As filed with the Securities and Exchange Commission on November 30, 1998
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEOPHARM, INC.
(Exact name of registrant as specified in its charter)
Delaware 8731 51-0327886
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
100 Corporate North
Suite 215
Bannockburn, Illinois 60015
(847) 295-8678
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
JAMES M. HUSSEY
President and Chief Executive Officer
NEOPHARM, INC.
100 Corporate North
Suite 215
Bannockburn, Illinois 60015
(847) 295-8678
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copy to:
LAWRENCE B. FISHER, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP
30 Rockefeller Plaza
New York, New York 10112
(212) 506-5000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If any of these securities being registered on this Form are
being offered pursuant to a dividend or 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, 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. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed maximum Amount of
Title of each class Amount to be maximum offering aggregate registration
of Securities to be registered registered price per security offering price(1) fee
- -------------------------------- -------------- ------------------ ----------------- -------------
<S> <C> <C> <C> <C>
Common Stock underlying 1,674,134 $4.90 $8,203,257 $2,281.00
Redeemable Common Stock
Purchase Warrants
Representative's Warrants 135,000 $0.0001 $13.50 $0.00(2)
to Purchase shares of
Common Stock and Warrants
Common Stock Underlying 270,000 $4.90 $1,323,000 $368.00
Representative's Warrants
Warrants Underlying 67,500 $0.14 $9,450 $3.00
Representative's Warrants
Common Stock Underlying 135,000 $6.86 $926,100 $257.00
Warrants Included in the
Representative's Warrants ____________ __________
Total $10,461,821 $2,909.00
</TABLE>
(1.) Estimated solely for the purpose of calculating the
registration fee.
(2.) No fee is required pursuant to Rule 457(g) under the
Securities Act.
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 SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER , 1998
NEOPHARM, INC.
This Prospectus covers the offer and sale by certain selling
securityholders named below of up to 2,079,134 shares (the "Shares") of common
stock (the "Common Stock"), par value $.0002145 per share, upon exercise of
1,039,567 warrants to purchase shares of Common Stock, at various exercise
prices, of Neopharm, Inc., (the "Company") which consist of:
(1) 1,674,134 shares of Common Stock issuable upon
exercise of 837,067 redeemable common stock purchase
warrants (the "Redeemable Warrants");
(2) 135,000 warrants (the "Representative's Warrants")
that we originally issued to National Securities
Corporation for acting as the representative of the
several underwriters of our initial public offering;
(3) 270,000 shares of Common Stock that are issuable upon
exercise of the Representative's Warrants;
(4) 67,500 warrants that are issuable upon exercise of the
Representative's Warrants, each having an exercise
price of $0.14 per warrant, subject to adjustment under
certain circumstances; and
(5) 135,000 shares of Common Stock that are issuable upon
exercise of the warrants that are issuable to National
Securities Corporation upon exercise of the
Representative's Warrants.
Our Common Stock is traded on the AMEX under the symbol "NEO". The closing
sale price of the Common Stock as reported by AMEX on November 20, 1998 was
$8.875 per share. Our warrants are traded on the AMEX under the Symbol "Neo_T".
The closing sale price of the Warrants as reported by AMEX on November 20, 1998
was $8.0625-.
THE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
The date of this Prospectus is _________, 1998.
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FORWARD-LOOKING STATEMENTS
Certain information contained in, or incorporated by reference into, this
Prospectus, includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, as indicated by the use of
such terms as "may," "will," "expect," "believe," "estimate," "anticipate,"
"intend" or other similar terms or the negative of such terms. Such
forward-looking statements include, without limitation, our expectations with
respect to future financial results, capital requirements, market growth, new
product introductions, potential acquisitions and the like. These statements are
based upon information currently available to us and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those anticipated. The principal risks and uncertainties are set forth
under the heading "Risk Factors" beginning on page 5 of this Prospectus and are
described elsewhere herein and in the documents incorporated herein by
reference.
THE COMPANY
NeoPharm, Inc. is a pharmaceutical company which researches and develops
drugs used in the fields of oncology therapeutics and diagnostics. We have
developed expertise in identifying, developing, preparing and the regulatory
approval process of cancer drugs for both therapeutic and diagnostic purposes.
Our goal is to be a leading worldwide oncology drug company, and over the past
eight years we have established a portfolio of compounds in various stages of
clinical and pre-clinical development.
Currently we are developing five compounds which all target various forms
of cancer, including, (i) therapeutic compounds incorporating second-generation
liposomal encapsulation technology: Doxorubicin ("LED"), Paclitaxel ("LEP"), and
Raf Antisense ("LE-AON"); (ii) IL-13 Chimeric Protein Exotoxin for therapeutic
use, and (iii) Broxine (Registered) (BUdR) for diagnostic applications. Although
cancer is the second largest cause of death in the U.S. and there are a large
number of new cases of cancer each year, for some types of cancer there are no
acceptable treatments while for others the currently available treatments are
limited due to severe side effects. Our products under development offer either
improvements to currently available technology or new innovative technology that
improve the efficacy and reduce the side effects. Before new drugs can be
approved by the U.S. Food and Drug Administration (the "FDA"), they must go
through several test phases, from pre-clinical trials to Phase I to Phase II and
Phase III trials. Our products and the test phases they are in are detailed in
the following table:
Compounds Development Status Cancer Indication
- -------------------------------------------------------------------------------
LED Phase I completed, Breast, Prostate,
initiated Phase II in June Hematological
1998
- -------------------------------------------------------------------------------
LEP Phase I in September 1998 Ovarian, Breast, Lung
- -------------------------------------------------------------------------------
LE-AON Pre-clinical trials Head & Neck, Lung, Brain
ongoing, initiate Phase I
in the 2nd Quarter, 1999
- -------------------------------------------------------------------------------
IL-13 Chimeric Pre-clinical trials Renal Cell, Brain,
Protein ongoing, initiate Phase I Kaposi's Sarcoma, Breast
Exotoxin in the 1st Quarter, 1999
- -------------------------------------------------------------------------------
Broxine NDA pending before the FDA Breast, Colon, Prostate,
(Registered) Hematologic
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Our short term goal is to use our proprietary liposomal encapsulation
technology to significantly enhance the efficiency and reduce the side effects
of currently available chemotherapy compounds such as Doxorubicin (Adriamycin
(Registered)) and Paclitaxel (Taxol(Registered)). Through this process of
formulation, we are able to establish a new patent position on a proven compound
with significantly enhanced safety and efficacy. In June 1998 we entered into
Phase II clinical trials for LED in hormone resistant prostate cancer following
positive results in Phase I trials and we will enter Phase II/III in treatment
resistant breast cancer in the 4th quarter of 1998. Although two other forms of
LED are currently on the market, we believe that our product will provide
significantly greater benefits based upon our studies to date.
Recently, we made a significant advance in successfully formulating
Liposomal Encapsulated Paclitaxel ("LEP"). Currently, we do not know of any
other manufacturer that has been able to produce the complex Paclitaxel molecule
in a liposomal encapsulation and that has been issued a worldwide patent on LEP.
In May 1998, we published the results of a preclinical animal study
demonstrating a superior side effect profile with equal efficacy for LEP when
compared to free Taxol(Registered). We believe that this will allow patients to
tolerate significantly higher dosage levels of Paclitaxel thereby providing
greater therapeutic value in a number of types of cancer tumors.
Our other products under development include Broxine(Registered) (BUdR),
IL-13 Chimeric Protein Exotoxin and another liposomal encapsulated compound,
LE-AON. Broxine (Registered) is a compound that we believe will prove useful in
characterizing tumor cell growth in nearly all solid tumors, including breast
cancer, colon cancer, prostate cancer and hematologic cancer. We filed a NDA for
Broxine(Registered) in December 1996 as a prognostic agent in the treatment of
breast cancer. In December 1997, the FDA's Oncology Advisory Committee ("ODAC")
voted not to recommend this application, but recognized the product as safe
in-vivo. Having met with the FDA, gathered new data, and reanalyzed existing
data, we intend to file an amendment to our NDA in 1999, for the approval of
Broxine(Registered) as an S-Phase labeling marker for breast cancer. The IL-13
Chimeric Protein Exotoxin is a genetically engineered compound incorporating a
highly toxic material that destroys the cells once linked to the target receptor
on its surface and is targeted to the treatment of renal cancer, brain cancer,
Kaposi's Sarcoma and breast cancer. We entered pre-clinical studies in June 1998
and expect to enter Phase I clinical trials in the first quarter of 1999. LE-AON
is an antisense drug useful in enhancing the lethality and effectiveness of
radiation, especially in the treatment of head and neck cancer, lung cancer and
brain cancer. It is currently in animal trials and we expect to enter Phase I
clinical trials in early 1999.
We either own or have been issued patent rights in the U.S. and other major
markets, for LED, LEP, LE-AON and IL-13, through our cooperative research and
development agreements with academic and governmental cancer institutions. In
addition, we have acquired exclusive rights regarding the use and supply of
other materials, such as cardiolipin, required for the development, preparation
and manufacturing of our liposome products.
In order to become a leading worldwide oncology drug development company,
we have a strategy based on focusing our resources exclusively on the expanding
cancer market. To do that, we are developing a balanced portfolio of anti-cancer
drugs based on enhancing proven compounds, developing our existing novel
therapeutic agents and leveraging our expertise to identify compounds that we
can license. Assuming the approval of Broxine(Registered) is granted by the FDA,
we plan to use revenues from Broxine(Registered), if approved, to build a
domestic sales and marketing infrastructure to support the marketing of other
future products and to form working relationships with major international
partners for overseas markets. In addition, part of our strategy is also to seek
to form strategic alliances with larger pharmaceutical and biotechnology
companies to obtain financial and marketing support for certain of our product
development activities.
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We were founded in 1990 by scientists specializing in cancer therapy. We
have relationships with the FDA, National Cancer Institute ("NCI"), Georgetown
University, as well as with established pharmaceutical manufacturers. We
currently do not have any products which are approved for sale, and as a result
we have no marketing or sales staff, and have conducted our activities through
consultants and at university research facilities.
Our principal executive offices are located at 100 Corporate North, Suite
215, Bannockburn, Illinois 60015, and our telephone number is (847) 295-8678.
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RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating NeoPharm and
our business.
Development Stage Company; Absence of Profitability
We are a development stage company and we have been unprofitable since
inception. At September 30, 1998 and December 31, 1997, we had accumulated
losses since inception of approximately $10,135,008 and $8,358,213,
respectively. We probably will continue to incur substantial additional
operating losses for at least the next several years and expect cumulative
losses to increase as our research and development efforts expand. We have only
generated limited amounts of revenue from our license fees and there can be no
assurance as to when or whether we will be able to develop other sources of
revenue or when or if our operations will become profitable, even if we are able
to commercialize some of our products. We have only a limited history of
operations consisting primarily of development of our products and sponsorship
of research and clinical trials.
No Assurance of Successful Product Development
Our research and development programs are at various states of development,
ranging from the pre-clinical stage, to Phase I and Phase II clinical trials to
a pending NDA. Substantial additional research and development will be necessary
in order for us to develop products based on our therapeutic and diagnostic
agents, and there can be no assurance that our research and development will
lead to development of products that are shown to be safe and effective in
clinical trials and are commercially viable. Our proposed products will also
require clinical testing, regulatory approval and substantial additional
investment prior to commercialization. We can not give any assurance that any
such products will be successfully developed, prove to be safe and effective in
clinical trials, meet applicable regulatory standards, be capable of being
produced in commercial quantities at acceptable costs, be eligible for third
party reimbursement from governmental or private insurers, be successfully
marketed or achieve market acceptance. Our products may also prove to have
undesirable or unintended side effects that may prevent or limit their
commercial use. Any product development program undertaken by us may be
curtailed, redirected or eliminated at any time. In addition, there have been
delays in our testing and development schedules to date and there can be no
assurance that our expected testing and development schedules will be met.
Delays in our testing and development schedules could have a material adverse
effect on our financial condition and results of operations.
Dependence on Collaborative Relationships
Our Broxine(Registered) (BUdR) product has been the subject of a
cooperative research and development agreement (a "CRADA") with the NCI. Under
the terms of the NCI CRADA, we received exclusive rights to the data generated
with respect to Broxine(Registered) by NCI for certain indications contained in
the NCI CRADA. The NCI CRADA provided that we may sponsor and help support
clinical studies, pay for the cost of producing Broxine(Registered) used in
clinical trials and, to the extent supported by clinical results, file
appropriate new drug applications (called "NDAs") with the FDA. The NCI CRADA
expired on September 14, 1998, and is being replaced by a Clinical Trials
Agreement ("CTA") with the NCI which will allow us to continue our collaborative
efforts with the NCI and complete the work started under the NCI CRADA on a non
fee basis. We anticipate execution of the CTA in the near future. Because
Broxine(Registered) is not covered by patents or patent applications, our
exclusive access to the clinical data collected by NCI and its investigators and
its other rights under the NCI CRADA and the CTA represent the principal
competitive advantage for us in the development and eventual commercialization
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<PAGE>
of Broxine(Registered). Furthermore, the collaborative nature of our
relationship with the NCI is of significant importance for the conduct of
clinical trials. Accordingly, our inability to enter into the CTA would be
materially adverse to our Broxine(Registered) program, could require curtailment
or termination of that program and could therefore have a material adverse
effect on our business, financial condition and results of operations.
Our IL-13 product is the subject of a CRADA with the FDA (the "FDA CRADA").
Under the terms of the FDA CRADA, we have extensive rights to the development of
this compound with the FDA and the data generated in collaboration with the FDA
during the term of the FDA CRADA. The FDA CRADA provides that we may sponsor
clinical studies, pay for the cost of producing product used in clinical trials
and, to the extent supported by clinical results, file appropriate NDAs with the
FDA. The term of the FDA CRADA extends through October 2001, although the
agreements may be terminated by either party upon 60 days advance notice without
cause. The collaborative nature of our relationship with the FDA is of
significant importance for the conduct of the clinical trials. Accordingly,
termination of the FDA CRADA would be materially adverse to our development
program, could require curtailment or termination of such program, and could
therefore have a material adverse effect on our business, financial condition
and results of operations.
We have entered into license and sponsored research agreements with
Georgetown University ("Georgetown") relating to liposome encapsulated
Doxorubicin ("LED"), liposome encapsulated Paclitaxel ("LEP"), and liposome
encapsulated antisense oligodeoxy-nucleotides ("LE-AON"). Under these
agreements, we are obligated to sponsor certain research activities at
Georgetown relating to liposome-encapsulating chemotherapeutic agents. We are
also obligated to pay Georgetown royalties on commercial sales of the liposome
products. We have paid $55,000 in advance royalty payments to Georgetown. In the
event that we are unable to successfully commercialize our liposome products, we
would be unable to recoup these advance royalty payments. The licenses are
generally not terminable by Georgetown, except in the event of a default by us.
Any such default and resulting termination of the licenses would be materially
adverse to our liposome program, could require curtailment or termination of
such program and could therefore have a material adverse effect on our business,
financial condition and results of operations.
Additional Collaborative Relationships
We may seek additional collaborative relationships in certain areas,
particularly in situations where we believe that the clinical testing,
marketing, manufacturing and other resources of pharmaceutical collaborators
will enable us to access more effectively particular product or geographic
markets. Our inability to contract, on acceptable terms and with qualified
suppliers, for the manufacture of any products which they develop, or delays or
difficulties in our relationships with collaborators, suppliers or
manufacturers, would have a material adverse effect on us.
Future Capital Needs; Fixed Commitments
We require substantial funds to conduct research and development,
pre-clinical and clinical testing and to manufacture and market our proposed
products. Our cash requirements may vary materially from those now planned. We
may seek to satisfy our future funding requirements through additional public or
private offerings of securities, with collaborative or other arrangements, with
corporate partners or from other sources. Additional financing may not be
available when needed or be on terms acceptable to us. If adequate financing is
not available, we may be required to delay, scale back or eliminate certain of
our research and development programs, to relinquish rights to certain of our
technologies, therapeutic and diagnostic agents, product candidates or products,
or
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to license third parties to commercialize products or technologies that we would
otherwise seek to develop ourself. To the extent we raise additional capital by
issuing equity securities, ownership dilution to the current stockholders will
result.
Our fixed commitments, including consulting fees for consultants, rent,
payments under license agreements and other contractual commitments are
substantial and are likely to increase as additional agreements are entered into
and additional personnel are retained.
No Manufacturing, Marketing, or Sales Resources
We do not have internal manufacturing, marking or sales resources. Since we
focus on research and development and have limited resources, we do not
anticipate spending a material amount of cash to acquire resources and develop
capabilities in these areas. Our manufacturing strategy will be to develop
manufacturing relationships with established pharmaceutical manufacturers for
production of products. We can give no assurance that we will be able to enter
into manufacturing agreements on commercially reasonable terms, if at all.
No Clinical Testing or Regulatory Capability
As we develop compounds with commercial potential, it will be necessary for
us to hire additional personnel skilled in the clinical testing and the
regulatory compliance processes. We can not give any assurance that we will
successfully complete clinical testing of, obtain regulatory approval for, or
manufacture or market any product we may develop, either independently or
pursuant to manufacturing or marketing arrangements. Should we seek to enter
into third-party arrangements, there can be no assurance that such arrangements
can be successfully negotiated on commercially reasonable terms or that any such
arrangements, if entered into, will be successful.
Uncertain Ability to Protect Patents and Proprietary Information
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical industry places considerable importance on
patent and trade secret protection for new technologies, products and processes.
Broxine (Registered) (BUdR) however, is not currently the subject of patents or
patent applications, and we do not expect to obtain patent protection for our
Broxine(Registered) product. The lack of patent protection could have a material
adverse effect on our operations. We have obtained licenses to 10 United States
patent applications and have 16 other issued or allowed patent applications
outside the U.S. No assurance can be given that any patents under pending
applications or any future patent applications will be issued. Furthermore,
there can be no assurance that the scope of any patent protection will exclude
competitors or provide competitive advantages to us, that any of our patents
that may be issued will be held valid if subsequently challenged or that others
will not claim rights in or ownership to the patents and other proprietary
rights held by us. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information or
otherwise obtain access to our know-how or that others may not be issued patents
that may require licensing and the payment of significant fees or royalties by
us for the pursuit of our proposed business.
The patent position of participants in the pharmaceutical field generally
is highly uncertain, involves legal and factual questions and has recently been
the object of much litigation. Accordingly, we could incur substantial costs in
defending ourself in suits that may be brought against us claiming infringement
of the patent rights of others or in asserting our patent rights in a suit
against another party. We may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office ("USPTO")
for the purpose of determining the priority of inventions in connection with our
patent applications or those of other parties. Adverse determinations in
litigation or interference proceedings could
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require us to seek licenses (which may not be available on commercially
reasonable terms, if at all) or subject us to significant liabilities to third
parties, and could therefore have a material adverse effect on us.
We also rely on trade secrets, know-how and technological advantage to
protect the technology we develop. Although we use confidentiality agreements
and employee proprietary information and invention assignment agreements to
protect our trade secrets and other unpatented know-how, these agreements may be
breached by the other party thereto or may otherwise be of limited effectiveness
or enforceability.
Relationships with Other Entities; Conflicts of Interest
Messrs. John N. Kapoor and Kevin M. Harris, who each hold executive
positions with us, are also associated with EJ Financial Enterprises, Inc., a
healthcare investment firm which is wholly owned by John N. Kapoor ("EJ
Financial"). On July 1, 1994, we entered into a Consulting Agreement with EJ
Financial. The Consulting Agreement provides that we will pay EJ Financial
$125,000 per year (paid quarterly) for certain business and financial services,
including having certain officers of EJ Financial serve us as officers. EJ
Financial is involved in the management of healthcare companies in various
fields, and Messrs. Kapoor and Harris are involved in various capacities with
the management and operation of these companies. The John N. Kapoor Trust (the
"Trust"), the beneficiary of which is Dr. John Kapoor, is a principal
shareholder of each of these companies as well as the Company.
Further, as of September 30, 1998, the Trust entered into a Line of Credit
Agreement with us (the "Credit Agreement") pursuant to which we may borrow up to
$3,000,000 at a rate equal to 2% (two hundred basis points) over the "prime
rate" announced from time to time by The Northern Trust Bank of Chicago. Loans
under the Credit Agreement are secured by a Continuing Security Agreement which
provides the Trust with a security interest in our assets.
Mr. Harris, who is currently our Chief Financial Officer, is also the
Director of Taxes and Planning of EJ Financial. Accordingly, Mr. Harris will not
devote all of his working hours to our affairs. In addition, certain companies
with which EJ Financial is involved are in the oncology field. Although these
companies are pursuing different therapeutic approaches for the treatment of
cancer, discoveries made by one or more of these companies could render our
products less competitive or obsolete.
Members of our Scientific Advisory Board are employed on a full-time basis
by academic or research institutions. These individuals will to devote only a
portion of their time to our business and research activities. Except for work
performed specifically for and at our direction, the inventions or processes
discovered by our consultants and scientific advisors will not become our
property but will be the intellectual property of other institutions which they
may have an affiliation. In such event, it would be necessary for us to obtain
licenses to such technology from such institutions. In addition, invention
assignment agreements executed by Scientific Advisory Board members and
consultants in connection with their relationships with us may be subject to the
rights of their primary employers or other third parties with whom such
individuals have consulting relationships.
Industry Subject to Intense Competition
Competition in developing pharmaceutical and biologically-derived products
for the treatment of cancer is intense. Many of our potential competitors have
substantially greater capital, research and development capabilities and human
resources than us. Furthermore, many of these competitors have significantly
greater experience than we do in undertaking pre-clinical testing and clinical
trials of new pharmaceutical products and obtaining FDA and other
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regulatory approvals. If we are permitted to commence commercial sales of any
product, we will also be competing with companies that have greater resources
and experience in manufacturing, marketing and sales. Our competitors may
succeed in developing products that are more effective, less costly, or have a
better side effect profile than any that we may develop, and such competitors
may also prove to be more successful than us in manufacturing, marketing and
sales. Competitive developments could render our proposed products
noncompetitive or obsolete.
Industry Subject to Technological Changes and Uncertainty
The pharmaceutical field is characterized by extensive research efforts and
rapid technological progress. New developments in oncology, cancer therapy,
medicinal pharmacology, and other fields are expected to continue at a rapid
pace in both industry and academia. We can give no assurance that research and
discoveries by others will not render some or all of our proposed programs or
products noncompetitive or obsolete.
No Assurance of FDA Approval; Government Regulation
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of the types of products that we are developing
through lengthy and detailed laboratory and clinical testing procedures and
other costly and time consuming procedures. Satisfaction of these requirements
typically takes a number of years and varies substantially based upon the type,
complexity and novelty of the pharmaceutical. There can be no assurance that FDA
or other regulatory approval for any products developed by us will be granted on
a timely basis, or at all. Further, there can be no assurance that we will have
sufficient resources to complete the required regulatory review process, or that
we can overcome the inability to obtain, or delays in obtaining, such approvals.
Failure to obtain FDA approval for our products under development, would
preclude us from marketing and selling our products in the United States.
Failure to receive such FDA approval would have a material adverse effect on our
business and would likely require us to cease operations.
The production and marketing of our proposed products, as well as our
ongoing research and development activities, are also subject to regulation by
governmental agencies of the United States and other countries. Government
regulation may delay marketing of our products for a considerable period of
time, impose costly procedures upon our activities and furnish a competitive
advantage to our competitors. Any delay in obtaining, or failure to obtain, FDA
or other necessary regulatory approvals would adversely affect the marketing of
our products and the ability to generate product revenue. Marketing and
manufacturing of pharmaceuticals are also subject to continuing FDA review and
surveillance and failure to comply with regulations or discovery of previously
unknown problems can result in FDA action against the product or the
manufacturer, including fines, recalls, product seizures, and suspension or
withdrawal of previously granted regulatory approvals.
Uncertain Availability of Health Care Reimbursement; Health Care Reform
Our ability to commercialize human therapeutic products may depend in part
on the extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health insurers and others. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. There can be no
assurance of the availability of adequate third-party insurance reimbursement
coverage that enables us to establish and maintain price levels sufficient for
realization of an appropriate return on our investment in developing new
therapies. We believe government and other third-party payers are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new therapeutic products approved for marketing by the FDA
and by refusing, in some cases, to provide any coverage for uses of
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approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third-party payers for uses of our therapeutic
products, the market acceptance of these products would be adversely affected.
Healthcare reform proposals have been introduced in Congress and in various
state legislatures. We do not know whether any health care reform legislation
will be enacted at the federal level, or what actions governmental and private
payers may take in response to the suggested reforms. We cannot predict whether
any reforms will be implemented, if ever, or the effect of any implemented
reforms on our business. Such reforms, if enacted, may affect the availability
of third-party reimbursement for products developed by us as well as the price
levels at which we are able to sell such products. In addition, if, and to the
extent that, we are able to commercialize products in overseas markets, our
ability to achieve success in such markets will depend, in part, on the health
care financing and reimbursement policies of such countries.
No Product Liability Insurance
We do not have any product liability insurance and our business exposes us
to potential product liability risks which are inherent in the testing,
manufacturing and marketing of human therapeutic products. Although we plan to
obtain product liability insurance when and if our products become commercially
available, there can be no assurance that we will be able to obtain or maintain
such insurance on acceptable terms or that any insurance obtained will provide
adequate coverage against potential liabilities. Claims or losses in excess of
any liability insurance coverage we obtain could have a material adverse effect
on our business and prospects.
Litigation Involving Our Chairman
John N. Kapoor, our Chairman and principal stockholder, was previously the
Chairman and President of Lyphomed Inc. ("Lyphomed"). Fujisawa Pharmaceutical
Co. Ltd. ("Fujisawa") was a major stockholder of Lyphomed from the mid-1980s
until 1990, at which time Fujisawa completed a tender offer for the remaining
shares of Lyphomed, including the shares held by Dr. Kapoor. Fujisawa filed suit
in federal district court in Illinois against Dr. Kapoor alleging that between
1980 and 1986 Lyphomed filed a large number of allegedly fraudulent new drug
applications with the Food and Drug Administration ("FDA"), in violation of FDA
rules, and that Dr. Kapoor's failure to disclose these violations to Fujisawa
constituted a violation of federal securities laws and the Racketeer Influenced
and Corrupt Organizations Act (RICO). Fujisawa also alleged state common-law
claims of constructive trust, fraud, breach of fiduciary duties and breach of
warranty against Dr. Kapoor. In addition to substantial monetary relief, among
the relief sought by Fujisawa is a constructive trust on the assets of Dr.
Kapoor, which assets may involve Dr. Kapoor's shares of our Common Stock or
rights to acquire shares of our Common Stock.
Dr. Kapoor has vigorously defended himself against all these allegations.
In the federal lawsuit, Dr. Kapoor's motion for summary judgement was granted by
the trial court. However, the Seventh Circuit Court of Appeals subsequently
reversed, in part, the trial court's decision, reinstating the RICO claims
against Dr. Kapoor. Dr. Kapoor's subsequent motion for summary judgment was
denied and the matter has been referred to a special master for mediation
discussions. It is anticipated that in the absence of resolution of the matter,
a trial would be held in late 1999 or early in 2000. Fujisawa's claims under
state law against Dr. Kapoor are also pending. A related suit filed by Dr.
Kapoor in Delaware Chancery Court seeking to require Lyphomed to advance to Dr.
Kapoor the cost of his defense to all of Fujisawa's lawsuits was decided in Dr.
Kapoor's favor and that decision was subsequently affirmed by the Delaware
Supreme Court. Finally, a countersuit filed by Dr. Kapoor against Fjuisawa in
the Circuit Court of Cook County for breach of contract was dismissed without
prejudice with the court
10
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determining that the proper forum for such an action was as part of the pending
federal lawsuit. The decision of the lower court was affirmed on appeal and Dr.
Kapoor has now filed a counterclaim for breach of contract as part of the
federal court action.
Although we are not a party to these suits, a significant monetary or other
judgment, settlement, or the imposition of the constructive trust against Dr.
Kapoor could have a material adverse effect on us.
Potential Adverse Effect of Shares Eligible for Future Sale
Future sales of Common Stock by existing stockholders under Rule 144 of the
Securities Act of 1933, as amended, or through the exercise of outstanding
registration rights or otherwise could have an adverse effect on the market
price of our securities. Of the 8,195,810 shares of Common Stock outstanding as
of November 20, 1998, 3,533,935 shares are freely transferable without
restriction or further registration under the Securities Act. The remaining
4,661,875 shares are "restricted securities," as that term is defined in Rule
144 promulgated under the Securities Act ("Rule 144") and may only be sold
pursuant to a registration statement under the Securities Act or an applicable
exemption from registration thereunder, including exemptions provided by Rule
144.
Concentration of Ownership
As of November 20, 1998, our directors and officers beneficially owned in
the aggregate 5,116,879 shares of Common Stock representing approximately 58.65%
of the outstanding shares of Common Stock. Accordingly, our officers and
directors have the ability to elect a majority of our directors and otherwise
control our operations.
Absence of Dividends
We have never declared or paid cash dividends on our Common Stock and do
not intend to pay any cash dividends in the foreseeable future.
Price Volatility
The stock market has experienced significant price and volume fluctuations
that may be unrelated to the operating performance of particular companies. In
addition, the market prices of the securities of many publicly traded
pharmaceutical or biotechnology companies have in the past been, and can in the
future be expected to be, especially volatile.
Effect of Redemption of Redeemable Warrants
Since July 25, 1997, our Redeemable Warrants have been subject to
redemption at $0.01 per Redeemable Warrant on thirty (30) days prior written
notice to the Warrantholders if the average closing sale price of the Common
Stock equals or exceeds $5.60 per Share for any twenty (20) trading days within
a period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption. If we redeem the Redeemable
Warrants, holders of the Redeemable Warrants will lose their rights to exercise
the Redeemable Warrants after the expiration of the 30 day notice of redemption
period. Upon receipt of a notice of redemption, holders would be required to:
(i) exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the current market
price, if any, when they might otherwise wish to hold the Warrants, or (iii)
accept the redemption price which is likely to be substantially less than the
market value of the Warrants at the time of redemption.
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Legal Restrictions on Sales of Shares Underlying the Redeemable Warrants
The Redeemable Warrants are not exercisable unless, at the time of the
exercise, we have a current prospectus covering the shares of Common Stock
issuable upon exercise of such securities, and such shares have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the Redeemable Warrants. The Redeemable
Warrants may be deprived of value if a current prospectus covering the shares of
Common Stock issuable upon the exercise of the Redeemable Warrants is not kept
effective.
Purchasers may buy Redeemable Warrants in the aftermarket or may move to
jurisdictions in which the shares underlying the Redeemable Warrants are not so
registered or qualified during the period that the Redeemable Warrants are
exercisable. In this event, we would be unable to issue shares to those persons
desiring to exercise their Redeemable Warrants, and holders of Redeemable
Warrants would have no choice but to attempt to sell the Redeemable Warrants in
a jurisdiction where such sale is permissible or allow them to expire
unexercised.
Limitation of Liability and Indemnification
Our Certificate of Incorporation limits, to the maximum extent permitted by
the Delaware General Corporation Law ("Delaware Law"), the personal liability of
directors for monetary damages for breach of their fiduciary duties as a
director. Our By-laws provide that we must indemnify our officers and directors
and may indemnify our employees and other agents to the fullest extent permitted
by law. We have entered into indemnification agreements with our officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in Delaware Law. We may be
required pursuant to Delaware Law, our By-laws or the indemnification agreements
to indemnify our officers and directors against certain liabilities that may
arise by reason of the status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance, if
available on reasonable terms.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations. We have conducted a review of our computer systems and
management believes that we will not be materially impacted by the Year 2000
issue.
We are currently performing a compliance survey of our critical vendors,
although we presently have very little information concerning their Year 2000
compliance status. In the event that any such key suppliers do not achieve Year
2000 compliance in a timely manner, or at all, our business or operations could
be adversely affected.
Forward-Looking Information and Associated Risk
This Prospectus contains various forward looking statements. These
statements are based upon management's current beliefs as well as assumptions
made by management based upon information currently available to it. These
statements are subject to various risks and uncertainties, including those
described above, as well as potential changes in economic or regulatory
conditions generally which are beyond our control. Should one or more of those
risks materialize or changes occur, or should management's assumptions prove
incorrect, our actual results may vary materially from those anticipated or
projected.
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USE OF PROCEEDS
If all of the holders of the Redeemable Warrants exercise such Redeemable
Warrants for shares of our Common Stock, we would receive approximately
$8,203,257. However, since July 25, 1997, the Redeemable Warrants have been
subject to redemption at $0.01 per Redeemable Warrant on thirty (30) days prior
written notice to the warrantholders if the average closing sale price of our
Common Stock as reported by AMEX equals or exceeds $5.60 for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date and notice of redemption. In the event
that all of the holders of the Representative's Warrants elect to exercise their
Representative's Warrants for shares of Common Stock, for cash, the Company will
receive $1,323,000. The Representative's Warrants, however, may be exercised on
a cashless basis. If the Representative's Warrants are exercised on a cashless
basis, the Company will not receive any cash proceeds upon the exercise of the
Representative's Warrants. In addition, in the event that all of the holders of
the Representative's Warrants elect to exercise the warrants underlying the
Representative's Warrants, the Company will receive an additional $935,550. Any
proceeds we receive upon exercise of the Redeemable Warrants and/or the
Representative's Warrants will be used for working capital, to reduce the debt
owed to the principal shareholder under the Line of Credit and for other general
corporate purposes. The Company has agreed to bear certain expenses (other than
selling commissions and fees and expenses of counsel and other advisers to the
Selling Securityholders) in connection with the registration of the shares being
offered by the Selling Securityholders.
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SELLING SECURITYHOLDERS
The following table sets forth certain information provided to us, as of
October 31, 1998, with respect to the number of shares of Common Stock,
Redeemable Warrants, warrants issuable upon exercise of the Representative's
Warrants, each having an exercise price of $0.14 (solely for purposes of this
Selling Securityholders Section, the "Warrants") beneficially owned by each of
the Selling Securityholders both before and after the sale of the shares offered
hereby.
The number of shares shown in the following table as being offered by the
Selling Securityholders does not include such presently indeterminate number of
additional shares of Common Stock as may be issuable as a result of stock
splits, stock dividends and similar transactions, but which shares are, in
accordance with Rule 416 under the Securities Act, included in the Registration
Statement of which this Prospectus forms as part.
Any or all of the shares of Common Stock listed below may be offered for
sale pursuant to this Prospectus by the Selling Securityholders from time to
time. Accordingly, no estimate can be given as to the amount of shares of Common
Stock that will be held by the Selling Securityholders upon consummation of any
such sales. In addition, the Selling Securityholders identified below may have
sold, transferred or otherwise disposed of all or a portion of their shares of
Common Stock since the date on which the information regarding their Common
Stock was provided, in transactions exempt from the registration requirements of
the Securities Act.
Beneficial ownership of the securities held by the Selling Securityholders
after this offering will depend on the number of securities sold by each Selling
Securityholder in this offering. Except as indicated in this Prospectus, none of
the Selling Securityholders has had a material relationship with the Company
within the past three years other than as a result of the ownership of the
Shares or other securities of the Company. See "Plan of Distribution."
The shares covered by this Prospectus may be offered from time to time by
the Selling Securityholders named below:
Amount of Amount of Percent of
Securities Securities Securities
Being Owned After Owned After
Name of Selling Securityholder Registered Offering Offering
- --------------------------------- ----------- ------------ ------------
National Securities Corporation
Common Stock.................. 48,600 0 *
Redeemable Warrants........... 0
Warrants...................... 12,150 0 *
Steven A. Rothstein
Common Stock.................. 5,400 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 1,350 0 *
Michael M. LeConey
Common Stock.................. 44,000 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 10,800 0 *
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Madeline Littman
Common Stock.................. 3,870 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 1,080 0 *
Daniel L. Hamilton
Common Stock.................. 8,600 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 2,160 0 *
Michael K. Hsu
Common Stock.................. 73,530 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 18,360 0 *
Jessy Dirks
Common Stock.................. 43,000 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 10,800 0 *
Raymond L. Dirks
Common Stock.................. 43,000 0 *
Redeemable Warrants........... 0 0 *
Warrants...................... 10,800 0 *
John N. Kapoor
Common Stock.................. 287,004 2,125,409(1) 26%
Redeemable Warrants........... 143,502 0 *
Warrants...................... 0 0 *
*Less than 1%
(1) Includes 1,511,624 shares of Common Stock held by the John N. Kapoor
Trust, dated September 20, 1989, of which Dr. Kapoor is the sole
trustee and sole beneficiary. The address of the Trust is 225 East
Deerpath, Suite 250, Lake Forest, Illinois 60045. The Trust also owns
warrants to purchase 287,004 shares of Common Stock, which are assumed
to have been exercised for purposes of disclosing the ownership
indicated. The amount shown also includes 300,000 shares which are
held by the John N. Kapoor Charitable Trust (the "Charitable Trust")
of which Dr. Kapoor disclaims beneficial ownership of the shares held
by the Charitable Trust. The amount shown does not include 1,550,453
shares of Common Stock which are owned by the John N. Kapoor 1994-A
Annuity Trust (the "Annuity Trust") of which the sole trustee is
Editha Kapoor, Dr. Kapoor's spouse. In addition, the amount shown does
not include 310,848 shares of Common Stock which are owned by four
trusts which have been established for Dr. Kapoor's children (the
"Childrens' Trusts") of which the sole trustee is Dr. Kapoor's spouse,
Editha Kapoor. Dr. Kapoor disclaims beneficial ownership of the shares
held by the Annuity Trust and the Childrens' Trusts.
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PLAN OF DISTRIBUTION
The offering of the shares of Common Stock is not being underwritten, and
we will receive no proceeds from this Offering but will receive proceeds from
the exercise of the Redeemable Warrants and possibly from the exercise of the
Representative's Warrants. The Selling Securityholders (or, subject to
applicable law, their pledgees, distributees, transferees or other successors in
interest) may offer their shares at various times in one or more of the
following transactions:
- on the AMEX or any other exchange where the Common Stock is listed;
- in the over-the-counter market;
- in negotiated transactions not on an exchange or over-the-counter;
- in connection with short sales of our Common Stock;
- by pledge to secure debts or other obligations;
- in connection with the writing of call options, in hedge transactions and
in settlement of other transactions in standardized or over-the-counter
options; or
- in a combination of any of the above transactions.
The Selling Securityholders also may sell shares that qualify under Rule
144 of the Securities Act, where applicable.
The Selling Securityholders may sell the shares through public or private
transactions at prevailing market prices, or at prices related to such
prevailing market prices or at privately negotiated prices. Sales of the shares
of the Selling Securityholders, or even the potential for such sales, would
likely have an adverse effect on the market price of our outstanding securities.
The Selling Securityholders may use broker-dealers to sell the shares. In
order to comply with the securities laws of certain states, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
If broker-dealers are used, they will either receive discounts or
commissions from the Selling Securityholders, or they will receive commissions
from the purchasers of shares from whom they acted as agents. The Selling
Securityholders and any broker-dealers or agents that participate with the
Selling Securityholders in the distribution of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not bid for or purchase shares of
Common Stock during a period which commences one business day (five business
days, if our public float is less than $25 million or our average daily trading
volume is less than $100,000) prior to such person's participation in the
distribution, subject to exceptions for certain passive market making
activities. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including, without limitation, Regulation M,
which provisions may limit the timing of purchases and sales of shares of our
Common Stock by such Selling Securityholder.
At the time a particular offer of shares is made by or on behalf of the
Selling Securityholders, or by us upon exercise of the Redeemable Warrants, a
prospectus will be delivered to the extent required by the Securities Act.
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<PAGE>
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any person engaged in the distribution of
the Selling Securityholder securities may not simultaneously engage in
market-making activities with respect to any of our securities during the
applicable "cooling off" period (currently a period of up to five business days)
prior to the commencement of such distribution. In addition, each Selling
Securityholder desiring to sell Redeemable Warrants will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the securities by such Selling
Securityholders.
We have agreed to pay substantially all of the expenses incident to the
registration of all of the securities covered under this Prospectus, other than
transfer taxes, if any, and commissions and discounts of dealers and agents.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for us by Orrick, Herrington & Sutcliffe LLP, New York, New York.
EXPERTS
The financial statements at December 31, 1997 appearing in our Annual
Report on Form 10-K, as amended, for the year ended December 31, 1997 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy any document we file at the SEC's
Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C., 20549, and at the following regional offices of the SEC: Seven
World Trade Center, 13th Floor, New York, New York, 10048 and at Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois, 60661. Copies
can also be obtained from the Public Reference Room of the SEC at 450 Fifth
Street, N.W., Washington, D.C., 20549, upon payment of prescribed rates. You may
obtain information on the operation of the SEC's Public Reference Room by
calling the SEC at (800)SEC-0300. Our SEC filings are available to you on the
SEC's Internet site at http://ww.sec.gov. Our Common Stock and Redeemable
Warrants are quoted on the AMEX.
This Prospectus is only part of a Registration Statement on Form S-3 that
we have filed with the SEC under the Securities Act, and therefore omits certain
information contained in the Registration Statement. We have also filed exhibits
and schedules with the Registration Statement that are not included in this
Prospectus, and you should refer to the applicable exhibit or schedule for a
complete description of any statement referring to any contract or other
document. A copy of the Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the Public Reference Room
of the SEC described above, and copies of such material may be obtained from
such office upon payment of the fees prescribed by the SEC.
MATERIAL CHANGES
Mr. James M. Hussey joined us in March 1998 as our President, Chief
Executive Officer and a member of our Board of Directors. We entered into an
employment agreement with Mr. Hussey which is terminable by either us or Mr.
Hussey upon ninety (90) days written notice.
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Under the terms of the employment agreement, Mr. Hussey is paid an annual salary
of $250,000 and is eligible for a bonus payment of up to 80% of that salary
based on the achievement of strategic performance goals established by our
Board.
Under the terms of his employment contract, we granted Mr. Hussey options
to purchase 400,000 shares of our Common Stock. The options become exercisable
for 25% of the covered shares on January 12, 1999 and will become exercisable
with respect to an additional 25% on each annual anniversary thereafter until
exercisable in full unless terminated in accordance with our 1995 Stock Option
Plan.
In April, 1998, Dr. Lewis Strauss joined us as Vice President-Chief Medical
Officer. Under the terms of his employment, Dr. Strauss is paid an annual salary
of $140,000 and is eligible for a bonus payment of up to 50% of that salary
based on the achievement of strategic performance goals established by our
Board. In addition, under the terms of his employment, we granted Dr. Strauss
options to purchase 20,000 shares of our Common Stock. The options become
exercisable for 25% of the covered shares on April 6, 1999 and will become
exercisable with respect to an additional 25% on each annual anniversary thereof
until exercisable in full unless terminated in accordance with the terms of the
1995 Stock Option Plan.
In June 1998, Mr. Kevin M. Harris joined the Company as Secretary and Chief
Financial Officer. Mr. Harris, who is also currently the Director of Taxes and
Planning for EJ Financial, an entity controlled by our principal shareholder,
Dr. John N. Kapoor, does not receive a salary for his services. Upon joining us,
however, Mr. Harris was granted a stock option for 12,000 shares which will
become exercisable with respect to 25% of the covered shares beginning July 23,
1999 and will become exercisable with respect to an additional 25% on each
annual anniversary thereof until exercisable in full unless terminated.
In July 1998, Mr. Sander A. Flaum joined us as a Director. Mr. Flaum is
President and CEO of Robert A. Becker EURO/RSCG. Prior to becoming President of
Becker in 1991, Mr. Flaum was Marketing Director of Lederle Pharmaceuticals, a
division of American Cyanamid Corporation.
On July 23, 1998, our Board of Directors adopted the 1998 Equity Incentive
Plan (the "Equity Incentive Plan"), which will be submitted to our stockholders
for their approval at or before the 1999 Annual Meeting of Stockholders.
Under the Equity Incentive Plan, the Board as a whole or a committee of
outside directors (the "Administrator") is authorized to award stock options,
restricted stock, performance shares, performance units and bonus stock. The
Equity Incentive Plan has a 10-year term and, subject to anti-dilution
adjustments, a maximum of 2,000,000 shares of Common Stock may be delivered
pursuant to awards of options, restricted stock or bonus stock). All full-time
employees, as well as consultants and directors of the Company, are eligible to
receive awards.
The Administrator has the discretion to determine the persons to whom
awards shall be made and, subject to the terms of the Equity Incentive Plan, the
terms and conditions of each award. The Administrator may, among other things,
cancel outstanding awards and grant substitute awards with an exercise price
determined by reference to the value of the Common Stock on the date of the
substitute awards, accelerate vesting and waive terms and conditions of
outstanding awards and permit eligible employees or consultants to elect, prior
to earning compensation, to acquire options in lieu of receiving such
compensation. All awards will be fully vested upon a change of control (as
defined in the Equity Incentive Plan) of the Company.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to these documents. This information incorporated by reference is considered
to be part of this Prospectus and later information we file with the SEC will
automatically update and supercede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. The documents we are
incorporating by reference are:
(a)our Annual Report on Form 10-K for the year ended December 31, 1997,
filed with the SEC on March 31, 1998 and amended on April 30, 1998;
(b)our Definitive Proxy Statement dated May 11, 1998, filed with the SEC
on May 28, 1998 in connection with our 1998 Annual Meeting of Stockholders;
(c)our Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, filed with the SEC on May 15;
(d)our Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, filed with the SEC on August 14, 1998; and
(e)our Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, filed with the SEC on November 16, 1998; and
(f)the description of our Common Stock contained in our Registration
Statement on Form 8-A, as amended, filed with the SEC, including any
amendments or reports filed for the purpose of updating such description.
You may request a copy of any of these filings at no cost by writing or
telephoning us at the following address: 100 Corporate North, Suite 215,
Bannockburn, Illinois, 60015, Attn: Investor Relations.
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You should rely on the information contained in this document or that to
which we have referred you. We have not authorized anyone to provide you with
information that is different. You should not assume that the information in
this document is accurate as of any date other than the date on the front of
this document. This prospectus is not an offer to sell nor is it seeking an
offer to buy any securities in any state where the offer or sale is not
permitted.
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS........................................2
THE COMPANY.......................................................5
RISK FACTORS......................................................5
USE OF PROCEEDS..................................................13
SELLING SECURITYHOLDERS..........................................14
PLAN OF DISTRIBUTION.............................................16
LEGAL MATTERS....................................................17
EXPERTS..........................................................17
WHERE YOU CAN FIND MORE INFORMATION..............................17
MATERIAL CHANGES.................................................17
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................19
20
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2,079,134 Shares
and
67,500 Warrants
NEOPHARM, INC.
Common Stock
PROSPECTUS
_________________, 1998
21
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth an itemized statement of all estimated
expenses, all of which will be paid by the Company, in connection with the
issuance and the distribution of the securities being registered.
SEC Registration Fee...................... $2,909
Accounting Fees and Expenses.............. $2,500
Legal Fees and Expenses................... $25,000
Printing Fees and Expenses................ $5,000
Miscellaneous............................. $5,091
______________
Total..................................... $40,500
Item 15. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provide that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by law.
The Company has entered into indemnification agreements with its officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in Delaware Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance, if
available on reasonable terms. The Company believes that these agreements are
necessary to attract and retain qualified persons as directors and officers.
Section 145 of the Delaware Law provides that a corporation may indemnify a
director, officer, employee or agent made or threatened to be made a party to an
action by reason of the fact that he was a director, officer, employee or agent
of the corporation or was serving at the request of the corporation against
expenses actually and reasonably incurred in connection with such action if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Delaware Law does not permit a corporation to eliminate a director's duty
of care, and the provisions of the Company's Certificate of Incorporation have
no effect on the availability of equitable
II-1
<PAGE>
remedies, such as injunction or rescission, for a director's breach of the duty
of care. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing provisions
and agreements, the Company has been informed that in the opinion of the staff
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
3.1 Certificate of Incorporation, as amended filed with the
Commission as Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (File No. 33-90516), is incorporated
by reference.
3.2 Bylaws of the Registrant, as amended filed with the
Commission as Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 33-90516), is incorporated
by reference.
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (See Exhibit 5.1)
24.1 Power of Attorney (See page II-4)
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 offered
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
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
II-2
<PAGE>
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 Section15(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 Bannockburn, on the 20th day of November, 1998.
NEOPHARM, INC.
/s/James M. Hussey
----------------------------------------
By: James M. Hussey
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James M. Hussey and Kevin M. Harris and
each of them his true and lawful agent, proxy and attorney-in-fact, with full
power of substitution and resubstitution, for him and his name, place and stead,
in any and all capacities, to (i) act on, sign and file with the Securities and
Exchange Commission any and all amendments (including post-effective amendments)
to this Registration Statement together with all schedules and exhibits thereto,
(ii) act on, sign and file with the Securities and Exchange Commission any
registration statement relating to this Offering that is to be effective upon
filing pursuant to the Securities Act of 1933, as amended, (iii) act on, sign
and file with the Securities and Exchange Commission any exhibits to such
registration statement or pre-effective or post-effective amendments, (iv) act
on, sign and file such certificates, instruments, agreements and other documents
as may be necessary or appropriate in connection therewith, (v) act on and file
any supplement to any prospectus included in this registration statement or any
such amendment, and (vi) take any and all actions which may be necessary or
appropriate in connection therewith, granting unto such agents, proxies and
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or appropriate to be done, as fully for
all intents and purposes as he or she might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his, her or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
/s/John N. Kapoor Director, Chairman of the November 20, 1998
- ------------------------ Board
Dr. John N. Kapoor
/s/James M. Hussey Director, President, and November 20, 1998
- ------------------------ Chief Executive Officer
Mr. James M. Hussey (Principal Executive Officer)
/s/Anatoly Dritschilo Director November 20, 1998
- ------------------------
Dr.Anatoly Dritschilo
/s/Aquilur Rahman Director, Chief Scientific November 20, 1998
- ------------------------ Officer
Dr. Aquilur Rahman
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<PAGE>
/s/Sandar A. Flaum Director November 20, 1998
- ------------------------
Mr. Sander A. Flaum
/s/Erick E. Hanson Director November 20, 1998
- ------------------------
Mr. Erick E.Hanson
/s/Kevin M. Harris Chief Financial Officer November 20, 1998
- ------------------------ (Principal Financial
Mr. Kevin M. Harris Officer and Principal
Accounting Officer)
II-5
<PAGE>
EXHIBIT 5.1
LETTEHEAD OF ORRICK, HERRINGTON & SUTCLIFFE LLP
November 30, 1998
Neopharm, Inc.
100 Corporate North
Suite 215
Bannockburn, Illinois 60015
Re: Neopharm, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
At your request, we are rendering this opinion in connection with the
proposed issuance of up to 2,079,134 shares of Common Stock, $.0002145 par value
("Common Stock"), of Neopharm, Inc., a Delaware corporation (the "Company") upon
exercise of Redeemable Common Stock Purchase Warrants.
We have examined instruments, documents, and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity to
the originals of all documents submitted to us as copies; and (c) the truth,
accuracy, and completeness of the information, representations, and warrants
contained in the records, documents, instruments, and certificates we have
reviewed.
Based on such examination, we are of the opinion that the 2,079,134 shares
of Common Stock to be issued by the Company are validly authorized shares of
Common Stock, and, when issued, will be legally issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to this
Registration Statement on Form S-3 and to the use of our name wherever it
appears in said Registration Statement. In giving such consent, we do not
consider that we are "experts" within the meaning of such term as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission issued thereunder with respect to any part of
the Registration Statement, including this opinion, as an exhibit or otherwise.
Very truly yours,
/s/ ORRICK, HERRINGTON & SUTCLIFFE LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our
report dated March 2, 1998, incorporated by reference in
Neopharm, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, as amended, and to all references to our Firm
included in this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 30, 1998
