As filed with the Securities and Exchange Commission on November 9, 1999
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 250
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 216,725 $5.9375 $1,286,804.60 $357.73
</TABLE>
(1) This amount represents shares to be offered by the selling security
holder 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 November 4, 1999.
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 NOVEMBER 9, 1999
Orphan Medical, Inc.
13911 Ridgedale Drive, Suite 250
Minnetonka, Minnesota 55305
(612) 513-6900
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ORPHAN MEDICAL, INC.
216,725 Shares
Common Stock
---------------------------
This prospectus covers the sale of up to 216,725 shares of common stock of
Orphan Medical, Inc. offered for the account of certain selling shareholders. We
will not receive any part of the proceeds from the sale and will bear all
expenses and fees of registration of the shares.
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 November 5, 1999 was $6.375 per share.
--------------------
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.
--------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
The date of this prospectus is November 9, 1999
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TABLE OF CONTENTS
Page
----
Risk Factors.............................................................. 3
About Orphan Medical, Inc................................................. 14
Where You Can Find More Information....................................... 14
Selling Shareholders...................................................... 15
Plan of Distribution...................................................... 16
Legal Matters............................................................. 17
Experts................................................................... 17
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A NUMBER OF RISKS, INCLUDING
AMONG OTHERS, RISKS ASSOCIATED WITH COMPANIES THAT OPERATE IN THE PHARMACEUTICAL
INDUSTRY. THESE RISKS ARE SUBSTANTIAL AND INHERENT IN OUR OPERATIONS AND
INDUSTRY. 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.
WE HAVE A HISTORY OF LOSSES, WHICH WE EXPECT TO CONTINUE.
We have been unprofitable since our inception in January 1993. We
expect operating losses in 1999 because anticipated gross profits from product
revenues will not offset our operating expenses and additional 1999 spending to
advance the development of Xyrem. The amount of these losses may vary
significantly from year-to-year and quarter-to-quarter. Our actual losses will
depend on, among other factors, the timing of product development, regulatory
approval, and market demand for our FDA approved products. We cannot assure you
that we will ever generate sufficient product revenues or achieve profitability.
WE CANNOT BE SURE THAT FUTURE CAPITAL WILL BE AVAILABLE TO MEET OUR EXPECTED
CAPITAL REQUIREMENTS.
We expect spending for research and development, and sales and
marketing to increase significantly. We estimate our future capital requirements
to be:
* $4.0 million of capital during 1999 to fully implement our
current business plan, including the Xyrem development plan,
to meet additional sales and marketing requirements related to
Busulfex, which we commenced shipping in February 1999, and to
maintain our Nasdaq National Market listing.
* $6.5 million during the next two fiscal years in research and
development for the products we currently market and to
advance the development of Xyrem.
* Additional capital would be required if we were to undertake
developments of any additional products.
Adequate funds for our operations and continued development, whether from
financial markets or from other sources, may not be available when needed on
acceptable terms, or at all. If we cannot obtain additional capital, we would
have to delay or scale back some or all of our development plans for Xyrem,
reduce personnel and general office support spending, and sell or license one or
more of our approved products.
LIMITATIONS TO SOURCES OF ADDITIONAL CAPITAL - RESTRICTIONS, COVENANTS AND
RIGHTS RELATED TO SENIOR CONVERTIBLE PREFERRED STOCK.
On July 23, 1998, we completed the sale to UBS Capital of a private
placement of $7.5 million of Senior Convertible Preferred Stock. On August 2,
1999, we completed an additional sale to UBS Capital of a private placement of
$2.95 million of Series B Convertible Preferred Stock. In conjunction with the
issuance of the preferred shares, we agreed to several restrictions and
covenants, and granted certain voting and other rights to the holders of the
preferred shares. One of the most important of these restrictions is that we
cannot incur additional
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indebtedness, except for indebtedness secured solely by our trade receivables,
until we have profitable operations, subject to certain limitations. Another
important restriction is that, without the approval of a majority of the
preferred stockholders, we cannot issue additional equity securities unless the
selling price per share exceeds the then conversion price of the outstanding
convertible preferred stock or the sale of equity is accomplished in a public
offering. The present conversion plan is $8.14 per share for the Senior
Convertible Preferred Stock and $6.50 for the Series B Convertible Preferred
Stock. These restrictions could make it more difficult and more costly for us to
obtain additional capital. We cannot assure you that additional sources of
capital will be available to us and, if available, on terms acceptable to us.
POSSIBLE VOLATILITY OF STOCK PRICE AND REDUCED LIQUIDITY OF THE MARKET FOR THE
STOCK - LOSS OF NASDAQ NATIONAL MARKET LISTING AND FAILURE TO QUALIFY FOR NASDAQ
SMALL CAP MARKET LISTING.
There is a risk that the market value and the liquidity of the public
float for our common stock could be adversely affected in the event we no longer
meet Nasdaq's requirements for continued listing on the National Market. 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, 1999, our net
tangible assets equaled $4.4 million and our market capitalization was
approximately $44.5 million (based on the last sale price of $6.75 and 6,588,707
registered shares outstanding as of September 30, 1999). Net tangible assets are
defined as total assets less the sum of total liabilities and intangible assets.
Market capitalization is defined as total outstanding shares multiplied by the
last sales price quoted by Nasdaq. Should we fail in the future to satisfy at
least one of the aforementioned Nasdaq listing requirements, our common stock
would no longer qualify for listing on the Nasdaq National Market, but would
qualify for quotation on the Nasdaq Small Cap Market as long as our net tangible
assets exceed $2.0 million. Our ability to raise additional capital and the
market value of our 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 our business, our prospects and our shareholders.
POSSIBLE VOLATILITY OF STOCK PRICE.
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:
* announcements by us or our competitors of new product
developments or clinical testing results;
* governmental approvals, regulations or actions;
* developments or disputes relating to patents or proprietary
rights;
* public concern over the safety of therapies;
* fluctuations in financial performance from period to period;
and
* small float or number of shares of our stock available for
sale.
These and other factors and events may have a significant impact on our
business and on the market price of the common stock.
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THERE IS A LIMITED MARKET FOR OUR PRODUCTS.
Most orphan drugs have a potential United States market of less than
$25 million annually and many address annual markets of less than $1 million. We
cannot assure you that sales of our products will be adequate to make Orphan
profitable even if the products are accepted by medical specialists and used by
patients.
WE RELY ON THE LIMITED PROTECTION OF THE ORPHAN DRUG ACT.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition." The Orphan Drug Act
generally defines "rare disease or condition" as one that affects populations of
fewer than 200,000 people in the United States. The Orphan Drug Act provides us
with certain limited protections for our products.
The first level of limited protection is orphan drug designation, which
must be requested before submitting a new drug application (referred to in the
industry as an "NDA"). After the FDA grants orphan drug designation, it
publishes the generic identity of the therapeutic agent and the potential orphan
use specified in the request. Orphan drug designation does not constitute FDA
approval. In addition, orphan drug designation does not convey any advantage in,
or shorten the duration of, the regulatory approval process.
The second level of limited protection is orphan drug status. The
Orphan Drug Act confers orphan drug status upon the first company to receive FDA
approval to market the designated drug for the designated indication. FDA
approval also results in United States marketing exclusivity for a period of
seven years, subject to certain limitations. Although obtaining FDA approval to
market a product with orphan drug status can be advantageous, we cannot assure
you that the scope of protection or the level of marketing exclusivity will
remain in effect in the future. In addition, orphan drug status does not provide
any marketing exclusivity in foreign markets. Although certain foreign countries
provide development and marketing benefits for orphan drugs, we cannot assure
you that such benefits can be obtained or, if obtained, will be of material
value to us. The FDA has granted us orphan drug status for Antizol, Elliotts B
Solution, Cystadane, Sucraid, and Busulfex.
We have obtained orphan drug designation for Xyrem and plan to submit
an NDA for approval next year. Sodium oxybate is the generic identity of the
therapeutic agent for Xyrem. Despite orphan drug designation for Xyrem, another
pharmaceutical company still may attempt to develop sodium oxybate for the same
designated indication as Xyrem or may seek approval of an NDA for their drug
prior to the approval of an NDA for Xyrem. If the FDA first approves another
sponsor's NDA for sodium oxybate and for the same indication as Xyrem, that
sponsor will be entitled to exclusive marketing rights. In that case, the FDA
would refrain for seven years from approving our application to market Xyrem. We
are aware that the FDA has granted Teva (formerly Biocraft) orphan drug
designation for the use of sodium oxybate to treat the symptoms of narcolepsy,
however, we have obtained the exclusive right to use Teva's data in our NDA
submission. We cannot assure you that the FDA will approve Xyrem first for the
designated indication. We also cannot assure you that the FDA will not grant
orphan drug designation and marketing approval to other competing products prior
to approving our NDA for Xyrem.
Even if the FDA approves an NDA for a drug with an orphan drug
designation, the FDA may still approve the same drug for a different indication,
or a molecular variation of the same drug for the same indication. We are aware
that the FDA granted to Sparta Pharmaceutical, which has been acquired by
SuperGen Inc., orphan drug
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<PAGE>
designation for an intravenous busulfan for a closely related indication. If the
FDA approves an NDA for Sparta's drug, Sparta could seek orphan drug status. In
addition, the FDA does not restrict doctors from prescribing an approved drug
for uses not approved by the FDA for that drug. Thus, a doctor could prescribe
another company's drug for indications for which our product has received FDA
approval and orphan drug status. Significant "off label" use, that is,
prescribing approved drugs for unapproved uses, could adversely affect the
marketing potential of any of our products that have received orphan drug status
and NDA approval.
The possible amendment of the Orphan Drug Act by Congress has been the
subject of frequent discussion. Although Congress has made no significant
changes to the Orphan Drug Act 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. We cannot assure you that the Orphan Drug Act will remain in
effect in its current form. The precise scope of protection that orphan drug
designation and marketing approval may afford in the future is unknown. We
cannot assure you that the current level of exclusivity will remain in effect.
THE FDA AND FOREIGN REGULATORY AUTHORITIES MUST APPROVE OUR PRODUCTS FOR SALE.
Government regulation in the United States and abroad is a significant
factor in the testing, production and marketing of our current and future
products. Each product must undergo an extensive regulatory approval process
conducted by the United States Food and Drug Administration and by comparable
agencies in other countries. We cannot market any medicine we may develop as a
prescription product in any jurisdiction, including foreign countries, in which
the product does not receive regulatory approval. The approval process can take
many years and requires the expenditure of substantial resources.
We depend on external laboratories and medical institutions to conduct
our 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 is subject to varying interpretations that could delay, limit
or prevent regulatory approval. In addition, changes in FDA policy for drug
approval during the period of development and in the requirements for regulatory
review of each submitted NDA could result in additional delays or outright
rejection.
We cannot assure you that the FDA or any foreign regulatory authority
will approve any product we develop in a timely manner, or at all. Generally,
the FDA and foreign regulatory authorities approve only a very small percentage
of newly discovered pharmaceutical compounds that enter pre-clinical
development. Moreover, even if the FDA approves a product, it may place
commercially unacceptable limitations on the uses, or "indications," for which a
product may be marketed. This would result in additional cost and delay for
further studies to provide additional data on safety or effectiveness.
WE MAY BE SUBJECT TO DEA AND STATE REGULATION OF CONTROLLED SUBSTANCES.
We have petitioned the FDA to make gamma hydroxy butyrate (GHB), the
active ingredient in Xyrem, a controlled substance prior to approval of a
marketing application for Xyrem. We expect the FDA to designate Xyrem as a
controlled substance. If this happens, the Drug Enforcement Agency as well as
the FDA will regulate Xyrem's manufacture and distribution. Orphan Medical
supports government regulation of Xyrem as a controlled substance because abuse
of GHB has occurred in the past.
Abuse of GHB has occurred from sources other than Orphan Medical
product. We are not aware of any diversion of Xyrem leading to any abuse. We
have put systems into place to minimize the potential of any such diversion.
However, we cannot assure you that diversion will not occur.
There are five "Schedules" or levels of control that the DEA can assign
to controlled substances. Each schedule relates to a relative level for
potential misuse of a drug. Schedule I is the most restrictive; drugs in this
schedule have very high potential for misuse and no approved medical use.
Heroin, for example, is a Schedule I controlled substance. Schedule II
controlled substances, such as morphine, also have a high potential for misuse
and a high level of potential for physical and chemical dependence. However,
Schedule II drugs have demonstrated and approved medical uses. Drugs in Schedule
IV, such as benzodiazepines or valium, pose less danger of abuse than Schedule
III drugs and have accepted medical value. The DEA imposes more strict measures
on the manufacture and distribution of Schedule III controlled substances than
it does for Schedule IV controlled substances.
We believe that Xyrem is most appropriately categorized as a Schedule
III controlled substance. This may be more restrictive than what Xyrem would
receive based on scientific information about the drug and on comparisons with
other similar drugs. The requirements of Schedule III, however, may help reduce
the risk that Xyrem could be misused. We believe that we can successfully market
Xyrem under a Schedule III categorization. If the DEA imposes a more restrictive
Schedule on Xyrem, the expense required to complete development and to market
Xyrem could be prohibitively high.
The United States House of Representatives has approved HR 2130 by a
margin of 423 to 1. HR 2130 would make GHB, and hence Xyrem, a Schedule I
controlled substance with exemptions for products studied under FDA approved
Investigational New Drug applications. Upon approval of an NDA by the FDA, Xyrem
would become a Schedule III controlled substance with Schedule I penalties for
illicit use. A bill with almost identical provisions has been introduced in the
Senate (S 1561). We cannot assure you that the Senate bill will be approved,
that the House and Senate bills will be combined into a final, unified piece of
legislation or that the President will sign a final bill into law.
In addition, individual states can regulate controlled substances at
the same level as or more restrictively than the DEA. While every effort will be
made to ensure that regulation by the states is consistent with DEA assigned
scheduling, we cannot assure you that state regulation will not impede
development or marketing efforts related to Xyrem.
FDA APPROVAL DOES NOT GUARANTEE FINANCIAL SUCCESS.
Six of our products have been approved for marketing by regulatory
authorities in the United States or elsewhere. Even if we obtain FDA approval to
market Xyrem, we cannot assure you that Xyrem or our other products will be
commercially successful or achieve the expected financial results. 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 our
prospects.
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We cannot completely insulate our drug development portfolio from
potential failures. Some products that we have selected for development will not
produce the results expected during clinical trials or receive FDA approval.
Drugs approved by the FDA may fail to generate product sales of an acceptable
level. We have discontinued the development of eleven products from our
portfolio since inception: L-Cycloserine in 1994, Glucaric Acid in 1996, and
nine other products in 1997. We discontinued the nine products in 1997 in order
to focus our development efforts on those products that fit within three
selected strategic therapeutic market segments: Antidote, Oncology Support, and
Sleep Disorders. In December 1998, we sold our rights to colloidal bismuth
subcitrate for $750,000, and are evaluating the potential value of our rights in
other discontinued products. Depending on available financing, we may continue
to develop one or more of the discontinued products. We cannot assure you that
we will continue development on all other proposed products or that we will
continue marketing all FDA approved products.
SIGNIFICANT GOVERNMENT REGULATION CONTINUES ONCE A PRODUCT IS APPROVED FOR SALE.
The FDA's Division of Drug Marketing, Advertising and Communication
must approve marketing claims, which are the basis for a product's labeling,
advertising and promotion. We cannot be sure that the FDA's division will
approve our proposed marketing claims. The failure of the FDA's division to
approve our proposed marketing claims could have a material adverse effect on
our business and prospects.
The FDA also requires post-marketing adverse event surveillance
programs to monitor the product's side effects. If the surveillance program
indicates unsafe side effects, the FDA may withdraw marketing approval of the
product.
The FDA also regulates the manufacturing process for an approved drug.
The FDA may impose restrictions or sanctions upon the subsequent discovery of
previously unknown problems with a product or manufacturer. One possible
sanction is requiring the withdrawal of such product from the market. The FDA
must approve any change in manufacturer and most changes in the manufacturing
process prior to implementation. Obtaining the FDA's approval for a change in
manufacturing procedures or change in manufacturers is a lengthy and costly
process and could cause production delays and loss of sales, which would have a
material adverse effect on our business and our prospects.
Certain foreign countries regulate the sales price of a product after
marketing approval is granted. We cannot be sure that we can sell our products
at satisfactory prices in foreign markets even if marketing approval is granted
by foreign regulatory authorities.
WE RELY ON OTHERS FOR PRODUCT DEVELOPMENT OPPORTUNITIES.
We do not engage in research to identify new pharmaceutical compounds.
Instead, we have adopted a license and acquisition strategy to build our product
portfolio. This strategy for growth requires us to identify and acquire
potential pharmaceutical products targeted at niche markets within selected
strategic therapeutic market segments. These products usually require further
development and approval by regulatory bodies before they can be marketed. We
cannot assure you that any such products can be successfully developed, approved
or marketed. We must rely upon the willingness of others to sell or license
pharmaceutical product opportunities to us. Other companies, including those
with substantially greater resources, compete with us to acquire such products.
We cannot assure you that we will be able to acquire rights to additional
products on acceptable terms, if at all. Our failure to acquire
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or license new pharmaceutical products within a selected strategic therapeutic
market segment or to promote and market commercially successful products within
an existing strategic therapeutic market segment could have a material adverse
effect on our business and our prospects.
We have contractual production rights to certain compounds through
various license agreements. Generally, the licensor can terminate these
agreements:
* for cause upon short notice;
* if we become insolvent or bankrupt;
* if we do not apply specified minimum resources and efforts to
develop the compound under license; or
* if we do not achieve certain minimum royalty payments.
We cannot assure you we can meet all specified requirements and avoid
termination of any license agreements. We cannot assure you that if any
agreement is terminated, we will be able to enter into similar agreements on
terms as favorable as those contained in our existing license agreements.
WE DEPEND ON OTHERS TO MANUFACTURE AND SUPPLY THE PRODUCTS WE MARKET.
We do not have and do not intend to establish any internal product
testing, synthesis of bulk drug substance, or manufacturing capability for drug
product. Accordingly, we depend on others to supply and manufacture the
components incorporated into all of our finished drug products. The inability to
contract for these purposes on acceptable terms could adversely affect our
ability to develop and market our products. Failure by parties with whom we
contract to perform adequately their responsibilities may delay the submission
of products for regulatory approval, impair our ability to deliver our products
on a timely basis or otherwise adversely affect our business and our prospects.
The loss of a supply or manufacturing contractor could materially adversely
affect our business and our prospects.
The loss of either a bulk drug supplier or drug product manufacturer
would require us to obtain regulatory clearance in the form of a "pre approval
submission" and incur validation and other costs associated with the transfer of
the bulk drug or drug product manufacturing process. We believe that it could
take as long as one year for the FDA to approve such a submission. Because our
products are targeted to relatively small markets and our manufacturing
production runs are small by industry standards, we have not incurred the added
costs to certify and maintain secondary sources of supply for bulk drug
substance or backup drug product manufacturers. Should we lose either a bulk
drug supplier or a drug product manufacturer, we could run out of salable
product to meet marketing demands or investigational product for use in clinical
trials, while we wait for the FDA to approve a new bulk drug supplier or drug
product manufacturer. We cannot assure you that the change of a bulk drug
supplier or drug product manufacturer and the transfer of the processes to
another third party will be approved by the FDA, and if approved, in a timely
manner. The loss of or the change of a bulk drug supplier or a drug product
manufacturer could have a material adverse effect on our business and prospects.
BULK DRUG SUPPLY
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Bulk drug substance is the active chemical compound used in the
manufacture of our drug products. We depend substantially on Ash Stevens, Inc.
for the supply of bulk drug substance used in Busulfex, Antizol, and
Antizol-Vet. If we were to lose Ash Stevens as a supplier, we would be required
to identify a new supplier for the bulk drug substance used in products that
provided approximately 90% of 1998 total revenues and are expected to generate
over 90% of 1999 total revenues. We depend substantially on Lonza, Inc. for the
supply of bulk drug substance used in Xyrem. If we were to lose Lonza as a
supplier, we would be required to identify a new supplier before an NDA is
submitted for Xyrem. We also cannot assure you that our bulk drug supply
arrangements with Ash Stevens and Lonza might not change in the future. We
cannot assure you that any change would not adversely affect production of
Busulfex, Antizol, Antizol-Vet, or Xyrem.
DRUG PRODUCT MANUFACTURE
From bulk drug substance, drug product manufacturers formulate a
finished drug product and package the product for sale or for use in clinical
trials. We depend substantially on an affiliate of Boehringer Ingelheim for drug
product manufacturing of Busulfex, Antizol, and Antizol-Vet. If we were to lose
Boehringer as a manufacturer, we would be required to identify a new
manufacturer for drug products that provided approximately 90% of 1998 total
revenues and are expected to generate over 90% of 1999 total revenues. We have
identified GlobalPharm as the drug product manufacturer for Xyrem and expect to
contract with this company. Currently, however, we do not have a contract with
GlobalPharm. If we do not contract with GlobalPharm, we would be required to
identify a new drug product manufacturer before an NDA is submitted for Xyrem.
We cannot assure you that our drug product manufacturing arrangements with
Boehringer and GlobalPharm might not change in the future. We cannot assure you
that any change would not adversely affect production of Busulfex, Antizol,
Antizol-Vet, or Xyrem.
WE CANNOT CONTROL OUR CONTRACTORS' COMPLIANCE WITH APPLICABLE REGULATIONS.
FDA regulations require good manufacturing practices to which bulk drug
suppliers and manufacturers are subject. Foreign regulatory authorities impose
similar rules and regulations. Our supply and manufacturing contractors must
comply with these regulatory requirements. Failure by our contractors to comply
with the FDA's good manufacturing practices or applicable foreign requirements
could result in significant time delays in or an inability to commercialize or
continue to market a product. Either result could have a material adverse effect
on our business and prospects. Failure to comply with good marketing practices
or other applicable legal requirements can lead to federal seizure of violative
products, injunctive actions brought by the federal government, or potential
criminal and civil liability for our company, our officers, or our employees. We
cannot assure you that we will be able to maintain relationships either
domestically or abroad with contractors whose facilities and procedures comply
or will continue to comply with the FDA's good manufacturing practices or
applicable foreign requirements.
WE DEPEND UPON OTHERS FOR DISTRIBUTION.
We have an exclusive agreement with Cardinal Health, Inc. to provide a
variety of services to support the effective distribution of our products.
Cardinal will provide integrated distribution and operations services to process
and support transactions between us and our wholesalers, specialty distributors,
and direct customers. Cardinal also will provide reimbursement management,
patient assistance and information hotline services, and specialty distribution
and marketing services to physician practices. Busulfex, Cystadane, Elliotts B
Solution,
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Antizol, Antizol-Vet, and Sucraid are currently distributed by Cardinal.
Cardinal also will distribute our proposed products should those products
receive marketing clearance from the FDA. We will substantially depend upon
Cardinal's ability to successfully distribute Busulfex, Elliotts B Solution,
Antizol, Antizol-Vet, and Sucraid and all of our proposed products that receive
marketing clearance from the FDA.
Chronimed Inc. is the principal distributor, on a non-exclusive basis,
in the United States for Cystadane. Chronimed distributes this product directly
to patients through its mail order pharmacy. We substantially depend upon
Chronimed's ability to successfully distribute Cystadane directly to patients in
the United States.
We cannot assure you that other distribution companies would be
available or continue to be available on commercially acceptable terms. The loss
of a distributor or failure to renew agreements with an existing distributor
would have a material adverse effect on our business and prospects.
WE RELY ON FOREIGN MARKETING ALLIANCES AND HAVE NO ASSURANCE OF FOREIGN
LICENSEES.
Our strategy to exploit foreign markets is to license foreign marketing
and distribution rights after an NDA is submitted in the United States. We
consider Europe, Japan, and Canada our most attractive foreign markets. Our
current foreign developments are:
* EUROPE. We have licensed the marketing and distribution rights
for Busulfex, Antizol, Cystadane and Sucraid in Europe. If our
licensees are unsuccessful in their distribution efforts, we
may find it difficult to contract with other distributors for
these products within Europe. Distribution of Busulfex,
Cystadane and Sucraid is limited to "named patient" or
"emergency use" basis until full regulatory approval is
obtained. Antizol was approved in the United Kingdom in June
1999. Distribution of Antizol in the other countries in which
it is licensed will continue under "named patient" or
"emergency use" basis until the mutual recognition approvals
are obtained in the other countries of Europe in the year
2000. We do not expect such "emergency use" distribution to
result in material revenues.
* AUSTRALIA AND NEW ZEALAND. We have licensed marketing and
distribution rights for Cystadane and Sucraid in Australia and
New Zealand, but sales of these products have not been
material. We do not expect sales to increase in the near
future to the point that they become material.
* ISRAEL. We have licensed marketing and distribution rights for
Antizol, Busulfex, Cystadane, Elliotts B Solution and Sucraid
in Israel. Cystadane and Elliotts B Solution are formally
registered. Distribution of Busulfex in Israel is limited to 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 revenues. We expect
registration, approval and normal distribution of Busulfex to
commence later in 1999.
* CANADA. We have licensed marketing and distribution rights for
Antizol in Canada. Preparations for formal registration are
underway.
* CENTRAL AMERICA. We have licensed marketing and distribution
rights for Elliotts B Solution in Central America, but sales
have not been material. We do not expect sales to increase in
the near future to the point that they become material.
- 10 -
<PAGE>
We depend on our foreign licensees for the regulatory registration of our
products in foreign countries. We cannot be sure that our licensees can obtain
such registration. In addition, we cannot be sure that we will be able to
negotiate commercially acceptable license agreements for our other products or
in additional foreign countries. Furthermore, we cannot assure you that these
companies will be successful in marketing and selling our products in their
respective territories.
OUR PRODUCTS MIGHT BE RECALLED.
A product may be recalled at our discretion or at the discretion of the
FDA, the U.S. Federal Trade Commission, or other government agencies having
regulatory authority for product sales. A recall may occur due to disputed
labeling claims, manufacturing issues, quality defects, or other reasons. We
cannot assure you that a product recall will not 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 our business and prospects.
WE FACE LIMITS ON PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT.
The flexibility of prices that we can charge for our products depends
on government regulation, both in the United States and abroad, and on other
third parties. One important factor is the extent to which reimbursement for our
products will be available to patients 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. We are uncertain as to the pricing flexibility we
will have with respect to, and if we will be reimbursed for, newly approved
health care products.
In the United States, we expect continuing federal and state proposals
to implement government control of the pricing and profitability of prescription
pharmaceuticals. Cost controls, if mandated by a government agency, could
decrease the price we receive for our products or products we may develop in the
future. We may not be able to recover our development costs, which could be
substantial. We may not be able to realize an appropriate profit margin. This
could have a material adverse effect on our business. Furthermore, federal and
state regulations govern or influence reimbursement of health care providers for
medical treatment of certain patients. We cannot assure you 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 our business and prospects.
Certain private health insurers and third-party payors may attempt to
control costs further by selecting exclusive providers of pharmaceuticals. If
such arrangements are made with our competitors, these insurers and third-party
payors would not reimburse patients who purchase our competing products. This
would diminish the market for our products and could have a material adverse
effect on our business and prospects.
PATENTS AND OTHER PROPRIETARY RIGHTS ARE SIGNIFICANT FACTORS IN THE
PHARMACEUTICAL INDUSTRY.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
The patent position of pharmaceutical firms is often highly uncertain and
generally involves complex legal, technical and factual questions. Our success
depends, in part, on our ability:
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<PAGE>
* to enjoy, obtain and enforce protection for our products under
United States and foreign patent laws and other intellectual
property laws;
* to preserve the confidentiality of our trade secrets; and
* to operate without infringing the proprietary rights of third
parties.
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 assure you that any
patents will be issued from any applications or that any issued patents will
afford us adequate protection or competitive advantage. We cannot assure you
that any issued patents will not be challenged, invalidated, infringed or
circumvented. Parties not affiliated with us have obtained or may obtain United
States or foreign patents or possess or may possess proprietary rights relating
to our products. We cannot assure you that patents now in existence or later
issued to others will not adversely affect the development or commercialization
of our products.
We believe that the active ingredients or compounds in our FDA approved
and proposed products, Cystadane, Elliotts B Solution, Antizol, Antizol-Vet,
Xyrem and Sucraid, are in the public domain and presently are not subject to
patent protection in the United States. However, we have filed patent
applications with respect to our Xyrem product. United States patents issued to
the licensor cover our formulation and use of Busulfex. We are pursuing
additional patent applications in foreign countries with respect to Busulfex. We
could, however, incur substantial costs asserting any infringement claims that
we may have against others.
We seek to protect our proprietary information and technology, in part,
through confidentiality agreements and inventors' rights agreements with our
employees. We cannot assure you that these agreements will not be breached, that
we will have adequate remedies for any breach, or that our trade secrets will
not otherwise be disclosed to or discovered by our competitors.
We also cannot assure you that our planned activities will not infringe
patents owned by others. We could incur substantial costs in defending
infringement suits brought against us. We also could 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 often must obtain licenses under patents or other proprietary
rights of third parties. We cannot assure you that we can obtain any such
licenses on acceptable terms, if at all. If we cannot obtain required licenses
on acceptable terms, we could encounter substantial difficulties in developing,
manufacturing or marketing one or more of our products.
WE FACE INTENSE COMPETITION IN OUR INDUSTRY.
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies. Many of these companies have substantially
greater capital resources, marketing experience, research and development staffs
and facilities than we do. We seek to limit potential sources of competition by
developing products that are eligible for orphan drug designation and NDA
approval or other forms of protection. We cannot assure you, however, that our
competitors will not succeed in developing similar technologies and products
more rapidly than we can. Similarly, we cannot assure you that these competing
technologies and products will not be more effective than any of those that we
have developed or are currently developing.
- 12 -
<PAGE>
WE EXPECT RAPID TECHNOLOGICAL CHANGE TO BE CONSTANT IN OUR INDUSTRY.
The pharmaceutical industry has experienced rapid and significant
technological change. We expect that pharmaceutical technology will continue to
develop rapidly, and our future success will depend, in large part, on our
ability to develop and maintain a competitive position. Technological
development by others may result in our products becoming obsolete 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 our prospects.
WE FACE SUBSTANTIAL PRODUCT LIABILITY AND INSURANCE RISKS.
Testing and selling health care products entails the inherent risk of
product liability claims. The cost of product liability insurance coverage has
increased. 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 assure you that we will be able to maintain
product liability insurance on acceptable terms or that our insurance will
provide adequate coverage against potential claims. A successful uninsured
product liability or other claim against us could have a material adverse effect
on our business and prospects.
IMPACT OF YEAR 2000 READINESS ISSUE.
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. Systems that are not year 2000 compliant
might recognize the year 2000 as the year 1900, or not recognize a year 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 such as the FDA, to process critical financial and
operational information incorrectly, or not at all.
Our information technology systems consist of computer hardware systems
and software applications supplied by third parties. Our strategy has been to
replace our information technology systems with current technology, which is
both year 2000 compliant and more efficient. We have also purchased and
implemented financial and operational software upgrades that are year 2000
compliant. For the nine months ended September 30, 1999, our information
technology system purchases have not been material. Our information technology
systems are year 2000 compliant.
Our assessment of internal systems includes a review of non-information
technology systems. This assessment includes a review of our internal equipment
and facilities. Based upon this review, we believe that our processes and
equipment are year 2000 compliant.
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<PAGE>
We have identified third parties, with which we have material
relationships, including suppliers, distributors and other key vendors of
materials and services. These parties or organizations have confirmed that they
have implemented Year 2000 Readiness Programs. We have not developed a
contingency plan to provide for continuity of business operations in the event
material third parties experience a disruption of service due to the Year 2000
Readiness Issue. Potential problems include, but are not limited to, loss of
electricity, loss of communications (data and voice), and loss of transportation
services. However, even if all material third parties confirm that they are or
expect to be year 2000 compliant by December 31, 1999, we cannot state with
certainty that such parties will be compliant. Failure of third party systems on
which we rely could significantly disrupt our ability to transact business with
our customers and suppliers. It is impossible to assess fully the potential
consequences in the event service interruptions from suppliers occur or in the
event that there are disruptions in such infrastructure areas as utilities,
communications, transportation, banking and government.
-------------------
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about our business
and our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of a number of factors, as more
fully described above and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
ABOUT ORPHAN MEDICAL, INC.
Orphan Medical, Inc. was incorporated on June 17, 1994 in order to
carry on the business previously conducted by the Orphan Medical Division of
Chronimed, Inc. We acquire, develop, and market products of high medical value
intended to address inadequately treated or uncommon diseases within selected
strategic therapeutic market segments. A drug has high medical value if it
offers a major improvement in the safety or efficacy of patient treatment and
has no substantial equivalent substitute. 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 six products and
fund raising. At September 30, 1999, six of our products, Busulfex, Elliotts B
Solution, Cystadane, Antizol-Vet, Antizol and Sucraid have been approved by the
FDA for marketing and are commercially available. One product, Xyrem, was, and
continues to be, in active development. We expect to seek additional products
for development. We have not generated sufficient levels of revenue from our
approved products to date to fund our operating activities and have sustained
significant operating losses each year since inception. In addition, we expect
operating losses to continue through 2000. In the first quarter of 1999, we no
longer considered our company to be in the development stage.
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,
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<PAGE>
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, until the selling shareholders sell all the shares:
* Annual Report on Form 10-K for the year ended December 31,
1998;
* Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1999;
* Current Reports on Form 8-K filed on February 11, 1999 and
August 8, 1999; 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 250
Minnetonka, Minnesota 55305
Attn: Tim McGrath
(612) 513-6900
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. The selling shareholders 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 SHAREHOLDERS
We have agreed to register 216,725 shares for resale by the selling
shareholders. All of these shares may be issued upon the exercise of warrants
owned by the selling shareholders. This number does not include an indeterminate
number of shares that may be registered and issued in accordance with Rule 416
under the Securities Act of 1933, as amended, to prevent dilution of the common
stock resulting from stock splits, stock dividends or other events, or changes
in the exercise price of warrants.
The following table lists the selling shareholders and the number of
shares they beneficially own as of November 5, 1999 and the number of shares
that they may sell upon registration.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Maximum Number of Shares
Number of Shares of Common Stock Number of Shares of Common Stock
Common Stock Subject to Warrants to be Sold Beneficially
Name of Selling Beneficially Owned Beneficially Owned Prior Pursuant to this Owned After the
Shareholder Prior to the Offering to the Offering Prospectus(1)(2) Offering(1)
- ---------------------- --------------------- ------------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
John C. Feltl 2,400 1,000 1,000 1,400
James Chica 5,000 5,000 5,000 0
Timothy Friederichs 7,051 7,051 7,051 0
John Ryden 2,500 2,500 2,500 0
Dennis Hanish 2,500 2,500 2,500 0
David Lantz 5,000 5,000 5,000 0
Jane Higgens 10,000 5,000 5,000 5,000
Richard Heise 87,521 87,521 87,521 0
John E. Feltl 95,147 92,521 92,521 2,626
Joseph Buska 22,632 5,632 5,632 17,000
Dennis Nielsen 1,500 1,500 1,500 0
Ernest Andberg 1,500 1,500 1,500 0
-------------------- ------------------------ ----------------- ----------------
Total 242,751 216,725 216,725 26,026
</TABLE>
(1) Assumes the sale of all of the shares offered by this
prospectus.
(2) Includes warrants to purchase a total of 216,725 shares of
common stock.
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders. As
used in this prospectus, the term "selling shareholders" includes donees and
pledgees selling shares received from a named selling shareholder after the date
of this prospectus. 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. We will bear all fees and expenses in
connection with the registration of the shares. The selling shareholders shall
bear any fees and expenses of any attorneys or other advisors retained by the
selling shareholders in connection with the registration.
The selling shareholders may offer and sell the shares from time to
time in one or more types of the following transactions at prevailing market
prices or at negotiated prices:
* block transactions
* on the Nasdaq National Market
* directly with market makers or in privately negotiated
transactions
* through put or call option transactions
* through short sales, or
* a combination of these methods of sale.
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 the shares. As of the date of this prospectus,
we are not aware of any agreement, arrangement or understanding between any
broker or dealer and the
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<PAGE>
selling shareholders regarding the sale of their shares. In addition, we are not
aware of any underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling shareholders. The selling shareholders
may also resell all or a portion of these shares in open market transactions in
reliance upon Rule 144 under the Securities Act, provided they meet the criteria
and conform to the requirements of that Rule. We cannot assure you that the
selling shareholders will sell any or all of the shares that they offer.
The 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 of 1933, as amended, 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 their sales in the market must comply with the requirements of
the rules and regulations of the Exchange Act.
Upon notification to us by a selling shareholder that any material
arrangement has been entered into with a broker or dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
(i) the name of each such selling shareholder and of the
participating brokers or dealers,
(ii) the number of shares involved,
(iii) the price at which such shares were sold,
(iv) the commissions paid or discounts or concessions allowed to
such brokers or dealers, where applicable,
(v) that such brokers or dealers did not conduct any investigation
to verify the information set out or incorporated by reference
in this prospectus, and
(vi) other facts material to the transaction.
In addition, upon notification to us by a selling shareholder that a donee or
pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed if required.
LEGAL MATTERS
The validity of the shares offered in this prospectus has been passed
upon by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
Ernst and Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance upon Ernst and
Young LLP's report, given on their authority as experts in accounting and
auditing.
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<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee.......................... $ 358.00
Accounting Fees and Expenses.................. 2,000.00
Legal Fees and Expenses....................... 5,000.00
Miscellaneous ................................ 642.00
-----------
Total................................ $ 8,000.00
All fees and expenses other than the SEC registration fee are
estimated. The expenses listed above will be paid by us.
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 our 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.
Our bylaws provide that we 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 our Annual
Report on Form 10-K for the year ended December 31, 1997,
Commission File No. 000-24760).
II-1
<PAGE>
3.2 Bylaws of Orphan Medical, Inc. (incorporated by reference from
our Registration Statement on Form S-1, dated March 11, 1996,
Commission File No. 333-2000).
4.1 Specimen Stock Certificate of Orphan Medical, Inc. common
stock (incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form S-3, dated April 4,
1998, Commission File 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;
(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
II-2
<PAGE>
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.
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 November 9, 1999.
ORPHAN MEDICAL, INC.
By /s/ John Howell Bullion
--------------------------------------
John Howell Bullion
Chief Executive Officer
By /s/Timothy McGrath
--------------------------------------
Timothy McGrath
Chief Financial 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, November 9, 1999
- --------------------------------- Secretary (principal
John Howell Bullion executive officer) and
Director
* 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.
* Director
- ---------------------------------
Michael Greene
* Director
- ---------------------------------
Julius Vida, Ph.D., M.B.A.
*By: /s/ John Howell Bullion November 9, 1999
-----------------------------
John Howell Bullion
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of Orphan Medical, Inc. (incorporated by
reference from Exhibit 3.1 to our Annual Report on Form 10-K for the
year ended December 31, 1997, Commission File No. 000-24760).
3.2 Bylaws of Orphan Medical, Inc. (incorporated by reference from our
Registration Statement on Form S-1, dated March 11, 1996, Commission
File No. 333-2000).
4.1 Specimen Stock Certificate of Orphan Medical, Inc. common stock
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-3, dated April 4, 1998, Commission
File 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 216,725 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 shareholders 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 shareholders 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: November 3, 1999
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 216,725 shares of its common stock and to the
incorporation by reference therein of our report dated February 5, 1999 with
respect to the financial statements of Orphan Medical, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
November 3, 1999
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. and any and all amendments thereto, including post-effective
amendments, for the sale of shares of Orphan by a certain selling shareholders,
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
---- ----- ----
/sl Lawrence C. Weaver Director October 20, 1999
- ---------------------------------------
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.)
/s/ W. Leigh Thompson Director October 20, 1999
- ---------------------------------------
W. Leigh Thompson, Ph.D. M.D.
/s/ William M. Wardell Director October 20, 1999
- ---------------------------------------
William M. Wardell, Ph.D., M.D.
/s/ Michael Greene Director October 20, 1999
- ---------------------------------------
Michael Greene
/s/ Julius Vida Director October 20, 1999
- ---------------------------------------
Julius Vida, Ph.D., M.B.A.
