pharmaceutical firm's patent position is often very uncertain and generally
involves complex legal and factual questions. At September 30, 1998, Busulfex is
the only product that we have under development for which the use of or
treatment methods licensed by us are covered by U.S. patents. We evaluate the
desirability of seeking patent or other forms of protection for our products in
foreign markets based on the expected costs and relative benefits of attaining
such protection. We cannot provide any assurance that any patents will be issued
from any applications or that any issued patents will give us adequate
protection. Further, issued patents could be challenged,
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invalidated, infringed or circumvented. We cannot provide any assurance that any
rights granted under issued patents will actually provide us competitive
advantages. Parties not affiliated with us have obtained or may obtain U.S. or
foreign patents or possess or may possess proprietary rights relating to our
products. We cannot provide any assurance that patents now in existence or
issued in the future to others will not adversely affect the development or
commercialization of our products or that our planned activities will not
infringe third parties' patents.
We could incur substantial costs in defending against infringement
suits brought against us or any of our licensors or in asserting any
infringement claims that we may have against others. We could also incur
substantial costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or distributors. An adverse outcome in
any such litigation could have a material adverse effect on our business and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. We cannot give any assurance that any
such licenses would be made available on terms acceptable to us, or at all. If
we are required to, and do not obtain any such required licenses, we could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of our products.
Two of the Company's products, Busulfex and Xyrem, are in the
development stage. Even if we successfully develop such products and obtain
marketing clearance from the FDA, there is a risk that applicable patent
coverage, if any, will have expired or will expire shortly after such approval.
The expiration of the patent protection could have a material adverse effect on
the sales and profitability of such product. Further, some of the compounds we
have developed or intend 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.
We also seek to protect our proprietary information and technology in
part by confidentiality agreements and inventors' rights agreements with our
employees. There is a risk that these agreements will be breached, that we will
not have adequate remedies for any such breach or that our trade secrets will
otherwise be disclosed to or discovered by our competitors.
INDUSTRY SUBJECT TO INTENSE COMPETITION.
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies. Most competitors have substantially
greater capital resources, marketing experience, research and development staffs
and facilities than us. Although we seek to limit competition by developing
products that are eligible for orphan drug designation and NDA approval or other
forms of protection, there is a risk that our competitors will successfully
develop similar technologies and products more quickly than us. There is also a
risk that these competing technologies and products will be more effective than
any of those that we are or will be developing.
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We are aware that potential competitors are developing products that
have received orphan drug designations for the same respective indications as
Busulfex and Xyrem. If these drugs are approved for marketing before our
products, we would be required to obtain a license from these entities before
our own competing products could be marketed. We cannot provide any assurance
that any required license would be available on commercially acceptable terms,
or at all.
INDUSTRY SUBJECT TO RAPID TECHNOLOGICAL CHANGE.
The pharmaceutical industry has experienced rapid and significant
technological change. We expect that pharmaceutical technology will continue to
develop rapidly. Our future success will therefore depend, in large part, on our
ability to develop and maintain a competitive position. Technological
development by others may result in our products' obsolescence before they are
marketed or before we recover 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 our products, which
would adversely affect our business and its prospects.
RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY.
Only five of our products have been approved for marketing by
regulatory authorities in the United States or elsewhere. Even if the rest of
our products are approved for sale, we cannot provide any assurance that they
will be commercially successful or that they will obtain the results expected.
We may encounter unanticipated problems relating to the development,
manufacturing, distribution and marketing of our products. Some of these
problems may be beyond our financial and technical capacity to solve. The
failure to adequately address any such problems could have a material adverse
effect on our business and prospects.
No drug development portfolio can be completely insulated from
potential failures. It is likely that some products that we have selected for
development will not produce the results expected during clinical studies, not
receive FDA approval or fail to generate product sales of an acceptable level.
To date, we have terminated the development of eleven products from our
portfolio: one in 1994, one in 1996, and nine products in 1997. We terminated
nine products in 1997 to permit us to focus our development efforts on those
products that fit within three selected strategic therapeutic market segments:
Antidote, Oncology Support, and Sleep Disorders. The termination of the
development of any one of our remaining development 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 target annual markets of less than $1 million. We
can provide no assurance that the sales of our products will be profitable even
if accepted and used by patients and medical specialists.
DEPENDENCE UPON OTHERS FOR CLINICAL TESTING AND MANUFACTURING.
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We do not have and do not intend to establish any internal product
testing, manufacturing or distribution capabilities. Accordingly, we will be
required to enter into arrangements with other companies for the clinical
testing, manufacture and distribution of our products. Our inability to retain
third-parties for these purposes on acceptable terms could adversely affect our
ability to develop and market our products. Third-parties' failures to
adequately perform their responsibilities may delay the submission of products
for regulatory approval, impair our ability to deliver our products on a timely
basis or otherwise impair our competitive position. In addition, our dependence
on third-parties for the development, manufacture and distribution of our
products may adversely affect our potential profit margins and our ability to
develop and deliver our 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 our products have not
yet been manufactured in commercial quantities. We cannot provide any assurance
that such products can be so manufactured in a cost-effective manner.
Manufacturers of our products will be subject to applicable FDA-prescribed "good
manufacturing practices" or other rules and regulations prescribed by foreign
regulatory authorities. We cannot provide any assurance that we 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 FDA-prescribed practices or applicable foreign requirements. If we enter
into manufacturing agreements, we will be dependent on such manufacturers for
continued compliance with FDA-prescribed practices and applicable foreign
standards. The failure of a manufacturer of a Company product to comply with
FDA-prescribed practices or applicable foreign requirements could result in
significant time delays or hinder our ability to commercialize or continue to
market a product. Any of these negative effects could have a material adverse
effect on the Company and its prospects. In the United States, failure to comply
with FDA-prescribed practices 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.
We have 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 our products. Cardinal will
provide the following services to the Company:
* integrated distribution and operations services to process and
support transactions between the Company and wholesalers,
specialty distributors, and direct customers;
* reimbursement management;
* patient assistance and information hotline services; and
* specialty distribution and marketing services to physician
practices.
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Cardinal currently distributes Elliotts B Solution, Antizol, and Sucraid.
Cardinal will also distribute our proposed products when and if those products
receive marketing clearance from the FDA. We will, therefore, be substantially
dependent upon Cardinal's ability to successfully distribute Elliotts B
Solution, Antizol, Sucraid and the proposed products that may receive FDA
marketing clearance.
Cystadane is currently distributed in the United States by Chronimed
Inc. ("Chronimed"). Chronimed distributes this product directly to patients
through its mail order pharmacy. We are substantially dependent upon Chronimed's
ability to successfully distribute Cystadane directly to patients in the United
States.
Antizol-Vet is currently distributed exclusively through W.A. Butler
Company ("Butler"). We are 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 we originally expected. We are presently reviewing our options with respect
to the Antizol-Vet product, which could include the sale or licensing of our
rights to this product.
We cannot provide any 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.
Our ability to commercialize our products successfully will depend in
part on the price we may be able to charge for our products. Another factor is
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. There is much uncertainty as to the pricing flexibility
suppliers will have with respect to newly approved health care products. There
is also much uncertainty about the reimbursement status of such products.
In the United States, we expect 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 that we receive for our current or
future products. Cost controls could also prevent the recovery of potentially
substantial development costs and an appropriate profit margin. These effects
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. The actions of federal
and/or state governments could adversely affect the prospects for sales of our
products. We cannot
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provide any assurance that the actions of 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 our competitors, such payors would not reimburse
patients for purchases of our competing products. This lack of reimbursement
would diminish the market for our 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. There is always
a risk that product recalls will occur. We do 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 Company's testing and sale of human health care products entails an
inherent risk of product liability claims against the Company. As we expand the
scope of our clinical testing, we will be exposed to increasing potential
liabilities. Companies operating in the pharmaceutical industry find it
increasingly difficult to maintain product liability insurance coverage at
reasonable levels. Substantial increases in insurance premium costs in many
cases have rendered coverage economically impractical. We currently carry
product liability coverage in the aggregate amount of $10 million for all claims
made in any policy year. Although to date we have not been the subject of any
product liability or other claims, we cannot provide any assurance that we will
be able to maintain product liability insurance on acceptable terms or that our
insurance will provide adequate coverage against potential claims. The
successful assertion of any uninsured product liability or other claim against
us could have a material adverse effect on our business and prospects.
DEPENDENCE ON CERTAIN OFFICERS AND KEY MANAGEMENT PERSONNEL.
Our success will be largely dependent upon the efforts of our executive
officers and key management personnel. The loss of the services of an executive
officer or one or more key employees, or our inability 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.
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We have assessed and continue to assess the impact of the so called
"Year 2000 Readiness Issue" on our 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.
The Year 2000 Readiness Issue also 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 our systems, or the systems used by our suppliers, distributors, customers
or regulatory agencies (i.e., FDA) to process critical financial and operational
information incorrectly, or not at all.
Our strategy is and has been to replace our older, inefficient systems
with current technology, which is both year 2000 compliant and more efficient.
In addition, we have purchased and implemented financial and operational
software upgrades that are year 2000 compliant. Because we have 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 our financial statements. In addition, we have
confirmed with our principal vendors and distributors that they have implemented
Year 2000 Readiness programs. However, we cannot provide any assurance that the
systems of third parties on which we currently rely 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, we 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 gave UBS
Capital the option to invest up to an additional $4.5 million within 90 days of
July 23, 1998. UBS Capital did not exercise its option to purchase additional
Preferred Shares, but we are discussing with UBS Capital an extension of time
for the exercise of this option including other financing alternatives. In
conjunction with the issuance of the Preferred Shares, we agreed to several
restrictions and covenants, and granted certain voting and other rights to
Preferred Shares holders, including but not limited to the following:
1. We are restricted from issuing additional equity
securities, including convertible debt instruments, warrants, and stock
options, except for a "Permitted Issuance", which is limited to:
(i) shares of Common Stock issued after July 23, 1998 to
Chronimed pursuant to the terms of the Termination
Agreement between the Company and Chronimed;
(ii) shares of Common Stock issued upon exercise of stock
options that are outstanding on July 23, 1998;
(iii) 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
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Common Stock issued, or issuable, under (i), (ii) and
(iii) cannot exceed two million shares,
(iv) Common Stock issued upon the exercise of warrants
that, as of June 30, 1998, entitled holders to
purchase an aggregate of 213,255 shares of Common
Stock,
(v) Common Stock issued upon the conversion of the
Preferred Shares, and
(vi) securities issued pursuant to any public offering of
the Company's securities registered under the
Securities Act.
In addition, the majority of Preferred Shares holders must approve the
sale of any private placement of equity securities. If approved by the
Preferred Shares holders, UBS Capital has the right of first refusal
with respect to the purchase or sale of any such private placement.
2. Preferred Shares holders may convert their shares into
shares of Common Stock at a per share price equal to $8.50 per share.
If we issue or sell, or are deemed to have issued or sold, shares of
our Common Stock for a per share price of 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 in paragraph 1 above), the conversion
price for the Preferred Shares shall be reduced immediately upon such
issue or sale or deemed issue or sale. The conversion price shall be
reduced to a 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 the new issue or
sale, plus (2) the consideration, if any, received by the Company upon
the new 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. At the Company's option, dividends are payable in either
cash or by issuing additional Preferred Shares (during the first four
dividend payment dates) or by Common Stock (after the fourth dividend
payment date). However, 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 July 23, 1998 (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 date when semi annual dividends are due.
The Preferred Shares holders may waive by majority vote their right to
receive the increased dividend rate.
4. The Company cannot incur any indebtedness unless certain
financial conditions are met. The Company may only incur new debt if,
after giving effect to the additional indebtedness, the Company's
aggregate indebtedness outstanding as of the date of such incurrence,
but excluding financing that is secured by accounts receivable but not
by the
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Company's intellectual property rights, does not exceed two and
one-half times the Company's EBITDA. For purposes of this restriction,
EBITDA means 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 for the twelve month period immediately
prior to the date of the new debt incurrence for which there are
quarterly financial statements available.
5. The Company cannot pay cash dividends, cash distributions
not classified as dividends with respect to its issued and outstanding
Common Stock or cash payments on the redemption of such Common Stock.
This restriction applies as long as at least 20 percent of the issued
Preferred Shares remain outstanding.
6. For as long as 20 percent of the number of shares of Common
Stock into which the shares of Convertible Preferred Shares first
issued to UBS Capital could be converted remain outstanding, the
majority of the Preferred Shares holders shall be entitled to elect one
(1) director to serve on the Company's Board of Directors until his
successor is replaced by a majority of the Preferred Shares holders.
For purposes of this election, Preferred Shares holders vote separately
as a single class to the exclusion of all other classes of Common Stock
and each share of Preferred Shares is entitled to one vote.
7. Preferred Shares holders vote separately as a single class,
and approval of the majority of Preferred Shares holders is required,
whenever a shareholder vote is required pursuant to certain provisions
of the Minnesota Business Corporation Act, for the purpose of according
voting rights with respect to shares acquired or to be acquired in a
control share acquisition, as such term is defined in 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. On July 23, 2008, the Company is required to elect to
either (1) require Preferred Shares holders 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 we believe that the agreements that we had with Chronimed
since its July 1, 1994 spin-off were commercially reasonable, such agreements
were not the product of arms-length negotiations. In
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June 1997, we 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
Common Stock. The October 1996 Cystadane Agreement between the Company and
Chronimed applies solely to the domestic distribution of Cystadane. Several of
the our directors and executive officers are current or former employees,
shareholders and/or directors of Chronimed. All of the independent outside
members of the Company's Board of Directors approved the Termination Agreement
and the October 1996 Cystadane Agreement.
POSSIBLE VOLATILITY OF STOCK PRICE AND DILUTION OF STOCK - TERMINATION AGREEMENT
WITH CHRONIMED.
After paying Chronimed $250,000 on signing the Termination Agreement in
June 1997, we 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 our
product sales, which we began paying quarterly on September 30, 1997.
Unregistered shares of Common Stock equal to 1 percent of our outstanding shares
at each quarter end, which we began issuing on March 31, 1998, are to be issued
quarterly to Chronimed. We are obligated to continue paying the royalties and
issuing Common Stock until the sum of all royalty payments and the market value
of all issued Common Stock equals $2,250,000. We are also 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 is determined as follows:
* 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; and
* 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 Common Stock as reported on Nasdaq for the last five
days within the 90 day period.
We anticipate that Chronimed will sell in the open market the shares it receives
from us within the 90 day period. We have the option, regardless of the market
price of our Common Stock, to buy-out for cash the remaining obligation to
Chronimed. Through September 30, 1998, we have paid Chronimed approximately
$102,000 in royalties and issued 185,971 shares of Common Stock, of which
123,056 shares have been sold by Chronimed in market transactions for net cash
proceeds of $1,063,452. At September 30, 1998, our unpaid obligation to
Chronimed has an estimated value of approximately $669,000. This obligation is
classified as a "Current Liability."
There is risk that our 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:
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* sales by Chronimed of the Common Stock cause the price of the
Common Stock to decrease;
* in the event of a decline in the value of the Common Stock, we
would be required to issue more shares in subsequent periods
to satisfy its remaining obligation to Chronimed; or
* our sales of future products are significantly less than
forecasted, 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 one or more of these risks, or our decision to exercise our
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 Common Stock could be adversely affected in the event we no longer
meet 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 our 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 September 30, 1998, our net
tangible assets equaled $6,017,585 and our market capitalization was
approximately $48.9 million (based on the last sale price of $7.688 and
6,354,373 shares outstanding). 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. If we fail to
satisfy at least one of the two Nasdaq listing requirements at any time, the
Common Stock would no longer qualify for listing on the Nasdaq National Market.
However, the Common Stock would qualify for quotation on the Nasdaq Small Cap
Market if the Company has net tangible assets in excess of $2.0 million, or
local over the counter trading if the Company does not qualify for the Nasdaq
Small Cap Market. Without additional equity financing, the Company expects that
its net tangible assets will fall below the $4.0 million requirement by March
31, 1999 or sooner, and below $2.0 million by June 30, 1999, or sooner. A
failure to meet Nasdaq's listing requirements on either the National Market or
the Small Cap Market could have a material adverse effect on our ability to
raise additional capital and on the market value of the Common Stock. 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.
POSSIBLE VOLATILITY OF STOCK PRICE - GENERAL.
Market prices of securities of early stage pharmaceutical companies are
generally subject to significant volatility. Contributing to this volatility are
various factors and events, such as the
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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.
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 rooms in Washington, D.C., New York, N.Y. and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's web site at http://www.sec.gov. Reports, proxy and information
statements and other information concerning us can also be inspected at the
offices of the National Association of Securities Dealers, 1735 K. Street N.W.,
Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" the information that we
file with it, 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 later information that we file
with the SEC will automatically update this Prospectus. We incorporate by
reference the following documents listed below and any future filings made with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), until Chronimed sells all the Shares:
* Annual Report on Form 10-K for the year ended December 31,
1997;
* Quarterly Reports on Form 10-Q for the quarters ended March
31, and June 30, 1998;
* Current Report on Form 8-K filed on September 11, 1998; and
* the description of the Common Stock contained in our
Registration Statement on Form S-1, dated March 11, 1996 (File
No. 333-2200), and any amendment or report filed to update
such description filed subsequent to the date of this
Prospectus and prior to the termination of the offering of the
Shares.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Orphan Medical, Inc.
13911 Ridgedale Drive, Suite 475
Minnetonka, Minnesota 55305
Attn: John Howell Bullion
(612) 513-6900
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You should rely only on the information incorporated by reference or
provided in this Prospectus or any supplement. We have not authorized anyone
else to provide you with different information. Chronimed will not make an offer
of the Shares in any state where the offer is not permitted. You should not
assume that the information in this Prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
SELLING SHAREHOLDER
Chronimed is selling the Shares pursuant to this Prospectus. The
following table sets forth certain information with respect to the ownership of
the Common Stock by Chronimed as of September 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 62,915 0
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(1) Consists of 62,915 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.
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PLAN OF DISTRIBUTION
We are registering the Shares on behalf of Chronimed (together with any
donees and pledgees selling Shares received from Chronimed after the date of
this Prospectus, the "Selling Shareholders") The Selling Shareholders will offer
and sell the Shares to which this Prospectus relates for their own accounts. We
will not receive any proceeds from the sale of the Shares pursuant to this
Prospectus. We will bear all expenses and fees of registration of the Shares,
estimated to be approximately $8,000.
Selling Shareholders 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, through put
or call options transactions, through short sales or a combination of such
methods of sales 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 Shareholders 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, we are not aware of any agreement, arrangement
or understanding between any broker or dealer and the Selling Shareholders.
There is no assurance that the Selling Shareholders will sell any or all of the
Shares that they offer.
Selling Shareholders 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. Because the Selling Shareholders may be
deemed to be "underwriters" within the meaning of the Securities Act, the
Selling Shareholders will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the Selling Shareholders that the
anti-manipulative provisions of Regulation M promulgated under the Exchange Act
may apply to their sales in the market.
Selling Shareholders may also resell all or a portion of the Shares in
open market transactions in reliance upon the Rule 144 under the Securities Ac,
provided they meet the criteria and conform to the requirements of such Rule.
We have agreed to maintain the effectiveness of this Registration
Statement until the earlier of nine months from the date on which Chronimed
acquired the Shares (September 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 pursuant to this Prospectus will be passed upon for the Company by
Dorsey & Whitney LLP, Minneapolis, Minnesota.
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EXPERTS
The financial statements of the Company 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.
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TABLE OF CONTENTS
Page
----
About this Prospectus .................................................... 2
About Orphan Medical, Inc. ............................................... 2
Risk Factors ............................................................. 3
Where you can find more information ...................................... 18
Selling Shareholder....................................................... 19
Plan of Distribution ..................................................... 20
Legal Matters ............................................................ 20
Experts .................................................................. 21
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<PAGE>
ORPHAN MEDICAL, INC.
62,915 SHARES
COMMON STOCK,
---------------
PROSPECTUS
---------------
, 1998
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee .......................... $ 113.00
Accounting Fees and Expenses .................. 2,000.00
Legal Fees and Expenses ....................... 5,000.00
Miscellaneous ................................. 887.00
----------
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
The following description of indemnification allowed under Minnesota
statutory law is a summary rather than a complete description. Reference is made
to Section 302A.521 of the Minnesota Statutes, which is incorporated herein by
reference. The following summary is qualified in its entirety by that reference.
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 Company's bylaws provide that the Company 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
3.1 Articles of Incorporation of Orphan Medical, Inc.
(incorporated by reference from Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, Commission File No. 000-24760).
5.1 Opinion of Dorsey & Whitney LLP regarding legality.
23.1 Consent of Independent Auditors.
II-1
<PAGE>
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to
this Registration Statement).
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;
(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
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the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 October 28, 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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ John Howell Bullion Chief Executive Officer, October 28, 1998
- --------------------------------------- Secretary (principal executive,
John Howell Bullion financial and accounting officer)
and Director
/s/ Lawrence C. Weaver Director October 28, 1998
- ---------------------------------------
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.)
/s/ W. Leigh Thompson Director October 28, 1998
- ---------------------------------------
W. Leigh Thompson, Ph.D. M.D.
/s/ William M. Wardell Director October 28, 1998
- ---------------------------------------
William M. Wardell, Ph.D., M.D.
/s/ Michael Greene Director October 28, 1998
- ---------------------------------------
Michael Greene
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.1 Articles of Incorporation of Orphan Medical, Inc. (incorporated
by reference from Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, Commission File
No. 000-24760).
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).
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 62,915 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: October 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 62,915 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
October 28, 1998
