Filed Pursuant to Rule 424(b)(3)
Registration No. 333-334765
Prospectus
400,000 Units
Minimum Purchase 100 Units
IXION
IXION BIOTECHNOLOGY, INC.
Common Stock, $.01 par value
All of the 400,000 Units (the "Units") are being sold directly by Ixion
Biotechnology, Inc. ("Ixion" or the "Company") at a price of $10.00 per Unit
(the "Offering"). Each Unit consists of one share of Ixion Common Stock ($.01
par value) (the "Common Stock") and .25 Charitable Benefit Warrant (the
"Charitable Benefit Warrants"). Four Units are required to acquire one whole
Charitable Benefit Warrant. The Charitable Benefit Warrants will be detached
from the Common Stock immediately on purchase. Charitable Benefit Warrants may
not be resold and are not transferable except by will or descent or by donation
to qualified charitable organizations which must be approved by the Company. See
"Description of Securities - Charitable Benefit Warrants Included in the Units"
Each whole Charitable Benefit Warrant entitles the holder to purchase one share
of Common Stock at a price of $20.00 per share. Approved qualified charitable
organizations may exercise Charitable Benefit Warrants at any time until
December 9, 2007; holders other than approved qualified charitable organizations
may not exercise except between December 9, 2006, and December 9, 2007. Prior to
the Offering, there has been no public market for the Company's Common Stock;
therefore, the public offering price has been determined solely by the Company.
After completion of this Offering, and dependent largely upon the number of
Units sold in the Offering, the Company's shares may be traded on a stock
exchange (no application has been made to any stock exchange) or in the
over-the-counter market, or no active trading market may develop or be
sustained. See "Risk Factors" and "Shares Eligible for Future Sale."
The Offering is being made directly by the Company. There is no minimum
number of Units to be sold in the Offering, and all funds received will go
immediately to the Company. See "Use of Proceeds." The Offering will be
terminated upon the earliest of: the sale of all Units, twelve months after the
date of this Prospectus (unless extended), or the date on which the Company
decides to close the Offering. A minimum purchase of 100 Units ($1,000) is
required. The Company reserves the right to reject any Unit Purchase Agreement
in full or in part. See "Plan of Distribution."
The Company is a development stage, biotechnology company which has
incurred operating losses since its inception. As of September 30, 1997, the
Company had an accumulated deficit of $1,784,366. The Company expects
substantial additional operating losses in the further development and
commercialization of its products.
THE SECURITIES OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT SHOULD
INVEST. FOR A DESCRIPTION OF CERTAIN RISKS OF AN INVESTMENT IN THE COMPANY AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" (PAGE 6) AND "DILUTION" (PAGE
16)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Discounts Proceeds to Issuer (2)
the Public and Commissions (1)
Per Unit $10.00 $.50 $9.50
Offering $4,000,000 $200,000 $3,800,000
(1) The Company plans to sell the Units directly to investors through a
designated executive officer who shall not receive any commission and has not
retained any underwriters, brokers, or placement agents in connection with the
Offering, except in Florida where the offering will be made through Unified
Management Corporation, a Florida-registered Broker/Dealer, who will be paid a
commission of 2.0% of the gross commissions on sales to Florida residents The
Company reserves the right to use brokers, dealers or placement agents and could
pay commissions equal to as much as 10%, not to exceed $200,000 or 5% of gross
proceeds in the aggregate. See "Plan of Distribution." (2) Before deducting
expenses of the Offering, estimated at $221,712, payable by the Company.
The date of this Prospectus is March 19, 1998.
<PAGE>
This Prospectus is available in an electronic format at
http:\\www.ixion-biotech.com. The Company will also transmit promptly, without
charge, a paper copy of this Prospectus to any such resident upon receipt of a
request. Requests for Prospectuses should be made to the Company's printer,
BACOMPT at 317-574-7481 or 1-800-595-9886.
TABLE OF CONTENTS
Page Page
Available Information 2 Business 23
Summary 3 Management 42
Risk Factors 6 Certain Transactions 47
Special Note Regarding Principal Shareholders 48
Forward Looking Statements 14 Description of Securities 49
Use of Proceeds 15 Certain Federal Income Tax
Dilution 16 Consequences 52
Dividend Policy 16 Shares Eligible for Future Sale 55
Capitalization 17 Plan of Distribution 56
Selected Financial Data 18 Legal Matters 58
Management's Discussion and Experts 58
Analysis of Financial
Condition and Results of Unit Purchase Agreement 59
Operations 19 Index to Financial
Statements F-1
AVAILABLE INFORMATION
On December 10, 1997, the Company became subject to the informational
filing requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act") for its current fiscal year. Upon completion of this Offering,
the Company may be required to file annual and quarterly reports.
In any case, the Company intends to furnish its shareholders with annual
reports containing financial statements audited by an independent public
accounting firm after the end of its fiscal year. The Company's fiscal year ends
on December 31. In addition, the Company will send shareholders quarterly
reports with unaudited financial information for the first three quarters of
each fiscal year.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Requests for
such information should be directed to Ms. Gwen Thompson, Director of
Administration, Ixion Biotechnology, Inc., 12085 Research Drive, Alachua, FL
32615, tel: 904-418-1428, fax: 904-462-0875, email: [email protected]
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933 with the Securities and Exchange Commission with respect
to the Units offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto;
certain portions have been omitted pursuant to rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete (but do consider all
material matters) and, in each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities of the Commission
in Washington, D.C., and certain of its regional offices and copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission as follows: the Midwest Regional Office, 500 West Madison Street,
Chicago, Illinois 60661; and the Northeast Regional Office, 7 World Trade
Center, New York, New York 10048, and copies of all or any part thereof may be
obtained at prescribed rates. Electronic registration statements made through
the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's World Wide Website at
http://www.sec.gov.
The Company was incorporated in Delaware in March 1993. Its executive
offices are located at 12085 Research Drive, Alachua, FL 32615, its telephone
number is 904-418-1428, and its facsimile number is 904-462-0875. The Company's
home page is http:\\www.ixion-biotech.com. Materials available at or linked to
the Company's web site are not incorporated by reference into this Prospectus.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus and, accordingly, should be read in conjunction with that
information. Prospective investors should carefully consider the information set
forth under the heading "Risk Factors."
The Company
Ixion Biotechnology, Inc. ("Ixion" or the "Company"), is a development
stage, discovery research biotechnology company, with several product candidates
in development. The Company is the holder of world-wide exclusive licenses to
patents and pending patents in two key areas: diabetes and oxalate-related
disorders. Ixion has executive offices and development laboratories at the
Biotechnology Development Institute, a small business incubator operated by the
Biotechnology Program at the University of Florida.
Ixion is developing diabetes products based on its Islet Progenitor/Stem
Cell ("IPSC") technology, including a proprietary line of in vitro (in test
tube) islet stem cells for use in cell transplantation therapy. This development
program is aimed at optimizing the growth of functioning islets or islet
progenitors in vitro from IPSCs that Ixion has established in cell cultures. The
transplantation of islets is the only known potential cure for Type I diabetes.
The Company believes that successful islet transplantation therapy will provide
better management of diabetes than conventional treatment with insulin.
In addition to developing its cell transplantation therapy, Ixion has an
ongoing discovery program to identify and characterize IPSCs as well as novel
growth factors associated with them. The goal of this program is to discover
factors important in islet cell differentiation and to identify stem cell
markers to which the Company hopes to produce antibodies useful in stem cell
isolation. All of the Company's potential diabetes products are in the discovery
research stage.
The Company is also developing products based on its oxalate technology for
the diagnosis and treatment of oxalate-related diseases. The Company's oxalate
technology is based on genes from the non-pathogenic anaerobic intestinal
bacteria, Oxalobacter formigenes, which produce enzymes responsible for oxalate
degradation in healthy people. Inadequate colonies of O. formigenes result in
reduced ability to degrade oxalate. Excess oxalate from dietary and metabolic
sources plays a role in a variety of disorders including kidney stones,
hyperoxaluria, cardiomyopathy, cardiac conductance disorders, cystic fibrosis,
Crohn's disease, renal failure and toxic death, and vulvodynia.
The most developed product candidate in Ixion's development pipeline is a
combination diagnostic and therapy for the management of oxalate-related
disorders.
The diagnostic component of the Company's oxalate-related disease
management product is a DNA probe for the rapid and sensitive detection of human
O. formigenes (the "Ixion Oxalobacter formigenes Monitor"). The current tests
for O. formigenes are laborious, time consuming, and unreliable. In addition,
the current tests are not sensitive and are poorly suited to a clinical setting.
The Ixion Oxalobacter formigenes Monitor, on the other hand, can accurately and
reliably detect very small numbers of O. formigenes, is quantitative, and is
capable of automation.
The therapeutic component of the Company's oxalate-related disease
management product is an orally administered product consisting of a recombinant
version of two enzymes normally found in O. formigenes and responsible for
oxalate degradation ("IxC1-62/47"). The Company believes that the administration
of these enzymes will greatly diminish the recurrence of calcium oxalate kidney
stones and will have positive therapeutic effects on other oxalate-related
disorders.
The Company intends to file an Investigational New Drug application with
the Food and Drug Administration for its IxC1-62/47 enzyme therapy for
oxalate-related diseases and an application under Section 510(k) of the Food,
Drug, and Cosmetic Act for the Ixion Oxalobacter formigenes Monitor, both within
12 months from the date of this Prospectus. See "Business - Government
Regulation."
Ixion is in the development stage, has earned only limited revenues, the
majority of which have been research and development payments, and has incurred
accumulated deficits of approximately $1,784,366 from its inception through
September 30, 1997. See "Risk Factors."
3
<PAGE>
The Offering
Securities offered 400,000 Units, each Unit consisting of one share
of Common Stock and 0.25 Charitable Benefit
Warrant. The Common Stock will be immediately
separated from the Charitable Benefit Warrants, and
will be immediately transferable. Each Whole
Charitable Benefit Warrant entitles the holder to
purchase one share of Common Stock at a price of
$20.00 per share. Four Units are required to
acquire one whole Charitable Benefit Warrant
Approved qualified charitable organizations may
exercise Charitable Benefit Warrants at any time
until December 9, 2007; holders other than
approved qualified charitable organizations may not
exercise except between December 9, 2006, and
December 9, 2007. Charitable Benefit Warrants
may not be resold and are not otherwise
transferable except by gift to an approved
qualified charitable organization. Approved
qualified charitable organizations are certain tax
exempt organizations approved by the Company and
include, at the date of this Prospectus, the
Juvenile Diabetes Foundation, the Joslin Diabetes
Center, Inc., the American Kidney Fund, the
National Vulvodynia Association, the Crohn's &
Colitis Foundation of America, the Cystic Fibrosis
Foundation, the Oxalosis and Hyperoxaluria
Foundation, the Mycological Society of America, the
Intestinal Disease Foundation, the National Kidney
Foundation, the National Institute of Diabetes and
Digestive and Kidney Diseases, the North American
Mycological Society, the University of
Florida Research Foundation, Inc., and Florida
Cystic Fibrosis, Inc. See "Description of
Securities."
Common Shares outstanding
before Offering (1)
2,464,544
Common Shares outstanding
after Offering (1)(2)
2,864,544
Charitable Benefit Warrants
outstanding after
Offering (2)
100,000
Use of Proceeds Net proceeds, after deduction of offering expenses
is estimated at $3,578,288 if all Units are
sold; $2,628,288 if 75% of the Units are
sold; $1,678,288 if 50% of the Units are
sold; and $728,288 if 25% of the Units are
sold. The Company has broad discretion in the use
of proceeds, but expects to use substantially all
of such proceeds to fund research and product
development programs and for general corporate
purposes. There is no minimum number of Units to
be sold, and no escrow account. Subscriptions will
be paid directly to the Company.
Risk Factors The Units offered hereby are speculative,
involve a high degree of risk and immediate
substantial dilution, and should not be
purchased by investors who cannot afford the loss
of their entire investment.
See "Risk Factors" and "Dilution."
(1) Excludes 43,900 shares reserved for issuance pursuant to the exercise
of outstanding stock options, 13,817 of which are exercisable; 23,630 shares
reserved for issuance pursuant to outstanding warrants; 232,100 shares reserved
for issuance to employees and 49,000 reserved for issuance to directors and
members of the Scientific Advisory Board pursuant to options available for grant
under the Company's 1994 Stock Option Plan; 18,000 shares reserved for issuance
under the Company's 1994 Board Retainer Plan; and up to 323,557 shares issuable
upon conversion of the Company's Unsecured Convertible Notes.
(2) Assumes all Units offered are purchased.
4
<PAGE>
<TABLE>
Summary Financial Data
Year Ended
December 31, Nine Months Ended
September 30
1995 1996 1996 1997
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Total Revenues $ 8,122 $ 171,205 $ 138,251 $ 219,547
Total Expenses 382,334 724,844 546,439 806,507
Net Loss $ (374,212) $ (553,639) $ (408,188) $ (586,960)
Net Loss per Share (0.18) $ (0.23) $ (0.17) $ (0.24)
Weighted Average
Common and Common
Equivalent Shares 2,025,975 2,411,275 2,438,544 2,456,412
</TABLE>
<TABLE>
Balance Sheet Data (unaudited) September 30, 1997
(unaudited)
<S> <C>
Cash and cash equivalents $ 88,103
Working capital 1,783
Total Assets 384,832
Total Liabilities 1,116,604
Total Capital (Deficiency) (731,772)
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in the securities being offered by this Prospectus is highly
speculative, involves a high degree of risk, and should be considered only by
persons who can afford to lose the entire investment. In addition to the other
information contained in this Prospectus, prospective investors should carefully
consider the following risk factors before purchasing any of the Units.
Early Stage of the Company: Accumulated Deficit. The Company is in the
development stage, and has realized only limited revenues, most of which have
derived from payments from Genetics Institute, Inc., in connection with contract
research and development under a sponsored research agreement and a Small
Business Innovation Research Grant, both of which will terminate in 1997. No
revenues have been generated from product sales. The Company will be required to
do significant research, development, testing, and regulatory compliance
activities which, together with projected general and administrative expenses,
are expected to result in material and increasing operating losses for the
foreseeable future. There can be no assurance that the Company will successfully
complete the transition from a development stage company to successful
operations or profitability. At September 30, 1997, the Company had an
accumulated deficit during the development stage of $1,784,366.
Potential investors should be aware of the problems, delays, expenses, and
difficulties encountered by any company in the development stage, many of which
may be beyond the Company's control. These include, but are not limited to,
unanticipated problems and additional costs relating to development, testing,
regulatory compliance, production, marketing, and competition.
Absence of Products; No Commercialization of Products Expected in Near
Future. The Company's product candidates are in an early stage of development.
The Company has not completed the development of any products and, accordingly,
has not received any regulatory approvals or commenced marketing activities. No
revenues have been generated from the sale of its products. The Company's
product candidates will require significant additional development, preclinical
and clinical trials, regulatory approval, and additional investment prior to
commercialization. The Company may be unable to market any products for several
years. Furthermore, it will be a number of years, if ever, before the Company
will recognize significant revenues from product sales or royalties. In
addition, the Company's product candidates are subject to the risks of failure
inherent in the development of products based on innovative technologies.
Accordingly, there can be no assurance that the Company's research and
development efforts will be successful, that any of the Company's product
candidates will prove to be safe, effective, and non-toxic in clinical trials,
that any commercially successful products will be developed, that the
proprietary or patent rights of others will not preclude the Company from
marketing its product candidates, or that others will not develop competitive or
superior products. As a result of the early stage of development of product
candidates and the extensive testing and regulatory review process that such
product candidates must undergo, the Company cannot predict with certainty when
it will be able to market any of its products, if at all. The Company's product
development efforts are based on unproven scientific approaches. There is,
therefore, substantial risk that these approaches may not prove to be
successful. See "Business - Product Development."
Uncertainty Associated with Preclinical and Clinical Testing. Before
obtaining regulatory approvals for the commercial sale of any of the Company's
products, the products will be subject to extensive preclinical and clinical
trials to demonstrate their safety and efficacy in humans. The Company intends
to employ third parties to conduct clinical trials of its products because it
has no experience in conducting clinical trials. Preclinical studies have been
commenced with regard to two of the Company's oxalate products; however, no
clinical trials have been commenced with respect to any of the Company's
potential products. Furthermore, there can be no assurance that preclinical or
clinical trials of any of the Company's products will demonstrate the safety and
efficacy of such product at all or to the extent necessary to obtain regulatory
approvals. Companies in the biotechnology industry have suffered significant
setbacks in advanced clinical trials, even after demonstrating promising results
in earlier trials. The failure to adequately demonstrate the safety and efficacy
of a product candidate under development could delay or prevent regulatory
approval of the product candidate and would have a material adverse effect on
the Company's business, operating results, and financial condition. See
"Business - Government Regulation."
Earnings Inadequate to Pay Fixed Charges. Earnings are, and will for the
foreseeable future remain, inadequate to cover fixed charges, including interest
on the Company's 10% Unsecured Convertible Notes. Payment of principal on the
10% Unsecured Convertible Notes and the Unsecured Variable Convertible Notes
will be dependent on the Company's ability to raise additional funds through the
sale of its securities, corporate alliances, or otherwise.
6
<PAGE>
Dependence on Key Personnel and Relationships. Ixion is dependent on its
executive officers, consultants, and its scientific advisors, especially Dr.
Ammon Peck, the Company's Chief Scientist and Chairman of the Scientific
Advisory Board. The Company has only one full-time executive, Weaver H. Gaines,
Chairman and Chief Executive Officer. Three of the Company's officers - David C.
Peck, President and Chief Financial Officer, John L. Tedesco, Vice President -
Operations and Regulatory Affairs, and Kimberly A. Ramsey, Controller, are
consultants who devote substantial time to other employers. Ixion has an
employment contract with Mr. Gaines, an exclusive consulting agreement with Dr.
Peck, and consulting agreements with Messrs. Tedesco and David Peck. The
agreements of Dr. Peck, Mr. Gaines, Mr. Peck, and Mr. Tedesco all contain
non-compete provisions. See "Management - Consulting Agreement with Dr. Peck,"
"Management - Consulting Agreement with Brandywine Consultants, Inc.," and
"Management - Employment Agreements." The loss of any individuals on which the
Company is dependent could have a material adverse effect on the Company. Ixion
has a key person life insurance policy in the face amount of $500,000 on Dr.
Peck.
Competition among pharmaceutical and biotechnology companies for qualified
employees is intense, and the loss of qualified employees, or an inability to
attract, retain, and motivate additional highly skilled employees required for
the expansion of the Company's activities, could adversely affect its business
and prospects. Gainesville, Florida is a developing area for biotechnology, and
to date there are not many companies located there. This fact is an inhibition
on both recruiting and retaining personnel. There can be no assurance that the
Company will be able to retain its existing personnel or to find and attract
additional qualified and experienced employees.
Individuals whom the Company has targeted to be its scientific
collaborators and its current and proposed scientific advisors are employed by
employers other than the Company, and some have consulting or other advisory
arrangements with other entities that may conflict or compete with their
obligations to the Company. See "Business - Scientific Advisory Board."
Reliance on Relationships with the University of Florida. The Company has
sought to maintain a close and favorable relationship with the University of
Florida since 1993 when the Company was founded. The Company expects to benefit,
and has already benefited, from its relationship with the University of Florida,
in particular from the basic research performed. This relationship includes
certain contractual arrangements, particularly the License Agreement for Islet
Progenitor/Stem Cells and the License Agreement for oxalate technology.
Negotiations have also commenced to license other technologies. In addition, the
Company is an affiliate of the Biotechnology Program of the University, which
provides certain business support services to the Company, it has its labs and
offices at the Biotechnology Development Institute, a University facility, and
its Chief Scientist and two members of its Scientific Advisory Board are faculty
members at the University. See "Business - Facilities" and "Business -
Scientific Advisory Board." There can be no assurance that disputes or
disagreements will not cause the favorable relationship to deteriorate. A
deterioration in the relationship between the Company and the University of
Florida could have a material adverse effect on the Company. In particular, the
Company could be forced to expand substantially its research facilities and
staff to replace or supplement the research currently performed by researchers
at the University of Florida. Additionally, if the University of Florida were to
suffer financial or operating setbacks in the future, such as in financing,
research staff, research efforts, facilities or management, such setbacks could
have a material adverse impact on the Company's future technology. Moreover, the
Company has no input into or control over the direction or content of research
undertaken by the University of Florida. Accordingly, no assurance can be given
that discoveries made at the University of Florida, if any, will be capable of
being developed or marketed, will fall within the Company's areas of expertise
or interest, or will be available to the Company on acceptable terms. See
"Business - Business Strategy," "Business - Relationship with the University of
Florida," and "Business - Licensed Technology."
State of Florida and University of Florida Conflicts of Interest Laws and
Rules. The Company's Chief Scientist and two members of its Scientific Advisory
Board are employees of the Florida State University System, and, as a result,
they (and consequently the Company) are subject to Florida statutes and
University policy regarding conflicts of interest. In order for the Company to
conduct business with the University (including its license agreements, future
cooperative research and development agreements, and other activities), it is
necessary to obtain and maintain an annual exemption from the application of the
Florida conflict of interest statutes for its Chief Scientist, and to obtain
annual approval for outside activities for the University of Florida members of
its Scientific Advisory Board. If the University were to decline to approve the
outside activities of the Company's Chief Scientist, or the University of
Florida members of its Scientific Advisory Board, or were to change the terms of
its conflicts of interest policy, it could have a material adverse effect on the
Company. See "Business Government Regulation."
7
<PAGE>
Dependence on Licensed Technology. The Company's development and
commercialization rights for its proposed products are derived from its license
agreements with the University of Florida and others. To date, the Company owns
no patents outright. The Company's rights under license agreements are subject
to early termination under certain circumstances, including failure to pay
royalties or other material breach by the Company or bankruptcy of the Company,
among others. In the event that the license agreements terminate for any reason,
the Company's rights to manufacture and market products derived from those
licenses would terminate. See "Business Licensed Technology."
Ethical, Legal, and Social Implications of Islet Progenitor/Stem Cell
Therapies. The Company's Islet Progenitor/Stem Cell ("IPSC") program may involve
the use of IPSCs that would be derived from cloned human materials, and
therefore may raise certain ethical, legal, and social issues regarding the
appropriate utilization of this technique. The cloning of human tissue in
scientific research is an issue of national interest. Many research institutions
have adopted policies regarding the ethical uses of cloning, and state and
federal legislatures are considering legislation regarding cloned human
materials. These policies may have the effect of limiting the scope of research
conducted in this area, resulting in reduced scientific progress. The inability
of the Company to conduct research on IPSCs due to such factors as government
regulation or otherwise could have a material adverse effect on the program. In
the event the Company's research related to IPSC-based therapies becomes the
subject of adverse commentary or publicity, the Company's name and goodwill
could be adversely affected.
Intense Competition. The biotechnology and pharmaceutical industries are
intensely competitive and subject to rapid and significant technological change.
Competitors of the Company are numerous and include, among others, major,
multinational pharmaceutical and chemical companies, specialized biotechnology
firms, and universities and other research institutions. Many of these
competitors have greater financial and other resources, including larger
research and development staffs, than the Company. Acquisitions of competing
companies and potential competitors by large pharmaceutical companies or others
could enhance financial, marketing and other resources available to such
competitors. As a result of academic and government institutions becoming
increasingly aware of the commercial value of their research findings, such
institutions may be more likely to enter into exclusive licensing agreements
with commercial enterprises, including competitors of the Company, to market
commercial products. There can be no assurance that the Company's competitors
will not succeed in developing technologies and products that are more effective
or less costly than any which are being developed by the Company or which would
render the Company's technology and future drugs obsolete and noncompetitive.
In addition, some of the Company's competitors have greater experience than
the Company in conducting preclinical and clinical trials and obtaining U.S.
Food and Drug Administration ("FDA") and other regulatory approvals.
Accordingly, the Company's competitors may succeed in obtaining FDA or other
regulatory approvals for competitive product candidates more rapidly than the
Company. Companies that complete clinical trials, obtain required regulatory
agency approvals, and commence commercial sale of their drugs before their
competitors may achieve a significant competitive advantage, including certain
patent and marketing exclusivity rights. There can be no assurance that products
resulting from the Company's research and development efforts will be able to
compete successfully with competitors' existing products or products under
development or that they will obtain regulatory approval in the United States or
elsewhere. See "Business - Competition."
Uncertainty Regarding Patents and Proprietary Rights. The Company's success
will depend in part on its ability to obtain U.S. and foreign patent protection
for its product candidates and processes, to protect its trade secrets, and to
avoid infringing the proprietary rights of others. Because of the length of time
and expense associated with bringing new drug or medical device candidates
through the development and regulatory approval process to the marketplace, the
Company believes that obtaining patent and trade secret protection is very
important. One U. S. patent has been issued for certain claims in the Company's
oxalate-based patent applications, and certain claims pertaining to the IPSC
technology have been allowed by the U. S. Patent and Trademark Office ("PTO");
however, there can be no assurance that any additional patents will be issued
covering any of the patent applications licensed to the Company. Further, there
can be no assurance that any rights the Company may have under issued patents
will provide the Company with significant protection against competitive
products or otherwise be commercially viable. Legal standards relating to the
validity of patents covering pharmaceutical and biotechnological inventions and
the scope of claims made under such patents are still developing. There is no
consistent policy regarding the breadth of claims allowed in biotechnology
patents. The patent position of a biotechnology firm is highly uncertain and
involves complex legal and factual questions. There can be no assurance that any
existing or future patents issued to, or licensed by, the Company will not
subsequently be challenged, infringed upon, invalidated, or circumvented by
others. In addition, patents may have been granted, or may be granted, to others
covering products or processes that are necessary or useful
8
<PAGE>
to the development of the Company's products. If the Company's product
candidates or processes are found to infringe upon the patents, or otherwise
impermissibly utilize the intellectual property of others, the Company's
development, manufacture, and sale of such products could be severely restricted
or prohibited. In such event, the Company may be required to obtain licenses
from third parties to utilize the patents or proprietary rights of others. There
can be no assurance that the Company will be able to obtain such licenses on
acceptable terms, or at all.
The Company is aware of potentially significant risks regarding the patent
rights licensed by the Company relating to Islet Progenitor/Stem Cells and to
its oxalate technology, particularly bacterial oxalyl-CoA decarboxylase, an
enzyme used in the Company's proposed oxalate-related products including the
Ixion Oxalobacter formigenes Monitor and the IxC1-62/47 enzyme therapy. The
Company may not be able to commercialize its proposed diabetic products based on
its method of proliferating IPSCs in vitro or its proposed oxalate-related
disease management products, both due to patent rights held by third parties
other than the Company's licensors. As a result, the positions of the Company
and its licensors with respect to the use of IPSCs or products containing
oxalyl-CoA decarboxylase are uncertain and involve legal and factual questions
that are unknown or unresolved. Although management believes its patents and
patent applications provide a competitive advantage in its efforts to discover,
develop, and commercialize useful products, if any of these questions is
resolved in a manner that is not favorable to the Company's licensors or the
Company, the Company may not have the right to commercialize products relating
to certain aspects of IPSC technology or products containing oxalyl-CoA
decarboxylase in the absence of a license from one or more third parties, which
may not be available on acceptable terms or at all. The Company's inability to
commercialize any of these products would have a material adverse effect on the
Company. In addition, there can be no assurance that the Company is aware of all
patents or patent applications that may materially affect the Company's ability
to make, use, or sell any products. Any conflicts resulting from third party
patent applications and patents could significantly reduce the coverage of the
patents or patent applications licensed to the Company and limit the ability of
the Company to obtain meaningful patent protection. If patents are issued to
other companies that contain competitive or conflicting claims, the Company may
be required to obtain licenses to these patents or to develop or obtain
alternative technology. There can be no assurance that the Company will be able
to obtain any such license on acceptable terms or at all. If such licenses are
not obtained, the Company could be delayed in or prevented from the development
or commercialization of its product candidates, which would have a material
adverse effect on the Company. See "Business - Licensed Technology."
In addition to patent protection, the Company relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborators, employees, and
consultants. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known or be independently
discovered by others.
Dependence on Reimbursement. The Company's ability to commercialize its
planned products successfully will depend in part on the extent to which
reimbursement for the cost of such products and related treatments will be
available from government health administration authorities, such as the Health
Care Financing Administration, private health insurers, managed care plans, and
other organizations. Government and other third-party payors are increasingly
attempting to contain health care costs, in part by challenging the price or
benefit of medical products and services. Products with long-term benefits but
initial short-term costs may not be acceptable to managed care plans or others
with short-term payback requirements. Thus, significant uncertainty exists as to
the reimbursement status of newly approved health care products, and there can
be no assurance that adequate third-party coverage will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. If adequate coverage and reimbursement
levels are not provided by government and third-party payors for use of the
Company's planned products, the ability to market those products would be
adversely affected.
No Assurance of Market Acceptance for Proposed Products. There can be no
assurance that any products successfully developed by the Company, independently
or with its collaborative partners, if approved for marketing, will achieve
market acceptance. The degree of market acceptance of any products developed by
the Company will depend on a number of factors, including the establishment and
demonstration of the clinical efficacy and safety of the Company's products,
their potential advantage over existing therapies or diagnostics, and
reimbursement policies of government and third-party payors. There is no
assurance that physicians, patients, independent laboratories, or the medical
community in general will accept and utilize any products that may be developed
by the Company.
Government Regulation; No Assurance of Regulatory Approval. The Company's
activities are subject to extensive regulation by the FDA and health authorities
in foreign countries. Regulatory approval for the Company's
9
<PAGE>
planned products (other than those for research rather than diagnostic or
therapeutic use), will be required before such products may be marketed. The
process of obtaining regulatory authorization involves, among other things,
lengthy and detailed laboratory and clinical testing, manufacturing validation,
and other complex and extensive procedures. The approval process is costly,
time-consuming, and often subject to unanticipated delays. In the United States,
the FDA has discretion in the approval process, and it is not possible to
predict at what point, or whether, the FDA will be satisfied with the quality or
quantity of information submitted by the Company to support its applications for
marketing approval. There can be no assurance that the FDA will not require
additional information or additional clinical trials that could substantially
delay approval of applications. Moreover, there can be no assurance that FDA
approval will cover the clinical indications for which the Company intends to
seek approval, or will not contain significant limitations in the form of, for
example, warnings, precautions, or contra-indications with respect to conditions
of use. There can be no assurance that approvals for any of the Company's
products, processes, or facilities will be granted on a timely basis, if at all.
Any failure to obtain, or any delay in obtaining, such approvals would
materially and adversely affect the Company. Further, even if such regulatory
authorizations are obtained, a marketed product and its manufacturer are subject
to continuing regulatory requirements and review, and later discovery of
previously unknown problems with a product or manufacturer, or failure to comply
with manufacturing or labeling requirements, may result in restrictions on such
product or enforcement action against the manufacturer, including withdrawal of
the product from the market. See "Business - Government Regulation."
Risk of Product Liability; Insurance. The use of any products produced by
the Company could expose the Company to product liability claims. The Company
currently carries no product liability insurance, but intends to acquire such
insurance prior to selling any of its licensed products for commercial use.
There can be no assurance that the Company will be able to obtain or maintain
such insurance, or if obtained, that sufficient coverage can be acquired at a
reasonable cost. An inability to obtain or maintain insurance at acceptable cost
or otherwise protect against potential product liability claims could prevent or
inhibit the commercialization of the Company's planned products, including its
research use only products. A product liability claim or recall could have a
material adverse effect on the business or the financial condition of the
Company.
Dividends. Ixion has never paid any cash dividends and does not intend to
pay any cash dividends on its Common Stock in the foreseeable future.
Limited Experience in Sales and Marketing. The Company has no significant
experience in pharmaceutical sales, marketing, or distribution. To market any of
its products directly, the Company must develop a substantial marketing and
sales force with technical expertise and supporting distribution capability.
Alternatively, the Company intends, for certain product candidates, to obtain
the assistance of companies with established distributions systems and direct
sales forces. There can be no assurance that the Company will be able to
establish sales and distribution capabilities, will be able to enter into
licensing or other agreements with established companies, or will be successful
in gaining market acceptance for its products. See "Business - Business
Strategy" and "Business - Manufacturing and Marketing."
Absence of Manufacturing Facilities or Personnel; Dependence on Others. The
Company owns no manufacturing facilities or equipment, and employs no direct
manufacturing personnel. The Company anticipates using third parties to
manufacture its products on a contract basis. There can be no assurance that the
Company will be able to obtain such manufacturing services on reasonable terms.
Having obtained such services, the Company would be dependent on its ability to
manage all parties who may hereafter conduct manufacturing for it. See "Business
- - Business Strategy" and "Business Facilities."
Limitation on Liability of Directors and Officers. As permitted by Delaware
law, the Certificate of Incorporation provides that no director of the Company
will be liable for money damages for breach of fiduciary duty as a director,
except (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) for approval of
certain unlawful dividends or stock purchases or redemptions, and (iv) for any
transaction from which the director derived an improper personal benefit. See
"Description of Securities."
Control by Management and Existing Shareholders. At October 31, 1997, the
current officers, directors, and members of their families sharing their
household own or have rights to acquire within the next 60 days, directly or
beneficially, 1,661,587 shares of Common Stock representing approximately 66% of
the outstanding shares of the Company's Common Stock. In the event all of the
Units offered herein are sold, following the Offering, such persons will own
approximately 57% of the Company's Common Stock, and are and will be, able to
control all matters requiring
10
<PAGE>
approval by the stockholders of the Company, including the election of
Directors. In the event fewer than all of the Units offered herein are sold, the
percentage of the Company's outstanding Common Shares held by the current
officers, directors, and members of their families sharing their household would
be between 66% and 57% of the outstanding Common shares of the Company. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company that may be favored by other stockholders. See
"Management" and "Principal Shareholders."
Need for Additional Financing. Based on its current operating plan, the
Company expects that the net proceeds of this Offering, assuming the sale of all
the Units offered hereby, together with contract research revenue and possible
grant income from grant applications made or to be made, will be adequate to
satisfy its planned operating requirements for approximately 12 months, but will
not be sufficient to fund the Company's operations to the point of introduction
of a commercially successful product.
The Company's plan of operations has been adjusted for four possible levels
of sales of Units, ranging from all 400,000 Units sold to 100,000 Units Sold.
(See "Use of Proceeds.") If only 200,000 Units were to be sold, the Company
believes it will nevertheless be able, subject to the uncertainties of research
and development discussed in this Risk Factors section (see "Uncertainty
Associated with Preclinical and Clinical Testing") and elsewhere in this
Prospectus, to carry out its research and development program in oxalate
technology through the milestones of filing a 510(k) on the Ixion Oxalobacter
formigenes Monitor and filing an IND with regard to IxC1-62/47, the oxalate
therapeutic, with the FDA, and will also be able to make further progress on its
diabetes research over the next 12 months without additional capital. If fewer
than 200,000 Units are sold, the Company's operations will necessarily be scaled
back well below optimum levels.
Even if the Company is able to sell all 400,000 Units, it will require
significant additional capital, and its future capital requirements will depend
on many factors, including the degree of success of the present Offering, the
costs involved in future capital raising activities, continued scientific
progress in its research and development programs, the magnitude of such
programs, the potential addition of new programs, the progress of preclinical
and clinical testing, the time and costs involved in obtaining regulatory
approvals, the costs involved in preparing, filing, prosecuting and enforcing
patent claims, competing technological and market developments, the
establishment of collaborative agreements, costs of commercialization
activities, and the demand for the Company's products, if and when approved.
Ixion intends to commence additional financing activities shortly after the
termination of this Offering, and it intends to seek further funding through
additional arrangements with corporate partners, through public or private sales
of debt or equity, or through other sources. Future financings may result in the
issuance of securities which are senior to the Common Stock or result in
substantial additional dilution of shareholders. There can be no assurance that
additional funding will be available on acceptable terms, if at all. If adequate
funds are not available, the Company may be required to curtail significantly or
defer one or more of its research and development programs or to obtain funds
through arrangements that may require the Company to relinquish certain
technological or product rights. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources"
and "Use of Proceeds."
No Minimum Amount for This Offering. Because there is no minimum amount of
Units required to be sold in the Offering, all the cash received will go
directly to the Company to be used as described in "Use of Proceeds." If only
22,200 or fewer Units are sold, the result would be that all the proceeds will
be used to pay the expenses of the Offering. The sale of fewer than 100,000
Units would materially and adversely effect the Company in that it would be
required to significantly limit its operational expenses, by curtailing
significantly or deferring one or more of its research and development programs
or to obtain funds through arrangements that may require the Company to
relinquish certain technological or product rights. Such spending reductions
would significantly extend the development time for the Company's products and
limit the number of products developed. See "Use of Proceeds."
Direct Public Offering: No Underwriter. The Units offered herein are
offered directly by the Company. The Company has not retained any underwriters,
brokers, dealers or placement agents in connection with this offering. The
absence of an underwriter could adversely affect the Company's ability to sell
the Units.
Management's Broad Discretion in Application of Proceeds. The Company
intends to use the proceeds of the Offering to pay the costs of the Offering and
the balance will be added to the Company's working capital where it will be
available for general corporate purposes, including repayment of bridge
financing and the funding of the Company's research and development activities.
As of the date of this Prospectus, the Company cannot specify with certainty the
particular uses for the net proceeds to be
11
<PAGE>
added to its working capital. Accordingly, management of the Company will have
broad discretion as to the application of the net proceeds of the Offering. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Product Research and Development Plan."
Absence of Public Trading Market for Securities; Valuation. There is no
public market for the Common Stock, and it is unlikely that any such market will
develop after the Offering. There is no public market for the Charitable Benefit
Warrants. By the terms of such Warrants, they will not be tradeable following
the Offering. The Company does not currently meet the requirements for listing
on an organized stock exchange or quotation of over-the-counter market maker
trades on the Nasdaq market. After completion of the Offering, the Company may
apply for a listing on a United States regional exchange, if the Company meets
certain numerical listing requirements. However, there can be no assurance that
the Company will be listed or that a market will develop or be sustained.
However, there is currently no agreement between the Company and such a
registered securities broker-dealer. The Company may, after termination of the
Offering, seek to provide a passive, bulletin board system on the Internet
providing information to buyers and sellers of the Company's Common Stock to
facilitate trading. Such passive bulletin board system, if any, will be designed
to comply with published rulings of the Securities and Exchange Commission
strictly limiting the operations of such system. In the absence of a public
trading market, purchasers may be unable to resell the Common Stock for an
extended period of time, if at all. See "Plan of Distribution."
Development stage biotechnology valuations are rarely based upon
traditional financial standards, like earnings multiple, current yield, or book
value. In fact, the perception of the future value of the proprietary science,
and any possible applications deriving from it, together with relative
illiquidity and momentum often form the basis of stock performance in this
industry. There is great risk that external perceptions will change over time,
subsequently affecting the Company's ability to fund its operations. Thus,
future trading prices, if any, of the Company's securities will depend on many
factors, including, among others, those mentioned above, together with
prevailing interest rates, the Company's operating results, preclinical and
clinical trial results, scientific defections, personnel turnover at corporate
partners, general conditions in the biotechnology industry, announcements of
discoveries of new products by the Company, its competitors, and others, and the
market for similar securities, which market is subject to various pressures,
including, but not limited to, fluctuating interest rates. In addition, the
stock market is subject to price and volume fluctuations unrelated to the
operating performance of the Company.
Risks of Low-Priced Stocks. If the trading price, if any, of the Common
Stock were to fall below $5.00 per share, trading in the Common Stock would also
be subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a "penny stock" (generally, any non-Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally defined as an investor with a net worth in excess of
$1,000,000 or annual income exceeding $200,000, $300,000 together with a
spouse). For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The broker-dealer also must
disclose the commissions payable to the broker-dealer, current bid and offer
quotations for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing prior to effecting the transaction and in writing
before or with the customer confirmation. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements may discourage them from
effecting transactions in the Common Stock, which could severely limit the
liquidity of the Common Stock and the ability of purchasers in this offering to
sell the Common Stock in the secondary market.
Limitations on Transfer and Exercise of Charitable Benefit Warrants. The
Charitable Benefit Warrants included in the Units offered hereby may not be
resold by investors. They are not otherwise transferable (other than by will or
descent) except by gift to an approved qualified charitable organization.
Approved qualified charitable organizations are certain tax exempt organizations
approved by the Company and include, at the date of this Prospectus, the
Juvenile Diabetes Foundation, the Joslin Diabetes Center, Inc., the American
Kidney Fund, the National Vulvodynia Association, the Crohn's & Colitis
Foundation of America, the Cystic Fibrosis Foundation, the Oxalosis and
Hyperoxaluria Foundation, the Mycological Society of America, the Intestinal
Disease Foundation, the National Kidney Foundation, the National Institute of
Diabetes and Digestive and Kidney Diseases, the North American Mycological
Society,
12
<PAGE>
the University of Florida Research Foundation, Inc., and Florida Cystic
Fibrosis, Inc. Although investors may propose other charities to be added to the
list of approved qualified charitable organizations, the Company has absolute
discretion in granting or withholding its approval.
Charitable Benefit Warrants may be exercised at any time through their
expiration date only by an approved qualified charitable organization. All other
holders may not exercise their Charitable Benefit Warrants except during the
tenth and final year of their term. See "Description of Securities - Charitable
Benefit Warrants Included in the Units."
Determination of Offering Price. The Company has unilaterally and
arbitrarily determined the offering price of the Units. Among the factors
considered in determining such price were offering prices of recent
biotechnology initial public offerings, the Company's capital requirements, the
percentage of ownership to be held by investors following the Offering, the
prospects for the Company's business and the biotechnology industry, the
assessment of the present early stage of the Company's development, the
prospects for initiation or growth of the Company's revenues, and the current
state of the economy in the United States. The offering price does not
necessarily bear any relationship to the Company's assets, book value, earnings
history, or other investment criteria and should not be considered an indication
of the actual value of the Company's securities. See "Plan of Distribution."
Possible Adverse Impact of Shares Available for Future Sale. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of outstanding options and warrants or upon the conversion of the Unsecured
Convertible Notes) in the public market, if any, after this Offering or the
prospect of such sales could adversely affect any market price of the Common
Stock and may have a material adverse effect on the Company's ability to raise
any necessary capital to fund its future operations. Upon completion of this
Offering, assuming all Units are sold, the Company will have 2,864,544 shares of
Common Stock outstanding. The 400,000 shares included in the Units offered
hereby will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except for
any shares held by "affiliates" of the Company within the meaning of the
Securities Act which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act ("Rule 144"). The remaining 2,464,544
shares are "restricted" securities that may be sold only if registered under the
Securities Act, or sold in accordance with an applicable exemption from
registration, such as Rule 144. The officers and directors, who together hold
1,628,544 shares of Common Stock, and rights to purchase an additional 42,452
shares of Common Stock (of which 33,186 can be acquired within the next 60
days), have agreed not to sell directly or indirectly, any Common Stock for a
period of 180 days from the date of this Prospectus (the "Lock-up Agreements").
Commencing on the expiration of the Lock-up Agreements, 1,628,544 shares of
Common Stock will be eligible for sale in the public market, if any, subject to
compliance with Rule 144 In addition, holders of 1,051,544 shares of Common
Stock, and holders of warrants and Unsecured Convertible Notes convertible into
a maximum of an additional 340,917 shares of Common Stock have "piggyback"
registration rights and/or demand registration rights with respect to such
shares. If such holders, by exercising their registration rights, cause a large
number of shares to be registered and sold in the public market, if any, such
sales or the perception that such sales could occur, could have a material
adverse effect on the market price of the Common Stock. In addition, any demand
of such holders to include such shares in Company-initiated registration
statements could have an adverse effect on the Company's ability to raise needed
capital. In addition, Messrs. Gaines and Peck, the Company's Chairman and CEO
and President and Chief Financial Officer, respectively, own 969,496 shares of
the Company's Common Stock subject to both "piggy-back" and mandatory
registration rights under the provisions of their respective employment
agreements. The demand by either of these executive officers for a registration
of their securities (of which they may only make one) could, under certain
circumstances, create a conflict between their personal interests and the
Company's interests; however, such demand may be postponed by the Company under
the terms of the employment agreements for a reasonable period of time if the
Company is conducting or about to conduct an offering of its securities and such
offering would be adversely affected by the demand registration of the officers'
shares. The Company may also decline a "piggy-back" inclusion of the officers'
shares if it believes an offering of its securities would be adversely affected.
See "Shares Eligible for Future Sale - Registration Rights."
Immediate and Substantial Dilution. This Offering involves an immediate and
substantial dilution between the initial public offering price of $10.00 per
share and the pro forma net tangible book value per share of Common Stock after
the Offering. Such dilution will amount to $9.17 (92%) if all Units are sold;
$9.49 (95%) if 75% of the Units are sold; $9.82 (98%) if 50% of the Units are
sold; and $10.19 (102%) if 25% of the Units are sold. Dilution will be increased
to the extent that the holders of outstanding options, warrants, and Unsecured
Convertible Notes who have rights to acquire Common Stock at prices below the
public offering price exercise such rights. See "Dilution."
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding the dates on which the Company anticipates
commencing clinical trials or filing of an Investigational New Drug Exemption
Application ("IND") or application under Section 510(k) of the Food, Drug, and
Cosmetic Act with respect to its product candidates, constitute forward-looking
statements under the federal securities laws. Such statements are subject to
certain risks and uncertainties that could cause the actual timing of such
clinical trials or filings to differ materially from those projected. With
respect to such dates, the Company's management team has made certain
assumptions regarding, among other things, the successful and timely completion
of preclinical tests, the approval of INDs for each of the Company's drug
candidates by the FDA, the availability of Section 510(k) for its device
candidates, the availability of adequate clinical supplies, the absence of
delays in patient enrollment, and the availability of the capital resources
necessary to complete the preclinical tests and conduct the clinical trials. The
Company's ability to commence clinical trials or file an IND or 510(k) on the
dates anticipated is subject to certain risks, including the risks discussed
under "Risk Factors." Undue reliance should not be placed on the dates on which
the Company anticipates filing an IND or 510(k) or commencing clinical trials
with respect to any of its product candidates. Statements herein regarding the
Company's research and development plans also constitute forward-looking
statements under the federal securities laws. Actual research and development
activities may vary significantly from the current plans depending on numerous
factors including changes in the costs of such activities from current
estimates, the results of the programs, the results of clinical studies referred
to above, the timing of regulatory submissions, technological advances,
determinations as to commercial potential, and the status of competitive
products.
All of the above estimates are based on the current expectations of the
Company's management team, which may change in the future due to a large number
of potential events, including unanticipated future developments.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units, after deduction of
estimated offering expenses, and the Company's anticipated use of proceeds at
each level of Units sold is set forth below. There is no minimum number of Units
that must be sold in the Offering, and all funds will be paid directly to the
Company.
The Company intends to use a majority of the net proceeds (regardless of the
number of Units sold) to pay the expenses of the Offering, to repay bridge
financing, if any, and to fund the Company's general corporate operations and
research and development activities, including product characterization, method
development, testing (including toxicology), cell line characterization, process
development, clinical lot manufacturing, stability research protocols, and
preclinical studies for the Company's proposed products. The amounts and timing
of expenditures for each purpose is subject to the broad discretion of the
management and will depend on the amount of bridge financing, if any, the
progress of the Company's research and development programs, technological
advances, determinations as to commercial potential, the terms of any
collaborative arrangements, regulatory approvals, and other factors, many of
which are beyond the Company's control.
<TABLE>
<CAPTION>
400,000 300,00 200,000 100,000
Units Sold Units Sold Units Sold Units Sold
(100%) (75%) (50%) (25%)
<S> <C> <C> <C> <C>
Gross Proceeds from
Offering $4,000,000 $3,000,000 $2,000,000 $1,000,000
Less Offering Expenses 221,712 221,712 221,712 221,712
(5.5%) (7.4%) (11.1%) (22.2%)
Maximum commissions 200,000 150,000 100,000 50,000
Net proceeds from
Offering $3,578,288 $2,628,288 $1,678,228 $728,288
Use of Net Proceeds
R&D, IPSCs $ 750,000 $ 650,000 $ 500,000 $ 200,000
R&D, Oxalate 2,048,100 1,338,100 770,500 270,500
Capital Equipment 40,000 30,000 20,000 10,000
Patents 150,000 150,000 125,000 100,000
General Corporate 590,188 460,188 262,788 147,788
</TABLE>
The optimum rate of product development requires the sale of all 400,000
Units. If fewer than 400,000 Units are sold, the Company would delay or scale
back its operations, as indicated above. In each case, in the opinion of
management, the net proceeds of this Offering, together with anticipated
revenues from operations, will allow the Company's product development and
operations to proceed at the varying rates set forth above for at least 12
months. If only 200,000 Units were to be sold, the Company believes it will
nevertheless be able, subject to the uncertainties of research and development
discussed in this Prospectus to carry out its research and development program
in oxalate technology through filing a 510(k) on the Ixion Oxalobacter
formigenes Monitor and filing an IND with regard to IxC1-62/47, the oxalate
therapeutic, with the FDA, and will also be able to make further progress on its
diabetes research over the next 12 months without additional capital. See
"Management's Discussion of Results of Operations and Financial Condition -
Liquidity and Capital Resources."
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments, and other investment-grade quality
instruments.
15
<PAGE>
DILUTION
As of September 30, 1997, the Company's Common Stock had a deficit in net
tangible book value of $(984,742) or approximately $(.40) per share. The
following table sets forth the difference between the price to be paid by new
shareholders and the negative net tangible book value per share at September 30,
1997, as adjusted to give effect to the Offering.
<TABLE>
<CAPTION>
400,000 300,000 200,000 100,000
Units Sold Units Sold Units Sold Units Sold
<S> <C> <C> <C> <C>
Assuming a public
offering price of ........ $ 10 $ 10 $ 10 $ 10
Net proceeds to
Company .................. $ 3,778,288 $ 2,778,288 $ 1,778,288 $ 778,288
Net tangible book
deficit per share for
existing shareholders
before Offering (1) $ (.49) $ (.49) $ (.49) $ (.49)
Increase per share
attributable to
payment
for shares purchased
by new investors ........ $ 1.32 $ 1.00 $ 0.67 $ 0.30
Pro forma net tangible
book value (deficit)
after Offering (2) ....... $ .83 $ 0.51 $ 0.18 $ (0.19)
Dilution per share to
new investors (2)(3) ..... $ 9.17 $ 9.49 $ 9.82 $ 10.19
</TABLE>
(1) "Net tangible book deficit per share" is determined by dividing the number
of shares of Common Stock outstanding into the tangible net deficit of the
Company (tangible assets less total liabilities and less the unamortized debt
discount).
(2) "Dilution" means the difference between the public offering price per share
and the net tangible book value (deficit) per share of Common Stock after giving
effect to the Offering.
(3) Does not include the effects of any options or warrants or conversion of the
Company's Unsecured Convertible Notes.
The Company was initially capitalized by a sale of Common Stock to its
founders. Subsequently, the Company has completed two private placements of
Common Stock and a private placement of Unsecured Convertible Notes. The
following table sets forth the difference between the Company's officers,
directors, promoters, and affiliates thereof, and purchasers of the Units in the
Offering with respect to the number of shares purchased from the Company (or
which such persons have the right to purchase), the total cash consideration
paid (or to be paid), and the average price per share. The table assumes that
all of the Units offered hereby are sold.
<TABLE>
<CAPTION>
Shares Issued(1) Total Consideration(1) Average Price
Number Percent(2) Amount Percent(2) Per Share
<S> <C> <C> <C> <C> <C>
Officers, directors,
promoters and
affiliates 1,830,996 63% $ 298,323 5.9% $ 0.16
New Investors 400,000 13% $4,000,000 78% $10.00
</TABLE>
(1) Includes 42,452 shares which may be issued to officers, directors,
promoters, and affiliates upon exercise of stock options or conversion of
Unsecured Convertible Notes, 33,186 of which are issuable within 60 days, and
the payment of the exercise or conversion price relating thereto and assumes the
sale of all Units offered hereby.
(2) Shares purchased (or with rights to purchase) divided by the sum of total
shares outstanding after Offering, plus all shares officers, directors, and
promoters have rights to purchase.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to pay any cash dividends on its Common Stock for the
foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to reflect the receipt of the net proceeds
from the issuance and sale by the Company of the Units offered hereby at an
assumed initial offering price of $10.00 per Unit. This table should be read in
conjunction with the Company's financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
As Adjusted
400,000 300,000 200,000 100,000
Actual Units Sold Units Sold Units Sold Units Sold
<S> <C> <C> <C> <C> <C>
Debt:
Short-term
debt including
current portion
of long-term
debt ........... $ 91,454 $ 91,454 $ 91,454 $ 91,454 $ 91,454
Long-term debt
less current
portion (1) .... 1,025,150 1,025,150 1,025,150 1,025,150 1,025,150
Stockholders'
Equity
(Deficiency):
Common Stock,
$0.01 par value,
4,000,000 shares
authorized,
2,464,544 shares
issued and
outstanding,
2,864,544
(100% sold),
2,764,544
(75% sold),
2,664,544
(50% sold),
or 2,564,544
(25% sold),
as adjusted
(2) 24,645 28,645 27,645 26,645 25,645
Additional paid-
in capital ..... 1,198,520 4,772,808 3,823,808 2,874,808 1,925,808
Common stock
warrants
outstanding .... 20,494 20,494 20,494 20,494 20,494
Deficit
Accumulated
during the
development
stage .......... (1,784,366) (1,784,366) (1,784,366) (1,784,366) (1,784,366)
Less unearned
compensation ... (191,065) (191,065) (191,065) (191,065) (191,065)
Total capital
(deficiency) ... $ (731,772) $ 2,846,516 $ 1,896,516 $ 946,516 $ (3,484)
</TABLE>
(1) Includes deferred fees and deferred salaries, including accrued interest,
payable to related parties.
(2) Excludes 43,900 shares reserved for issuance pursuant to the exercise of
outstanding stock options, 13,817 of which are exercisable, 23,630 shares
reserved for issuance pursuant to outstanding warrants, 232,100 shares reserved
for issuance to employees and 49,000 reserved for issuance to directors and
members of the Scientific Advisory Committee pursuant to options available for
grant under the Company's 1994 Stock Option Plan, 18,000 shares reserved for
issuance under the Company's 1994 Board Retainer Plan, and up to 323,557 shares
issuable upon conversion of the Company's Unsecured Convertible Notes.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
Statements of Operations for the years ended December 31, 1995 and 1996 are
derived from the audited financial statements included elsewhere in this
Prospectus. The selected financial data at September 30, 1996 and 1997, for the
nine months ended September 30, 1996 and 1997, and for the period March 25, 1993
(Date of Inception) through September 30, 1997, are derived from the Company's
unaudited financial statements included elsewhere in this Prospectus and
include, in the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the Company's
financial position at those dates and results of operations for those periods.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results for any future period. The data set forth
below should be read in conjunction with the Company's financial statements,
related notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Period
March 25, 1993
(Date of
Inception) For the Nine Months
through Year Ended Ended
September 30 December 31 September 30
Statement
Of
Operations
Data: ........ 1997 1995 1996 1996 1997
Revenues: ..... (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income under
Research
agreement .... $ 275,000 -- $ 139,079 $ 133,333 $ 135,922
Income from
SBIR Grant ... 91,650 -- 20,000 -- 71,650
Interest income 22,043 5,060 7,760 1,451 9,223
Other income .. 13,567 3,062 4,366 3,467 2,752
Total revenues 402,260 8,122 171,205 138,251 219,547
Expenses:
Operating,
general and
administrative 1,051,809 230,423 276,642 247,060 290,271
Research and
development .. 963,758 130,984 392,010 275,906 432,378
Interest ...... 171,059 20,927 56,192 23,473 83,858
Total expenses 2,186,626 382,334 724,844 546,439 806,507
Net Loss ...... $(1,784,366) $ (374,212) $ (553,639) $ (408,188) $(586,960)
Net Loss
Per
Common Share . $ (0.18) $ (0.23) $ (0.17) $ (0.24)
Weighted
Average
Common
Shares ....... 2,025,975 2,411,275 2,438,544 2,456,412
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet September 30,
Data: (unaudited)
1996 1997
<S> <C> <C>
Cash and cash
equivalents ......................... 491,865 88,103
Working capital ...................... 432,528 1,783
Total Assets ......................... 617,968 384,832
Total Liabilities .................... 1,151,184 1,116,604
Total Capital
Deficiency .......................... (589,112) (731,772)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes thereto included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" and in "Special Note Regarding Forward-
Looking Statements."
Overview
The Company is a development stage, biotechnology company. The Company is
considered to be in the development stage because it is devoting substantially
all of its efforts to establishing its business and its planned principal
operations have not commenced.
Since its inception in March of 1993, the Company's efforts have been
principally devoted to research and development, securing patent protection, and
raising capital. The Company has not received any revenues from the sale of
products, and does not expect any of its product candidates to be commercially
available for at least the next one to five years. From inception through
September 30, 1997, the Company has sustained cumulative losses of $1,784,366.
These losses have resulted primarily from expenditures incurred in connection
with general and administrative activities, research and development, patent
preparation and prosecution, and interest.
The Company expects to continue to incur substantial research and
development costs in the future resulting from ongoing research and development
programs, manufacturing of products for use in clinical trials and preclinical
and clinical testing of the Company's products. The Company also expects that
general and administrative costs, including patent and regulatory costs,
necessary to support clinical trials, research and development, manufacturing,
and the creation of a marketing and sales organization, if warranted, will
increase in the future. Accordingly, the Company expects to incur increasing
operating losses for the foreseeable future. There can be no assurance that the
Company will ever achieve profitable operations.
To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's current drug candidates are
not expected to be commercially available for several years.
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. The risks, expenses and
difficulties encountered by companies at an early stage of development must be
considered when evaluating the Company's prospects. To address these risks, the
Company must, among other things, successfully develop and commercialize its
product candidates, secure all necessary proprietary rights, respond to
competitive developments, and continue to attract, retain and motivate qualified
persons. There can be no assurance that the Company will be successful in
addressing these risks. See "Risk Factors - Early Stage of the Company;
Accumulated Deficit."
The operating expenses of the Company will depend on several factors,
including the level of research and development expenses. Research and
development expenses will depend on the progress and results of the Company's
product development efforts, which the Company cannot predict. Management may in
some cases be able to control the timing of development expenses in part by
accelerating or decelerating preclinical testing and clinical trial activities.
As a result of these factors, the Company believes that period-to-period
comparisons in the future are not necessarily meaningful and should not be
relied upon as an indication of future performance. Due to all of the foregoing
factors, it is possible that the Company's operating results will be below the
expectations of market analysts, if any, and investors. In such event, the
prevailing market price, if any, of the Common Stock would likely be materially
adversely affected. See "Risk Factors - Absence of Public Trading Market for
Securities; Valuation."
Results of Operations
Nine Months Ended September 30, 1996 and 1997
The Company's revenues under research agreements increased 1.9% from
$133,333 in the first nine months of 1996 to $135,922 in the first nine months
of 1997, due entirely to recognition and receipt of income from a research
support agreement with Genetics Institute, Inc. Revenues under the Genetics
Institute agreement will cease at the end
19
<PAGE>
of the agreement in 1997. Income from the Company's SBIR grant increased from
none in the first nine months of 1996 to $71,650 in the equivalent period of
1997. That grant expired on September 30, 1997 and no further revenues are
expected under it.
Interest income increased 536% from $1,451 in the third quarter of 1996 to
$9,223 in the same period in 1997. This increase was attributable to the
investment of the proceeds from the sale of Unsecured Convertible Notes in the
last quarter of 1996. Interest income will decline as these funds are used for
operating expenses.
Operating, general and administrative expenses increased 17.5% from
$247,060 in the first nine months of 1996 to $290,271 in the first nine months
of 1997. These increased expenses reflect increased personnel and increased
patent amortization expenses and amortization of certain capitalized costs
incurred in connection with the offering of Unsecured Convertible Notes in the
fourth quarter of 1996, offset to some degree by a decline in legal expenses in
1997 compared to 1996. Both these amortization expenses commenced during 1997.
The Company expects its general and administrative expense to increase during
the remainder of 1997 and 1998 as a result of the hiring of additional
personnel, increased amortization of capitalized patent costs as new patents are
issued, and increased amortization of capitalized private placement expenses.
Research and development expenditures consist primarily of payroll-related
expenses of research and development personnel, laboratory supplies, animal
supplies, laboratory rent, depreciation on laboratory equipment, development
activities, payments for sponsored research, and payments to scientific and
regulatory consultants. Research and development expenses increased 56.7% from
$275,906 in the first nine months of 1996 to $432,378 in the first nine months
of 1997, primarily as a result of additional research and development personnel,
the rental of additional lab space, and increased research activities. The
Company anticipates that its research and development expenses will continue to
increase during the next 12 months as the Company expands research and
development programs and preclinical and clinical testing for its product
candidates and technologies under development.
Interest expense increased 257% from $23,473 in the first nine months of
1996 to $83,858 in the first nine months of 1997 due primarily to cash interest
on the Company's 10% Notes, the amortization of debt discount (initially
$285,835) attributable to the beneficial conversion feature of the Company's
Variable Notes, both issued in the last quarter of 1996, and the compounding of
interest on deferred fees and salaries, including deferred interest, payable to
related parties. See "Management Deferred Compensation Plan." Interest will
continue to increase during 1997 as a result of the 10% Notes and Variable
Notes' being outstanding for the entire year, and as a result of the continued
compounding of interest on deferred fees and salaries accounts.
Years Ended December 31, 1995 and 1996
The Company recognized contract research and development revenues of
$159,079 for the first time in the year ended December 31, 1996. This revenue
consisted of a portion of the $200,000 payment under a research support
agreement between the Company and Genetics Institute, Inc. (received upon
execution of the agreement), which the Company is recognizing, ratably over the
12-month life of the research project. Revenues also included funds received
under a grant from the National Institutes of Health under the Small Business
Innovation Research ("SBIR") Program. Prior to this, the Company's only revenues
had been from interest income and nominal consulting fees for services rendered
by Ixion personnel to the Biotechnology Development Institute. Revenues under
the Genetics Institute Agreement are expected to cease in 1997. Payments of up
to $73,000 under the SBIR will continue in 1997, but will terminate in September
1997.
Interest income increased 53% from $5,060 in 1995 to $7,760 in 1996,
primarily as a result of the investment of the proceeds of the Company's
offering of 10% Notes and Variable Notes in the last quarter of 1996. Other
income increased 43% from $3,062 in 1995 to $4,366 in 1996 due primarily to an
increase in consulting fees for services rendered by Ixion personnel to the
Biotechnology Development Institute.
Operating, general and administrative expenses increased 20% from $230,423
in 1995 to $276,642 in 1996, primarily due to additions to the Company's
personnel.
Research and development expenses increased 199% from $130,984 in 1995 to
$392,010 in 1996. This increase was primarily attributable to increases in
research personnel and the scale of research operations during the year. The
Company recorded non-cash compensation expense in the amount of $139,295 in 1996
related to the issuance of compensatory options and restricted stock.
20
<PAGE>
Interest expense increased 169% from $20,927 in 1995 to $56,192 in 1996,
due primarily to additions to deferred fees and salaries, including deferred
interest payable to related parties, arising from the deferral of fees and
salaries in 1993, 1994, 1995, and 1996 by Company officers and consultants, and
the compounding of deferred interest in those accounts, to the cash interest on
the Company's 10% Notes, and the amortization of debt discount (initially
$285,835) attributable to the beneficial conversion feature of the Company's
Variable Notes, both issued in the last quarter of 1996.
Liquidity and Capital Resources
In September 1996, the Company completed a private placement transaction in
which it sold Unsecured Convertible Notes for an aggregate gross consideration
of $787,270. In addition on April, 16, 1996, the Chairman and Chief Executive
Officer and the President of the Company each entered into an agreement to
extend the Company up to $25,000 in the form of a bridge loan. Interest on the
loan is at 8% but can be reset annually, at the election of either party, to the
prime rate in effect on January 1 of any given year, plus 3%. Under these
agreements, the Company borrowed a total of $32,100, all of which was repaid in
cash by the Company on June 14, 1996. In addition, the Chairman, on June 21,
1996, agreed to increase his loan commitment to an amount up to $150,000, if
necessary, to enable the Company to continue operations. These facilities are
available to the Company, but no amounts are outstanding at September 30, 1997.
The Company expects to borrow and repay under these facilities from time to time
to meet working capital needs. The Company does not have any bank financing
arrangements. The Company's long-term indebtedness consists primarily of
deferred fees and salaries payable to related individuals and a chattel mortgage
agreement.
At September 30, 1997, the Company had $88,103 in cash and cash
equivalents, and working capital of $1,783.
On January 1, 1996, the Company purchased laboratory equipment pursuant to
a chattel mortgage agreement in the amount of $32,309. The agreement calls for
monthly payments of $897, commencing August 1, 1996. The Company anticipates
making capital expenditures of approximately $40,000 for the year ended December
31, 1997, primarily for acquisitions of additional laboratory and office
equipment.
For the period March 25, 1993 (date of inception) through September 30,
1997, the Company capitalized costs of $202,245 associated with the prosecution
of various patent applications. As further research continues and the Company
acquires additional patent rights, management expects the patents pending asset
to increase.
The Company has incurred negative cash flows from operations since its
inception, and has expended and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, commence
clinical trials, and diversify its technology. The Company's future capital
requirements and the adequacy of available funds will depend on numerous
factors, including the successful commercialization of its Ixion Oxalobacter
formigenes Monitor and IxC1-62/47, progress in its product development efforts,
the magnitude and scope of such efforts, progress with preclinical studies and
clinical trials, the cost of contract manufacturing and research organizations,
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the development and marketing of
its products. The Company requires the proceeds of this Offering and interest
thereon to meet its planned operating requirements through December 31, 1998. In
the event the Company's plans change or its assumptions change or prove to be
inaccurate or the proceeds of the Offering prove to be insufficient to fund
operations (due to unanticipated expenses, delays, problems or otherwise), the
Company could be required to seek additional financing sooner than currently
anticipated. In addition, the Company will be required to obtain additional
funds in any event through equity or debt financing, strategic alliances with
corporate partners and others, or through other sources in order to bring its
products through regulatory approval to commercialization. The terms and prices
of any equity or debt financings may be significantly more favorable than those
of the Units sold in this offering. The Company does not have any material
committed sources of additional financing, and there can be no assurance that
additional funding, if necessary, will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
scale-back, or eliminate certain aspects of its operations or attempt to obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products, or potential markets. If adequate funds are not available,
the Company's business, financial condition, and results of operations will be
materially and adversely affected.
21
<PAGE>
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments and other investment-grade quality
instruments.
Product Research and Development Plan
The Company's plan of operation for the 12 months following completion of
this Offering will consist primarily of research and development and related
activities including:
further development of the Company's IPSC research programs aimed at
proprietary populations of functioning islets for transplantation into
diabetic patients;
continuing the funding of the ongoing discovery program in which the
Company intends to identify and characterize novel growth factors
associated with the IPSCs, to discover factors important in islet cell
differentiation and possible regulation of diabetes and to identify stem
cell markers to which the Company hopes to produce antibodies useful in
stem cell isolation;
further preclinical development of the Company's diagnostic Ixion
Oxalobacter formigenes Monitor for Oxalobacter formigenes detection, and
if successful, the initiation of clinical trials;
further development of IxC1-62/47, including formulation, product
characterization, method development, testing (including toxicology), cell
line characterization, process development, clinical lot manufacturing,
stability, research protocols, and preclinical studies for the Company's
proposed products, primarily its oxalate-related products;
continuing the prosecution and filing of patent applications; and
hiring additional employees.
The actual research and development and related activities of the Company
may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent upon the establishment of collaborative arrangements with other
companies, and other factors.
There can be no assurance that the Company will be able to commercialize
its technologies, or that profitability will ever be achieved. The Company
expects that its operating results will fluctuate significantly from quarter to
quarter in the future and will depend on a number of factors, many of which are
outside the Company's control.
Recent Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. This statement, which is effective for
the Company's annual report for the year ended December 31, 1997, establishes
new requirements for the calculation, presentation, and disclosure of earnings
per share. The Company estimates that Basic Earnings Per Share presented in
accordance with Statement No. 128 would not differ materially from what is
currently presented. Diluted Earnings Per Share under Statement No.128 would not
be required since the Company is reporting losses and effects of additional
shares would be anti-dilutive.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. This statement, which is effective for the Company's annual report for
the year ended December 31, 1998, establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Adoption of this standard is not expected to have
a material impact on the Company's financial statements or results of
operations.
22
<PAGE>
BUSINESS
The Company
Ixion Biotechnology, Inc. ("Ixion" or the "Company"), is a development
stage, discovery research biotechnology company, with several product candidates
in development. The Company is the holder of world-wide exclusive licenses to
patents and pending patents in two key areas: diabetes and oxalate-related
disorders. Ixion has executive offices and development laboratories at the
Biotechnology Development Institute, a small business incubator operated by the
Biotechnology Program at the University of Florida.
Ixion is developing diabetes products based on its Islet Progenitor/Stem
Cell ("IPSC") technology, including a proprietary line of in vitro (in test
tube) islet stem cells for use in islet transplantation therapy. This
development program is aimed at optimizing the growth of functioning islets or
islet progenitors in vitro from IPSCs which Ixion has established in cell
cultures. The transplantation of islets is the only known potential cure for
Type I diabetes. The Company believes that successful islet transplantation
therapy will provide better management of diabetes than conventional treatment
with insulin and other metabolic regulators. Conventional treatment can result
in hyper- and hypo-glycemic episodes which are a major cause of diabetic
complications. Ixion's technology is intended to ameliorate this condition by
implanting functional islets into the body in order to materially improve
control of blood glucose levels.
In addition to developing its cell transplantation therapy, Ixion has an
ongoing discovery program to identify and characterize IPSCs as well as novel
growth factors associated with them. The goal of this program is to discover
factors important in islet cell differentiation and to identify stem cell
markers to which the Company hopes to produce antibodies useful in stem cell
isolation. All of the Company's potential diabetes products are in the discovery
research stage.
Diabetes is a chronic, complex metabolic disease. Type I (often referred to
as Insulin Dependent Diabetes or IDD) is characterized by an inability to
produce insulin due to the destruction of the insulin-producing cells of the
pancreatic islets of Langerhans. Type I diabetes also leads to many serious
conditions ranging from death from diabetic coma or insulin shock, to end stage
renal disease, blindness, amputations, nerve damage, and cardiovascular and
periodontal disease. Over 16 million people in the United States have diabetes,
of whom five to ten percent (or about 800,000 patients) have Type I, the most
severe form of the disease, and must take insulin. An additional one and
one-half million Type II patients also take insulin. Annual expenditures on all
forms of diabetes are over $100 billion.
The Company is also developing products based on its oxalate technology for
the diagnosis and treatment of oxalate-related diseases. . The Company's oxalate
technology is based on genes from the non-pathogenic anaerobic intestinal
bacteria, Oxalobacter formigenes, which produce enzymes responsible for oxalate
degradation in healthy people. Inadequate colonies of O. formigenes result in
reduced ability to degrade oxalate. Excess oxalate from dietary and metabolic
sources plays a role in a variety of disorders including kidney stones,
hyperoxaluria, cardiomyopathy, cardiac conductance disorders, cystic fibrosis,
Crohn's disease, renal failure and toxic death, and vulvodynia
There are approximately one million kidney stone incidents annually in the
United States. Annual expenditures on kidney stone incidents exceed $1.8
billion. There are approximately 25,000 cystic fibrosis patients in the United
States; these patients are at materially increased risk of kidney stones as a
result of excess oxalate. There are from 5,000 to 16,000 new cases of
Inflammatory Bowel Disease annually, resulting in 100,000 hospitalizations, 60%
from Crohn's Disease which is associated with enteric hyperoxaluria. Vulvodynia,
a chronic multifactorial disorder, believed to be in some degree
oxalate-related, results in painful and debilitating symptoms affecting the
tissue surrounding the vagina and urethra. There are no population studies of
the incidence or prevalence of vulvodynia, but estimates range as high as
150,000 to 200,000 U.S. women with this condition. Very few effective
treatments, if any, exist for these disorders.
The most developed product candidate in Ixion's development pipeline is a
combination diagnostic and therapy for the management of oxalate-related
disorders.
The diagnostic component of the Company's oxalate-related disease
management product is a DNA probe for the rapid and sensitive detection of human
O. formigenes (the "Ixion Oxalobacter formigenes Monitor"). The current tests
for O. formigenes are laborious, time consuming, and unreliable, and are limited
by (1) the difficulties of anaerobic culture methods, (2) the inability to
standardize and accurately quantitate the presence of the bacteria, and (3)
23
<PAGE>
the fact that the tests cannot be automated. In addition, the current tests are
not sensitive and are poorly suited to a clinical setting. The Ixion Oxalobacter
formigenes Monitor, on the other hand, can accurately and reliably detect very
small numbers of O. formigenes, is quantitative, and is capable of automation.
The therapeutic component of the Company's oxalate-related disease
management product is an orally administered product consisting of a recombinant
form of two enzymes normally found in O. formigenes and responsible for oxalate
degradation ("IxC1-62/47"). The Company believes that the administration of
IxC1-62/47 will greatly diminish the recurrence of calcium oxalate kidney stones
and will have positive therapeutic effects on other oxalate-related disorders.
The Company intends to file an Investigational New Drug application with
the Food and Drug Administration for its IxC1-62/47 enzyme therapy for
oxalate-related diseases and an application under Section 510(k) of the Food,
Drug, and Cosmetic Act for the Ixion Oxalobacter formigenes Monitor, both within
12 months from the date of this Prospectus. See "Business - Government
Regulation."
Ixion is in the development stage, has earned only limited revenues, the
majority of which have been research and development payments, and has incurred
accumulated deficits of approximately $1,784,366 from its inception through
September 30, 1997. See "Risk Factors."
Industry Description and Outlook
In 1996, the U.S. biotechnology industry was composed of approximately
1,300 companies, public and private. Sales for the industry as a whole increased
by 16.0% to $10.8 billion. The public market for biotechnology financing was
robust during 1996 with the industry raising about $4.5 billion compared to $2.2
billion in 1995. Total financings (excluding milestone payments and equity
purchases by corporate partners) amounted to $7.5 billion. For the first nine
months of 1997, financings have declined to about half of the 1996 level. The
biotechnology industry is part of the broader health care industry in the United
States, which accounts for approximately 14% of the country's gross domestic
product, or approximately $1 trillion.
Diabetes. Diabetes is the world's most common metabolic disease. In 1995,
there were over 16 million diabetics in the United States. There are 21 million
diabetics in Europe and as many as 100 million worldwide. Type I patients
compose from 5% to 10% of the total number of diabetics in the U.S., or
approximately 800,000 patients. An additional 1.5 million Type II diabetics also
take insulin. There are approximately 500,000 to 600,000 new patients annually
in the U.S., of which 35,000 to 50,000 are Type I diabetics. Approximately 25
percent of the new Type II patients (or approximately 110,000) will also take
insulin.
In 1995, diabetes accounted for over 10% of total U.S. health care
expenditures, or approximately $100 billion. In 1992, the American Diabetes
Association estimated that another $47 billion was spent in indirect costs, such
as lost wages. Other sources have estimated that indirect costs may actually
exceed the direct costs. Complications of the disease include amputations of
toes and feet, blindness, ulcers, nerve damage and cardiovascular, periodontal,
and kidney disease. Approximately 30% to 40% of people with Type I diabetes will
develop diabetic nephropathy leading to kidney dialysis and renal transplants.
Overall, diabetes is the fourth leading cause of death in the U.S.
Current therapies, including insulin shots, amylin therapy, or oral
hypoglycemic medication modulate blood glucose, but cannot consistently maintain
the diabetic's blood glucose at normal levels. The Diabetes Control and
Complications trial, a nine-year NIH study, demonstrated that maintaining blood
glucose at normal levels reduces by approximately 60% the risk of development
and progression of diabetes complications. However, there is no therapy that
supplies insulin in response to changes in blood glucose with the speed and
precision of functioning islets. The Company believes that approximately 500,000
insulin dependent diabetics are candidates for islet transplantation and that
successful transplantation of islets capable of providing constant glucose
control will ameliorate the complications of the disease. While islet
transplantation is the only known potential cure for Type I diabetes, transplant
therapy is an early stage procedure and results, as is common for early stage
procedures, for the adult islet transplants performed to date have been
disappointing. Although there can be no assurance, the Company believes that the
success rate of transplant therapy will improve over time.
Kidney stones. Kidney stones are a major health care problem in the United
States, and a worse one in other parts of the world. Nearly one in every 1000
residents in the United States has been hospitalized for stones, and autopsies
have revealed that one in every 100 persons have observable stone formation in
their kidneys. Between seven
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and ten of every 1000 hospital admissions in the United States are for kidney
stones; this is approximately 248,000 hospital admissions annually. There are
approximately one million kidney stone incidents annually, the seventh leading
cause of physician visits. Nationwide, approximately 12% of the U.S. population
will develop stones in their lifetimes, but stones are particularly common in
the region from Virginia to New Mexico, commonly referred to as the "stone
belt." In other parts of the world, particularly the Middle-East, Asia, and
India, kidney stones are an even worse problem since hot climates seem to favor
stone formation.
If a stone cannot be passed, it is surgically removed or shattered by
extracorporeal shock-wave lithotripsy. Both treatments are expensive, with the
average lithotripsy costing $4,617 and surgery costing $8,308 (including the
hospital stay). Approximately 30% of patients with kidney stones are
hospitalized, the remainder pass the stone at home, which, while not
particularly expensive, is exceedingly painful. Based on 1993 data, the total
annual cost of kidney stones in the United States was conservatively estimated
at $1.83 billion annually.
Unfortunately, kidney stones usually recur; although for most patients, the
time between episodes can be years. The majority of kidney stones are made of
oxalate, which is an end product of metabolism in the body, and an important
component of a typical diet. The intestinal oxalate degrading bacteria,
Oxalobacter formigenes, plays an important role in oxalate homeostasis, both by
regulating intestinal absorption of dietary oxalate and also its secretion into
intestinal lumen from the blood by maintaining a transepithelial gradient. Thus
it may be clinically important to screen and treat patients with
oxalate-associated diseases like kidney stones, enteric hyperoxaluria,
cardiomyopathy, cardiac conductance disorders, cystic fibrosis, Crohn's disease,
renal failure and toxic death, and possibly vulvodynia for the presence or
absence of the bacterium. Indeed, recent research indicates an increased risk of
kidney stones in patient populations with significantly decreased intestinal
colonization by O. formigenes. This may be particularly true of patients with
cystic fibrosis, who are at materially increased risk of kidney stones as a
result of excess oxalate.
Inflammatory Bowel Disease. Inflammatory Bowel Disease ("IBD") is a general
term which covers two primary chronic disorders that cause inflammation or
ulceration in the small and large intestine: Crohn's disease and ulcerative
colitis. The cause of IBD is unknown, with many theories, none proven. One
theory is that an agent, like a virus or a bacterium, affects the immune system,
thus causing an inflammatory reaction in the intestinal wall. While there is
evidence that IBD is associated with abnormalities in the immune system, it is
not known whether they are cause or effect of the disease. Many persons with IBD
are also hyperoxaluric, suggesting that excess oxalate may be a complicating
factor in the disease, or may lead to increased risk of kidney stones. In 1987,
the latest data available, the number of new cases of IBD in the United States
annually ranged from two to six per 100,000 of population. There were about
100,000 hospitalizations annually, approximately 64% for Crohn's.
Vulvodynia. Vulvar vestibulitis syndrome ("vulvodynia") is a complex,
multifactorial disorder with painful and debilitating symptoms affecting the
tissue surrounding the vagina and urethra, including intense burning, itching,
and inflammation. In chronic cases it is very disruptive of a person's life.
Recognition of this condition as a significant, physiological syndrome appeared
in medical journals only a decade ago. There are no population studies of the
incidence or prevalence of vulvodynia although the condition may affect from
150,000 to 200,000 American women. Because the cause is often unknown,
treatments have been aimed at symptoms and include xylocaine, acupuncture,
hypnotherapy, interferon injections, and, as a last resort in chronic cases,
surgery. Recent research suggests that vulvodynia is associated with oxalate,
with some investigators reporting significant improvement following control of
dietary oxalate.
Other Oxalate Related Markets. Two additional products which could make use
of Ixion's oxalate technology include improved kidney dialysis devices and an
improved urological catheter. As of 1996, there were approximately 287,000 U.S.
hemodialysis patients and approximately 300,000 more in Europe and Japan. The
use of the Ixion oxalate technology could significantly reduce the time that
patients spend in dialysis by increasing the efficiency of oxalate removal
during the process.
The world market for urological drains (catheters) was $675 million in
1995. Catheters often foster infection and account for the leading side effect
of an invasive hospital procedure. One major cause of catheter infection is the
build-up of oxalate crystals on the catheter. The Ixion oxalate technology would
allow an improved catheter which would inhibit or dissolve encrusted oxalate
crystals, thus reducing the potential for infection.
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Business Strategy
The Company intends to market its initial diagnostic products, while
working with strategic partners to take its planned therapeutic products through
clinical trials into the market.
Basic Research. Ixion has used and intends to continue to use cooperative
research and development agreements with the University of Florida for basic
discovery research. The University of Florida is the tenth largest university in
the nation and is the largest research institution in the Southeast. In 1995, it
ranked ninth in the United States in gross royalties received from patent
licenses, and sixteenth in the United States in the number of U.S. patents
obtained.
Technology Evaluation and Development. The Company plans to use its
affiliation with the University of Florida Biotechnology Program to seek out,
evaluate, license, and develop cutting-edge university based biotechnology. The
Company's scientific and business team will review early stage academic
inventions, identify discoveries which are scientifically innovative and
commercially promising, obtain licenses from the University, and develop the
discoveries to add value by confirming the initial observations. Discoveries
that support the Company's core technologies will be retained for further
development; the remainder will be licensed-out to generate immediate royalty
revenue.
The Company's relationship with the scientists at the University of Florida is
based upon personal relationships between Ixion's management and University of
Florida members of the Company's Scientific Advisory Board, on the one hand, and
other members of the University of Florida faculty on the other. These
relationships are facilitated by the Company's location at the University of
Florida's research park and by the business consulting provided by Ixion
management to University faculty at no cost, by arrangement with the
Biotechnology Program. The Company has no formal agreement providing general
access to rights to University research, nor to advance notice of disclosures by
University researchers.
The University's faculty has only recently begun to engage in commercial
collaborations in significant numbers, thus many promising commercial
discoveries have not been exploited, for example, the Company recently licensed
an anti-microbial patent from two members of the University of Florida faculty.
See "Business-Licensed Technology." In addition, academic intellectual property
is often embryonic and, therefore, too risky, expensive, and time consuming for
large pharmaceutical and biotechnology companies to acquire and develop. Ixion,
on the other hand, is in a position to perform "applied basic" research
inexpensively, either in its labs or through cooperative research agreements, in
order to add value to the technology such that it is of greater interest to
commercial licensees. By increasing the maturity stage of the technology, Ixion
hopes to capture an enhanced return upon licensing-out for royalty and milestone
payments. See Figure 1, below.
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Discovery supports core technology.
/ Ixion develops product.
/
/
/
University-Discovered Ixion / Substantial commercial potential,
Very Early Stage --------Evaluation----- but not within core focus.
Technology \ Ixion develops technology,
\ then licenses out.
\
\
\
Discovery lacks commercial
promise or no Ixion
capability for further
development.
Ixion declines license.
Figure 1 - Ixion Technology Opportunity Strategy
Ixion intends to continue to develop collaborative arrangements with
leading researchers at the University of Florida and at other research
institutions in its core oxalate and diabetes areas to diversify and strengthen
its intellectual property estate and to establish its reputation and credibility
in the scientific and medical communities.
Collaborative Product Development and Marketing with Established Companies.
Ixion plans to develop products in collaboration with other companies.
Collaborative agreements may call for Ixion's collaborative partners to provide
research funds as well as clinical and other support during product development,
although Ixion may develop and test ideas independently before entering into a
collaborative agreement. The Company contemplates that its partners will provide
an established and trained marketing and sales force, as well as GMP
manufacturing experience, clinical trial expertise, support for patent
prosecution, and other capabilities.
Independent Product Development. The quality of Ixion's scientific team
also permits independent product development. Independently developed products
will provide the Company with the flexibility either to market the product
directly or enter into agreements with pharmaceutical partners on terms more
favorable to the Company. While independent product development is riskier than
collaborative development, the Company may be able to retain a higher proportion
of any eventual product revenue stream. The Ixion Oxalobacter formigenes Monitor
is an example of independent product development.
Contract Clinical Trial and Manufacturing Services. Initially, the Company
has elected to retain contract vendors to support clinical studies and product
development. Moreover, it will not initially construct its own good
manufacturing practices ("GMP") manufacturing facilities. By contracting with a
qualified manufacturing company, Ixion will be able to obtain immediate access
to the necessary GMP and regulatory skill base at low entry costs. The Company
thus expects to minimize the time to market, maintain control over development
candidates, and reduce its financial risk when product risk is the greatest.
Product Development
The Company's first target products for diabetes will be a population of
cultured islet or pancreatic cells for use in diabetes treatment, and its first
target products for oxalate-related diseases will be the Ixion Oxalobacter
formigenes Monitor and the IxC1-62/47 enzymatic treatment for oxalate-related
conditions. The Company also plans other products that will detect and measure
the presence of oxalate in urine or blood. Certain of these products may be
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suitable for use in research applications and, subject to certain limitations,
would not require FDA approval prior to use in that context. (See "Business -
Government Regulation," below.)
Genetics Institute Sponsored Research Agreement. In connection with its
potential diabetes products, in June 1996, the Company entered into a sponsored
research agreement with Genetics Institute, Inc. ("GI"), a leading
biopharmaceutical firm. The sponsored research agreement related to the
Company's IPSC technology and granted GI an option to a right of first
negotiation for an exclusive world-wide license to the Company's IPSC technology
and any improvements or developments relating to IPSC technology which arise
during the term of the agreement. The Company expects this agreement will expire
in 1997, and that GI will not exercise its option.
Descriptions of Planned Diabetes Products. Ixion intends to develop
products to enhance research into the disease of diabetes, as well as
therapeutic approaches where Ixion's proprietary technology offers unique
solutions.
Islet transplantation to reverse diabetes or reduce insulin dependency has
been limited by, among other things, immunological attack resulting in rapid
rejection of transplanted tissue. In addition to the immunologic difficulties,
there are significant shortages of human islets suitable for transplant or
research, with only 4,000 or fewer pancreases available for transplant annually.
Xenotransplants using porcine islets face additional difficulties, such as the
possibility of cross-species viruses. To date, efforts to propagate commercial
quantities of human islets in vitro (in the test tube) from either fetal or
adult tissue has had minimal success. The Company believes that a source of
reproducible islet cells would significantly improve the speed and results of
research into transplanted islets.
Ixion's IPSC technology permits the successful growth of in vitro
pancreatic-derived, pluripotent (e.g., able to differentiate) islet-producing
cells from mice. When mouse cells were implanted into clinically prediabetic
mice, the implanted mice were successfully weaned from insulin until they were
sacrificed for histological studies. The Company has also been successful in
propagating human islet cells from children and adult donors as well, but has
not transplanted such islets at the date of this Prospectus.
The following table summarizes the current status of the Company's IPSC
research and development program for diabetes products.
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Product Development-Diabetes IPSC Technology
Product Planned Research Products Status (1)
Indications
Cultured IPSCs Implantation in vivo of encapsulated Research
or Islets cells for study of protected
implantations to reverse diabetes
Genetically Implantation in vivo without Research
Engineered IPSCs encapsulation for study of
unprotected implantations
to reverse diabetes
Islet Growth Promotion of cell growth Research
Factors and differentiation of
pancreatic explants
Nucleic Acid Genetic and phenotype analysis Concept
Probes
Surface Analysis of health or disease Concept
Antibodies of biopsy specimens
Identification of cells
Enrichment of specific cell types
Isolation and identification of
cells by stage of differentiation
Production of knock-out lines of
pancreatic cells
Planned Clinical Products
Cultured IPSCs Encapsulated implantation in vivo Concept
or Islets to reverse diabetes
Genetically Transplantation without Concept
Engineered encapsulation (or other
IPSCs means of immunologic protection) in
vivo to reverse diabetes
Islet Growth Correct disease deficiencies Concept
Factors
Promote greater efficiency
in culturing cells for transplantation
Elucidation of diabetes disease process
Monitor disease stages
(1) "Concept" includes feasibility, theoretical market, and product design
studies based on laboratory or other data. "Research" includes discovery
research, development of the product's physical form and specifications, and its
initial production. "Preclinical" denotes efficacy, pharmacology, safety, or
toxicology studies in animal models.
Descriptions of Planned Oxalate Products. At the present time, there is no
commercial method of rapidly and easily detecting the presence or absence of O.
formigenes in the body or of measuring oxalate levels in a patient's blood. The
current tests for O. formigenes are laborious, time consuming, and unreliable,
and are limited by (1) the difficulties of anaerobic culture methods, (2) the
inability to standardize and accurately quantitate the presence of the bacteria,
and (3) the fact that the tests cannot be automated. In addition, the current
tests are not sensitive and are poorly suited to a clinical setting.
The only commercially available tests for levels of oxalate in the human
body are currently performed in clinical labs by measuring oxalate
concentrations in urine. Available assays for measuring oxalate levels in urine
also have major drawbacks: the samples require careful processing to remove
inhibitory substances, the tests are complex
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<PAGE>
and cumbersome, and they often fail to provide consistent results. Accordingly,
such tests cannot be performed in many hospital labs or in a doctor's office.
Ixion's planned oxalate products are designed to address these drawbacks.
The Ixion Oxalobacter formigenes Monitor. Ixion's oxalate technology
consists of cloned, sequenced, and expressed genes encoding the oxalate
degrading enzyme and formate degrading enzyme from the intestine dwelling
bacteria, Oxalobacter formigenes. Ixion's Dr. Sidhu, in collaboration with Dr.
Milton Allison, a member of Ixion's Scientific Advisory Board and the discoverer
of O. formigenes, has used these genes to construct a DNA-based diagnostic
test(the "Ixion Oxalobacter formigenes Monitor") to detect the presence of O.
formigenes in easily-collectable stool samples. O. formigenes is a gram negative
anaerobe present in humans and other animals. The role of this species in
intestinal management of oxalate is supported by findings showing significantly
decreased intestinal colonization in patient populations at increased risk of
kidney stones. Research in this area has been inhibited by the difficulty of
culturing and detecting the anaerobe.
The Ixion Oxalobacter formigenes Monitor developed by Ixion is a
significant improvement over current tests for O. formigenes and is an important
potential addition to routine diagnostic testing for several reasons.
Ixion's Oxalobacter formigenes Monitor is much easier to perform and
provides accurate results in a fraction of the time required to
culture and test for O. formigenes using existing methods.
Ixion's DNA method relies upon standard DNA techniques and does not
require anaerobic cultures of the organisms since it provides direct
detection of DNA extracted from fecal samples and amplified using
polymerase chain reaction ("PCR").
Because it is based upon PCR and subsequent hybridization to
species-specific sequences, the Ixion Oxalobacter formigenes Monitor
is simple to perform and provides the required level of sensitivity,
accuracy, selectivity, and throughput necessary for a commercial
diagnostic test.
The Ixion Oxalobacter formigenes Monitor is sensitive to the level of
1,000 to 10,000 colony forming units/gram of fecal material. This is
approximately 100-fold lower than the number of colony forming units
in fecal material of normal, healthy adults.
Ongoing development of the Ixion Oxalobacter formigenes Monitor is focused on
the following areas:
Extended evaluation and enhancement of probe specificity with respect
to other intestinal organisms to assure the absence of cross
reactivity and misdiagnosis. Organisms currently being evaluated
include the following: Eschericia coli, Yersinia spp., Shigella spp.,
Salmonella spp., Vibrio colera, Helicobacter pylori, Klebsiella,
Giardia lamblia, and Campylobacter spp.
Development of probes against clinically important intestinal
organisms such as those listed above. These, coupled with the IntrIx
Oxalobacter formigenes Monitor, will provide for a panel of clinically
important diagnostic tests.
Development of quantitative capability for the Ixion Oxalobacter
formigenes Monitor.
The Company expects to file an application under Section 510(k) of the
Food, Drug, and Cosmetic Act for clearance to market the Ixion Oxalobacter
formigenes Monitor during 1998. There is no assurance that the Ixion Oxalobacter
formigenes Monitor will qualify for 510(k) procedure, in which case the Company
will have to file an application for premarket approval ("PMA") with the FDA. If
the Company must follow the PMA approval route, the approval process may be
lengthy.
IxC1-62/47 Enzyme Therapy for Oxalate-Related Disease. In addition to the Ixion
Oxalobacter formigenes Monitor and other potential diagnostic products described
above, Ixion is developing IxC1-62/47, an orally administered therapeutic
product consisting of the recombinant form of two enzymes normally found in O.
formigenes: oxalyl-CoA decarboxylase ("oxc") and formyl-CoA transferase ("frc").
The enzymatic therapy is based upon the reestablishment of oxalate degrading
mechanisms in the body. IxC1-62/47 is targeted at oxalate-related disorders
including kidney stones, enteric hyperoxaluria, oxalosis, cardiomyopathy, cardio
conductance disorders, cystic fibrosis, Crohn's disease, and possibly
vulvodynia. Very few satisfactory treatments currently exist for these
disorders.
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Both the oxc and frc genes have been successfully cloned into E. coli and
expressed in active form as verified using activity assays developed by Ixion's
scientists. Physicochemical analyses such as SDS-PAGE, IEF, and N- terminal
sequence analysis have been completed. Ixion has grown the recombinant E. coli
to 80 liter scale and has purified the oxc and frc enzymes for use in a variety
of preclinical studies including (1) additional physicochemical
characterization, (2) formulation and drug delivery, and (3) animal studies. The
Company is also purifying the native form of the oxc and frc enzymes from O.
formigenes, to provide comparative data to the recombinant versions. The Company
has not determined whether the recombinant or native enzymes will be used
therapeutically. The current intention is to file an IND for the IxC1-62/47
enzymatic therapy for oxalate-related disorders in 1998.
The Ixion Oxalobacter formigenes Monitor has been performed in preclinical
studies by Ixion lab personnel on over 300 human samples from varied populations
in the Ukraine, Germany, the United States, and India. The results of those
studies include the following:
Cystic Fibrosis. Oxalate kidney stones are a known complication of
cystic fibrosis. The incidence in cystic fibrosis populations over 12
years old approaches 3% to 4% as compared to 0.2% in normal populations
Renal autopsies show 90% nephrocalcinosis. In an Ixion sponsored
clinical study conducted in collaboration with collaborators at
Northwestern University, the University Children's' Hospital, Cologne,
Germany, and University Children's Hospital, Halle, Germany, 40 (18
male and 22 female) cystic fibrosis patients (aged three to 35 years)
were examined for colonization with Oxalobacter formigenes. 33 of the
40 patients were non-colonized, and of these, 18 were hyperoxaluric and
eight had urinary oxalate levels in the upper normal range. The seven
patients who were colonized with O. formigenes all showed normal levels
of urinary oxalate.
Recurrent Stone Formers. In another currently ongoing study on O.
formigenes colonization in adult calcium oxalate stone formers,
preliminary data have revealed that the majority of recurrent stone
formers (five or more stone episodes) are non-colonized with this
bacteria. Studies in the literature suggesting a decrease in the colony
forming units of O. formigenes in patients with oxalate calculi, rather
than complete non-colonization, has led to the development by Ixion of
a Quantitative-PCR Oxalobacter formigenes Monitor. The Quantitative-PCR
Oxalobacter formigenes Monitor is now being used in additional
preclinical work to detect and quantitate O. formigenes in oxalate
stone formers to determine if the number of Colony Forming Units is a
relevant risk factor.
Vulvodynia. A new preclinical study is scheduled in cooperation with
the Diagnostic Reference Laboratory at the Shands Hospital at the
University of Florida to examine 25 to 40 vulvodynia patients for
colonization with Oxalobacter formigenes.
Over 65 percent of kidney stones are calcium-oxalate stones, and excess
oxalate is implicated in other diseases as set forth above. Oxalate is present
in many common foods, including tea, broccoli, and spinach. O. formigenes is
involved in degradation of dietary oxalate and its secretion from plasma into
the gut. The Company believes that a robust colony of O. formigenes prevents
recurrent calcium-oxalate kidney stone formation and may ameliorate other
disease states. Management believes that Ixion is the only company world-wide
which is examining the role of O. formigenes in human and animal disease states.
Blood Oxalate Assay. The combination of the oxc and frc enzymes and
cofactors also serve as the basis for a planned blood oxalate assay. The
recurrence rate of calcium oxalate kidney stone formation is very high, with
hyperoxaluria as the major predisposing factor to stone formation. Accurate
measurements of blood oxalate levels, together with the presence or absence of
O. formigenes, are important requirements for predicting the risk of
calculogenesis in an individual and stratifying urological patients for clinical
intervention. Development is planned in 1998 on an additional oxalate product: a
blood oxalate assay, to be designed for clinical use by hospitals, independent
labs, and doctors.
The following table summarizes the current status of the Company's oxalate
product research and development program.
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Product Development-Oxalate Technology
Product Planned Research Products Status (1)
Indications
Oxalobacter
formigenes Monitor Detection of O. formigenes in stool Preclinical
Stone research
Blood Oxalate Measurement of oxalate levels in blood Concept
Assay for research in kidney stone, hyperoxaluria,
cystic fibrosis, Crohn's disease, vulvodynia,
Planned Clinical Products
Oxalobacter
formigenes Monitor Detection of O. formigenes in stool for Preclinical
oxalate-related and other oxalate-related
diseases disorders
IxC1-62/47 Treatment of oxalate-related disorders: Preclinical
Enzyme Kidney Stones
Therapy Crohn's Disease
Cystic Fibrosis
Hyperoxaluria
Vulvodynia
Other oxalate-related diseases
Blood Oxalate Diagnostic oxalate detection kit for blood Concept
Assay
Dialysis Rapid removal of excess oxalate in blood Concept
Cartridge
Oxalate-Resistant Catheter coated to Concept
Catheter avoid oxalate encrustation
as a method to reduce
the incidence of infection
(1) "Concept" includes feasibility, theoretical market, and product design
studies based on laboratory or other data. "Research" includes discovery
research, development of the product's physical form and specifications, and its
initial production. "Preclinical" denotes efficacy, pharmacology, safety, or
toxicology studies in animal models. "Clinical" denotes testing for safety and
efficacy.
Licensed Technology
The Company has been licensed, on an exclusive world-wide basis, commercial
rights under one issued U.S. patent, issued February 1997, relating to its
oxalate technology, and one U.S. patent allowed June 1997, relating to its IPSC
technology, as well as several pending patent applications, divisional
applications, continuations, and continuations-in-part, held by the University
of Florida Research Foundation, Inc. ("UFRFI"), the technology transfer
organization of the University of Florida. The licensed technology relates to
two areas: in vitro grown Islet Progenitor/Stem Cells ("IPSCs") for curing
diabetes, and materials and methods for detection of oxalate and Oxalobacter
formigenes.
The license agreements pursuant to which the Company has the rights to
these patent applications require UFRFI to file and prosecute the patents
relating to the technology licensed to the Company, the costs of which are
required to be reimbursed by the Company, and to take all steps to defend such
patent rights. If UFRFI fails to take any such action, the Company has the right
to defend such rights at its own expense.
The Company and UFRFI entered into a Patent License Agreement relating to
materials and methods for detection of oxalate on January 11, 1996, and another
Patent License Agreement relating to in vitro grown IPSCs for curing diabetes on
February 17, 1995 (the "University Patent Licenses"). Except for royalty rates
and certain other immaterial differences, the terms of these licenses are
substantially identical. Pursuant to the University Patent Licenses, UFRFI
licensed its rights under patent applications on an exclusive, worldwide basis
to the Company for the
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life of the patents granted thereunder. The Company has rights under the
University Patent Licenses to all possible uses of the patent applications, any
patents issued from such applications, any divisionals and continuations of such
applications, and to any claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are directed to subject matter
specifically described in such applications. In order to maintain its license,
the Company is required to use its best efforts to bring one or more licensed
products or processes to market through a thorough, vigorous, and diligent
program for exploitation of the patent rights. In addition, it must provide
annual business plans to the University showing the plan for product development
regarding the commercialization of licensed products.
Under the University Patent Licenses, the Company paid a license issue fee,
is obligated to pay royalties on net sales by Ixion or its sublicensees of
licensed products or licensed processes, and must reimburse UFRFI for patent
costs incurred in prosecuting the patent applications. There are no minimum
annual royalties. The Company is also obliged to obtain product liability
insurance prior to the sale for commercial purposes of licensed products. There
is no assurance that the Company will be able to obtain such insurance on
reasonable terms. See "Risk Factors - Risk of Product Liability Insurance."
A number of pharmaceutical companies, biotechnology companies, universities
and research institutions, and individuals have filed patent applications or
received patents to technologies that are similar to the technologies licensed
by the Company. The Company is aware of certain patent applications previously
filed by and patents already issued to others that could conflict with patents
or patent applications licensed to the Company, either by claiming the same
methods or compounds or by claiming methods or compounds that could dominate
those licensed to the Company. In addition, there can be no assurance that the
Company is aware of all patents or patent applications that may materially
affect the Company's ability to make, use, or sell any products. United States
patent applications are confidential while pending in the United States Patent
and Trademark Office ("PTO"), and patent applications filed in foreign countries
are often first published six months or more after filing. Any conflicts
resulting from third party patent applications and patents could significantly
reduce the coverage of the patents or patent applications licensed to the
Company and limit the ability of the Company to obtain meaningful patent
protection. If patents are issued to other companies that contain competitive or
conflicting claims, the Company may be required to obtain licenses to these
patents or to develop or obtain alternative technology. There can be no
assurance that the Company will be able to obtain any such license on acceptable
terms or at all. If such licenses are not obtained, the Company could be delayed
in or prevented from the development or commercialization of its product
candidates, which would have a material adverse effect on the Company.
The Company is aware of potentially significant risks regarding the patent
rights licensed by the Company relating to Islet Progenitor/Stem Cells and to
its oxalate technology, particularly bacterial oxalyl-CoA decarboxylase, an
enzyme used in the Company's proposed oxalate-related products including the
Ixion Oxalobacter formigenes Monitor and the IxC1-62/47 enzyme therapy. The
Company may not be able to commercialize its proposed diabetic products based on
its method of proliferating IPSCs in vitro or its proposed oxalate-related
disease management products, both due to patent rights held by third parties
other than the Company's licensors. As a result, the positions of the Company
and its licensors with respect to the use of IPSCs or products containing
oxalyl-CoA decarboxylase are uncertain and involve legal and factual questions
that are unknown or unresolved. Although management believes its patents and
patent applications provide a competitive advantage in its efforts to discover,
develop, and commercialize useful products, if any of these questions is
resolved in a manner that is not favorable to the Company's licensors or the
Company, the Company may not have the right to commercialize products relating
to certain aspects of IPSC technology or products containing oxalyl-CoA
decarboxylase in the absence of a license from one or more third parties, which
may not be available on acceptable terms or at all. The Company's inability to
commercialize any of these products would have a material adverse effect on the
Company.
As mentioned above, the Company obtained its rights to IPSCs under a
license from the University of Florida Research Foundation, Inc. ("UFRFI") in
February 1995. In 1994 and 1995, UFRFI filed in the United States and thereafter
in numerous foreign countries patent applications covering IPSCs.
In 1981, the Ontario Cancer Institute filed a patent application in the
United States and was issued a patent in 1984 covering a method for producing
pancreatic islet-like structures having histology and insulin-producing
properties corresponding to those of fetal pancreatic islets and islets from
adult animals maintained in culture, based on discoveries by Michael Archer (the
"Archer Patent"). The patented method is similar, but not identical, to the
Company's IPSC technology. The Archer Patent was licensed to CytoTherapeutics,
Inc. in 1991. CytoTherapeutics may have filed patent applications in foreign
countries based upon the Archer Patent and may have additional patent
applications on the same general subject matter pending in the United States.
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The Company is also aware that in 1993, Human Cell Cultures, Inc., filed a
first U.S. patent application which was rapidly abandoned in favor of a second
U.S. continuation-in-part application, and that these U.S. applications together
were the basis of an international application which claimed a cell culturing
method and medium to form pancreatic "pseudotissues" composed of "pseudoislets"
to treat blood sugar disorders in mammals, based on discoveries by Hayden Coon
and others (the "Coon Patent Application"). Subsequently, on June 7, 1995, Human
Cell Cultures filed in the U.S. a continuation of its second (now abandoned)
U.S. application, and in July 1997 was issued a United States patent (the "Coon
Patent") claiming a somewhat narrower scope of subject matter and methods as
were claimed in the Coon Patent Application. The Coon Patent Application and the
Coon Patent claim a method which is also similar, but not identical, to the
Company's IPSC technology. At the date of this Prospectus, the Company is not
aware of any U.S. or foreign patents which have issued relating to the Coon
Patent Application other than the Coon Patent. However, such patents may have
been issued and there may have been additional patent applications filed in the
United States or foreign countries based upon the Coon Patent Application.
In the United States, one must be the first to invent a subject matter in
order to be entitled to patent protection on that invention. With respect to
patent applications filed prior to January 1, 1996, United States patent law
provides that if a party invented a technology outside the United States, then
for purposes of determining the first to invent the technology, that party is
deemed to have invented the technology on the earlier of the date it introduced
the invention in the United States or the date it filed its patent application.
In foreign countries, the first party to file a patent application on an
invention, not the first to invent the subject matter, is entitled to patent
protection on that invention, assuming that the invention meets the other
requirements for patentability. There can be no assurance that the owners of the
Archer Patent nor the owners of the Coon Patent Application will not make
challenges to any UFRFI patents or patent applications relating to IPSCs, or
that UFRFI will succeed in defending any such challenges. There can be no
assurance that the sale of IPSC products by the Company would not be held to
infringe United States and foreign patent rights of the owners of the Archer
Patent, the Coon Patent, or the Coon Patent Application. Under the patent laws
of most countries, a product can be found to infringe a third party patent
either if the third party patent expressly covers the product or method of
treatment using the product, or in certain circumstances, if the third party
patent, while not expressly covering the product or method, covers subject
matter that is substantially equivalent in nature to the product or method. If
it is determined that products derived from the Company's IPSC technology
infringe the Archer Patent or the Coon Patent, or infringe a patent, if any,
issued pursuant to the Coon Patent Application, the Company would not have the
right to make, use, or sell its IPSC products in one or more countries in the
absence of a license from the owners of such patents. There can be no assurance
that the Company could obtain a license from such owners on acceptable terms or
at all.
As mentioned above, the Company obtained its rights to its oxalate
technology under a license from UFRFI in January 1995. In 1995, UFRFI filed in
the United States and thereafter in numerous foreign countries patent
applications covering its oxalate technology with claims which cover the Ixion
Oxalobacter formigenes Monitor and its IxC1-62/47 therapy for oxalate-related
disorders, both of which involve the use of an enzyme called oxalyl-CoA
decarboxylase derived from the anaerobic bacteria, Oxalobacter formigenes.
In June, 1995, Human Genome Sciences, Inc., filed a patent application in
the United States, and thereafter in foreign countries, relating to a claimed
human oxalyl-CoA decarboxylase and the DNA(RNA) encoding such polypeptide, as
well as a procedure for producing such polypeptide and for producing an antibody
relating to such polypeptide for use in the treatment of calcium oxalate kidney
stones and hyperoxaluria. A U.S. Patent was issued on June 3, 1997 (the "HGS
Patent"). The HGS Patent purports to relate to a human version of oxalyl-CoA
decarboxylase which is stated to be 50% to 60% homologous to the oxalyl-CoA
decarboxylase from the anaerobic bacteria, Oxalobacter formigenes. If the use of
the Company's bacterial oxalyl-CoA decarboxylase is found to infringe the patent
owned by Human Genome Sciences, then the Company would not have the right to
sell such products in one or more countries without a license from Human Genome
Sciences. There can be no assurance that the Company would be able to obtain a
license from Human Genome Sciences on acceptable terms or at all.
Litigation, which could result in substantial cost to the Company, may also
be necessary to enforce any patents to which the Company has rights or to
determine the scope, validity, and enforceability of other parties' proprietary
rights, which may affect the Company's product candidates and technology. United
States patents carry a presumption of validity and generally can be invalidated
only through clear and convincing evidence. The Company's licensors may also
have to participate in interference proceedings declared by the PTO to determine
the priority of an invention, which could result in substantial cost to the
Company. There can be no assurance that the Company's licensed patents would be
held valid by a court or administrative body or that an alleged infringer would
be found to be infringing. Further,
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with respect to the technology licensed by the Company from UFRFI, UFRFI is
primarily responsible for any litigation, interference, opposition, or other
action pertaining to patents or patent applications related to the licensed
technology, and the Company is required to reimburse it for the costs it incurs
in interference or opposition. As a result, the Company generally does not have
the ability to institute or determine the conduct of any such patent proceedings
unless UFRFI does not elect to institute or elects to abandon such proceedings.
In cases where UFRFI elects to institute and prosecute patent proceedings, the
Company's rights will be dependent in part upon the manner in which UFRFI
conducts the proceedings. UFRFI could, in any of these proceedings that it
elects to initiate and maintain, elect not to vigorously pursue or defend or to
settle such proceedings on terms that are not favorable to the Company. An
adverse outcome in any patent litigation or interference proceeding could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties, or require the Company to
cease using such technology, any of which could have a material adverse effect
on the Company.
No assurance can be given that any existing patent application, or any
future patent application will issue or that any patents, if issued, will
provide the Company with adequate patent protection with respect to the covered
products, their uses, technology, or processes. In addition, under its licenses
with UFRFI, the Company is required to meet specified diligence requirements to
retain its license of these patents. No assurance can be given that the Company
will satisfy any of these requirements. See "Risk Factors - Uncertainty
Regarding Patents and Proprietary Rights."
In January 1997, Ixion entered into a patent license agreement obtaining
exclusive rights to the issued patent of Dr. Randy S. Fischer and Dr. Roy A.
Jensen, faculty members at the University of Florida, for identifying a
difference which exists between the metabolic pathway of a microbial or plant
target organism and a non-target host specie and then preparing a control agent
which perturbs the metabolic pathway of the target without significantly
perturbing the metabolic pathway of the host. This patent may be useful in the
development of microbicides for drug resistant pathogens such as staphyloccus,
enterococcus, and neisseria. Under the Fischer/Jensen license agreement, the
Company paid a license issue fee of 1,000 shares of its Common Stock and is
obligated to pay royalties of 2% on net sales by Ixion or its sublicensees.
There are no minimum annual royalties or due diligence milestones. The
Fischer/Jensen license is for the remainder of the legal life of the patent (or
over 12 years).
Because the inventions covered by the University Patent Licenses and the
Fischer/Jensen license were inventions made with federal assistance (which is
typical of university-based discoveries), they are subject to certain rights of
the federal government under 35 USC Title 18, "Patent Rights in Inventions Made
with Federal Assistance." These rights (the "Government Rights") include "march
in" rights under which the government has the right to require the Company to
grant an exclusive license under any of such inventions to a third party if the
government determines that (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs, or (iii) such action is necessary to meet requirement
for public use under federal regulations. The Government Rights include a
non-exclusive, paid-up, worldwide license under such inventions for any
governmental purpose. The law also requires any licensor of an invention that
was partially funded by federal grants to obtain a covenant from its exclusive
licensee to substantially manufacture products using the invention in the United
States, although this covenant is subject to a discretionary waiver by the
government.
Patents and Trade Secrets
Dr. Peck, as an employee of the University of Florida, is bound by the
terms of the University's patent policy, which requires that any invention
conceived of or developed in the area in which he is employed belongs to the
University (subject to the Government Rights described above, and to Ixion's
rights under the consulting agreement it has with him). See "Management -
Consulting Agreement With Dr. Peck" and "Business - Government Regulation -
Florida Conflicts of Interest."
It is the Company's policy to require its directors, material investors,
employees, consultants, outside scientific collaborators, and sponsored
researchers, and other advisors to execute confidentiality agreements upon
investment or upon the commencement of employment or consulting relationships
with the Company. These agreements provide that all confidential information
developed or made known to the individual during the course of his or her
relationship with the Company is to be kept confidential and not disclosed to
third parties. Ixion also requires signed confidentiality or material transfer
agreements from any company that is to receive confidential data or proprietary
compounds. In the case of employees and consultants, the confidentiality
agreements also generally provide that all inventions conceived by the
individual while rendering services to the Company shall be assigned to Ixion as
the exclusive property of Ixion (subject, in the case of Dr. Peck, to the prior
rights of the University of Florida). There can be no assurance, however,
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that these agreements will provide meaningful protection or adequate remedies
for the Company's trade secrets or other proprietary information in the event of
an unauthorized disclosure or will be effective to assign inventions.
Certain of the Company's research has been funded in part by Small Business
Innovation Research grants ("SBIRs") and may be funded in the future by such
grants and by Small Business Technology Transfer Research grants ("STTRs"). In
connection with any such funding, the U.S. Government will have the "Government
Rights" described above.
In order to produce or use the Ixion Oxalobacter formigenes Monitor in its
current formulation or to produce the Blood Oxalate Assay (and other
immunodiagnostic products) in commercial quantities for resale, it may be
necessary to license certain rights from Roche Molecular Systems, Inc., the
holder of patents on a nucleic acid amplification process known as the
polymerase chain reaction ("PCR") process. If Ixion finds it necessary to use
PCR to produce commercial products, it will enter into such a license with
Roche, which makes non-exclusive licenses generally available. The Company does
not anticipate that the terms of such license will have a materially adverse
effect on the Company.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. The Company's competitors
include major pharmaceutical, chemical, and specialized biotechnology companies,
many of which have larger R&D budgets, as well as substantially greater
experience in developing products, in obtaining regulatory approvals, and in
manufacturing and marketing diagnostic and pharmaceutical products. In addition,
many biotechnology companies have formed collaborations with large, established
companies to support research, development, and commercialization of products
that may be competitive with those of the Company. Academic institutions,
governmental agencies, and other public and private research organizations are
also conducting research activities and seeking patent protection and may
commercialize products on their own or through joint ventures.
The Company's products under development are expected to address a broad
range of markets. The Company's competition will be determined in part by the
potential indications for which the Company's products are developed and
ultimately approved by regulatory authorities. See "Business - Government
Regulation." In addition, the first pharmaceutical product to reach the market
in a therapeutic or preventive area is often at a significant competitive
advantage relative to later entrants to the market. Accordingly, the relative
speed with which Ixion or its future corporate partners can develop products,
complete the preclinical and clinical trials and approval processes, and supply
commercial quantities of the products to the market are expected to be important
competitive factors. The Company's competitive position will also depend on its
ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, develop and implement production and marketing
plans, contract for and manage third-party service providers, obtain and
maintain patent protection, and secure adequate capital resources. The Company
expects its products, if approved for sale, to compete primarily on the basis of
product efficacy, safety, patient convenience, reliability, value, and scope of
patent rights.
See "Risk Factors - Intense Competition."
Government Regulation
In the United States, the Food and Drug Administration ("FDA") regulates
distribution, manufacture, labeling, and promotion of drugs, medical devices,
and biologics. In addition, manufacturers of these products are subject to other
federal, state, and local environmental and safety laws and regulations.
Governments in other countries may impose additional requirements.
FDA Authorization to Market. Drugs, medical devices, or biologics may not
be manufactured for commercial use in the United States unless they have FDA
authorization. Obtaining FDA authorization to market a regulated product
generally involves the submission of preclinical, product characterization,
clinical, and manufacturing information. The process can take a number of years
and the expenditure of significant resources, and there is no guarantee that the
FDA will ever authorize marketing of the product.
Drugs and Biologics. Some of the Company's planned products, such as the
diabetes treatment products, will be considered drugs, devices, biologics or a
combination of these designations. The Food, Drug, and Cosmetic Act ("FDCA") and
the Public Health Service Act ("PHSA") provide that drugs and biologics may not
be commercially distributed within the United States unless they have been
approved by the FDA. The process required by the FDA
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before drugs and biologics may be marketed in the United States generally
involves five steps: (1) preclinical laboratory and animal testing, (2)
submission to the FDA of an Investigational New Drug ("IND") application which
must be effective prior to the initiation of human clinical studies, (3)
adequate and well-controlled clinical trials to establish safety and efficacy
for its intended use, (4) submission to the FDA of an New Drug Application
("NDA"), Biologics License Application, ("BLA"), or Product License Application
("PLA")/ Establishment License Application ("ELA"), and (5) review and approval
of the NDA, BLA, or PLA/ELA by the FDA.
Preclinical testing covers laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the safety, pharmacology,
toxicology, and efficacy of the product. The results of these tests are
submitted to the FDA as part of the IND. If a company is not notified by the FDA
within 30 days of submission of the IND, Phase I clinical trials may be
initiated. Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. Phase I represents the initial administration
of the drug or biologic to a small group of humans, healthy volunteers, to test
for safety, dosage tolerance, absorption, distribution, metabolism, excretion,
and clinical pharmacology. Phase II involves studies in a small number of
patients to assess the efficacy of the product, to ascertain dose tolerance and
the optimal dose range, and to gather additional data relating to safety and
potential adverse effects. Once an investigational drug is found to have some
efficacy and an acceptable safety profile in the targeted patient population,
Phase III studies are initiated to establish safety and efficacy in an expanded
patient population and multiple clinical study sites. The FDA reviews both the
clinical plans and the results of the trials and may request that the Company
discontinue or expand the trials at any time if there are significant safety
issues.
The results of the preclinical tests and clinical trials of drugs and
biologics are submitted to the FDA in the form of an application for an NDA (in
the case of a drug), BLA, or PLA (in the case of a biologic). Additional
information, including additional animal studies or clinical trials, may be
requested during the FDA review period that may extend the review process and
delay marketing approval. There can be no assurance that the FDA will authorize
marketing of the product, or that it will do so in a timely manner. For certain
biologics, the manufacturer must also apply for and obtain an establishment
license (ELA), which may be granted following a review and inspection of the
manufacturing procedures, equipment, and facilities involved in manufacturing
the product. For drugs and biologics reviewed via a BLA, the manufacturer must
also pass a premarket inspection of its compliance with good manufacturing
practices. After FDA approval of the NDA, BLA, or PLA for the initial
indications, further clinical trials may be necessary to gain approval for the
labeling of the product for additional indications.
Medical Devices. Many of the Company's planned products (e.g., the in vitro
diagnostic products such as the Ixion Oxalobacter formigenes Monitor, or the
populations of in vitro grown islets for transplantation therapy) will be
considered medical devices or a combination of devices and biologics. Pursuant
to the FDCA, the FDA regulates the clinical testing, manufacture, labeling,
distribution, and promotion of medical devices. The FDCA further provides that,
unless exempted by regulation, medical devices may not be commercially
distributed in the United States unless they have been approved or cleared by
the FDA.
In the United States, medical devices are classified into one of three
classes (class I, II, or III), on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations, class I devices are subject to general controls (for example,
labeling, premarket notification, and adherence to GMPs), and class II devices
are subject to general and specific controls (for example, performance
standards, postmarket surveillance, patient registries and FDA guidelines).
Generally, class III devices are those which must receive a PMA by the FDA to
ensure their safety and effectiveness (for example, life sustaining, life-
supporting, and implantable devices, or new devices which have not been found
substantially equivalent to legally marketed devices).
There are two review procedures by which medical devices can receive such
approval or clearance. Some products may qualify for clearance under a Section
510(k) ("510(k)") procedure, in which the manufacturer provides a premarket
notification that it intends to begin marketing the product, and shows that the
product is substantially equivalent to another legally marketed product (i.e.,
that it has the same intended use and is as safe and effective as a legally
marketed device and does not raise different questions of safety and
effectiveness than does a legally marketed device). In some cases, the
submission must include data from human clinical studies. Marketing may commence
when the FDA issues a clearance letter finding such substantial equivalence.
If the medical device does not qualify for the 510(k) procedure (either
because it is not substantially equivalent to a legally marketed device or
because it is a Class III device required by the statute and implementing
regulations to have an approved application for premarket approval), the FDA
must approve a premarket approval ("PMA") application before marketing can
begin. PMA applications must demonstrate, among other matters, that the medical
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device is safe and effective. A PMA application is typically a complex
submission, usually including the results of preclinical and clinical studies,
and preparing an application is a detailed and time-consuming process. Once a
PMA application has been submitted, the FDA's review may be lengthy and may
include requests for additional data. The manufacturer must also pass a
premarket inspection of its compliance with good manufacturing practices. There
can be no assurances that the FDA will authorize marketing of the product under
a 510(k) or a PMA, or that it will do so in a timely manner. After FDA approval
of the initial indication, further clinical trials may be necessary to gain
approval of the product for additional indications.
Clinical investigations of most devices are subject to the investigational
device exemption ("IDE") requirements, which usually involve FDA review of the
investigation before it may begin. Clinical investigations of many in vitro
diagnostic ("IVDs") tests are exempt from the IDE requirements, provided the
testing meets certain exemption criteria, including labeling as an
Investigational Use Only ("IUO") product. In addition, IVDs may be distributed
for research use only ("RUO"), provided they are intended for laboratory
research and labeled for research use. Pursuant to current FDA policy,
manufacturers of IVDs for IUO or RUO are encouraged by the FDA to establish a
certification program under which these IVDs are distributed to or utilized only
by individuals, laboratories, or health care facilities that have provided the
manufacturer with a written certification of compliance indicating that the IUO
or RUO product will be restricted in use and will, among other things, meet
institutional review board and informed consent requirements.
The Company's Products. The Company's Ixion Oxalobacter formigenes Monitor
and Blood Oxalate Assays will be distributed initially for research use and will
not require FDA review prior to distribution for those uses. To market these
products for diagnostic use, the Company intends to request authorization under
the 510(k) procedure for the Ixion Oxalobacter formigenes Monitor and perhaps
the Blood Oxalate Assay. PMAs may, however, be required for each of these
products. The Company's diabetes treatment products will require a BLA or
PLA/ELA before they may be commercially distributed, and these products may be
clinically tested only after the FDA has been provided an IND which may be
reviewed within the FDA by the Center for Biologics and Research (CBER) and the
Center for Drug Evaluation and Research (CDER). Additionally the Company may be
required to register its diabetes treatment products as a prerequisite to
commercial distribution. There can be no assurance that the FDA will accept the
Company's views on the regulatory status of its products, or that the FDA will
authorize marketing or clinical investigation of any product, or that it will do
so in a timely manner. Additional studies or other information may be requested
during the FDA review period that may delay marketing authorization. Marketing
authorizations, if granted, may include significant limitations on the uses for
which a product can be marketed. The law or government regulations may change in
ways that could prevent or delay marketing authorization for the Company's
products. Delays in receipt of, failure to receive, or loss of previously
received approvals could have a material adverse effect on the Company's
business, financial condition, and results of operations.
Other FDA Obligations. Each manufacturing facility for drugs, medical
devices, or biologics, must be registered with the FDA, and the products
manufactured at that facility must be listed with the FDA. A manufacturer's
quality control and manufacturing procedures must conform on an ongoing basis
with good manufacturing practices. Certain adverse effects and product
malfunctions must be reported to the FDA. Product labeling and advertising must
comply with FDA requirements. In some cases, postmarket testing may be required,
or other requirements imposed. Complying with these requirements requires
substantial time, money, and effort. The Company intends to rely on its
strategic partners for assistance with these matters.
FDA Enforcement. The FDA inspects manufacturers of drugs, medical devices,
and biologics on a regular basis. Failure to comply with applicable requirements
can, among other consequences, result in civil penalties, injunctions,
suspensions, and losses of regulatory approvals, product recalls, seizure of
products, refusal to allow the Company to enter into supply contracts with the
government, and criminal prosecution. The Company intends to rely on its
strategic partners for assistance with these matters.
Non-U.S. Marketing. For marketing outside the United States, the Company is
also subject to foreign regulatory requirements. Requirements governing the
conduct of clinical trials, product licensing, pricing, and reimbursement vary
widely from country to country. The time required to obtain approvals by foreign
countries may be longer or shorter than that required for FDA approval, and
regulatory requirements for foreign countries may differ significantly from
those of the FDA. In some cases, products may not be exported until FDA approval
is obtained. The Company intends to rely on its strategic partners both in the
United States and abroad for assistance with these matters.
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Florida Conflicts of Interest. Because Dr. Peck, the Company's Chief
Scientist, and Dr. Schuster and Dr. Khan, members of the Company's Scientific
Advisory Board, are employees of the Florida State University System, they, and
consequently the Company, are subject to Florida statutes relating to conflicts
of interest. In order for Ixion to conduct business with the University
(including licensing University technology or entering into CRADAs), it is
necessary to obtain and maintain an exemption for Dr. Peck from the application
of the Florida conflict of interest statutes, and to obtain approvals for
outside activities for Dr. Schuster and Dr. Khan.
Exemptions for Dr. Peck are issued pursuant to a monitoring plan which requires
the Company, among other things, to promptly disclose every material transaction
between the Company and any employee of the University. Dr. Peck obtained his
initial exemption from the Florida conflict of interest statutes on January 5,
1995, relating to the academic year ended June 30, 1995. Exemptions must be
renewed annually at the beginning of each academic year (or upon material
alterations in the terms of the relations between the Company and Dr. Peck). The
approval of the request for renewal for the academic year ended June 30, 1997
was received on September 29, 1997. The request to renew Dr. Peck's exemption
for the current academic year ended June 30, 1998 has been filed and is pending.
The approval process can take six or more months. While the Company has no
reason to believe that Dr. Peck's request for renewal will not be approved,
there is no assurance that the exemption will be renewed, or, if renewed, that
it will be renewed on reasonable terms.
Manufacturing and Marketing
The Company has no experience in manufacturing or marketing products on a
commercial scale. Marketing rights for products may be licensed to corporate
partners. Co-marketing arrangements may also be feasible for some products.
Ixion intends to seek distribution arrangements for its products in other
countries outside of the United States. While using third parties for
distribution or marketing permits the Company to avoid the costs of establishing
a distribution or marketing network in a particular area, this strategy also
makes the Company more dependent on the efforts of third parties, involves a
potential reduction in profit margins, and may complicate negotiations and other
matters associated with technology licenses.
Target Markets. Management believes there will be substantial demand for
the Ixion Oxalobacter formigenes Monitor in the research market and, upon
acceptance by urologists and nephrologists as a clinically useful test, by
certain specialized kidney, nephrogenic, and urologic reference labs. The target
markets for a new blood oxalate assay include approximately 5,000 hospital labs,
the several major independent labs, and the same specialized kidney,
nephrogenic, and urologic reference labs as for the Ixion Oxalobacter formigenes
Monitor.
For the use of the Ixion Oxalobacter formigenes Monitor, the blood oxalate
ssay, and its IxC1-62/47 enzyme therapy in the management of kidney stones, the
Company plans to target the country's approximately 7,300 in-office urologists.
For the use of the Ixion Oxalobacter formigenes Monitor and IxC1-62/47 enzyme
therapy for managing kidney stone risk in cystic fibrosis patients, the Company
plans to target the cystic fibrosis treatment centers in the United States. For
the use of the Ixion Oxalobacter formigenes Monitor and IxC1-62/47 enzyme
therapy in the diagnosis and treatment of vulvodynia, the Company intends to
approach the market through the 35,000 gynecologists practicing in the United
States.
Marketing Strategy. The strategy for marketing IPSC-related products will
depend on collaborations with third parties with greater marketing resources
than the Company.
The marketing strategy for the Ixion Oxalobacter formigenes Monitor depends
upon educating urologists and nephrologists of the clinical usefulness of the
Probe. Over 65% of all kidney stones are composed predominantly of calcium
oxalate. Oxalate plays a crucial role in the formation of renal stones and in
this respect hyperoxaluria constitutes a special problem in management of kidney
stones. The Ixion Oxalobacter formigenes Monitor would be used to screen and
manage known stone formers in order to assist the urologist in stratifying and
treating kidney stone patients. The use of the Ixion Oxalobacter formigenes
Monitor will allow the urologist to make a determination of which of his or her
hyperoxaluric patients have an exogenous hyperoxaluria caused by hyperabsorption
from the diet, resulting from diminished or decimated populations of O.
formigenes. The clinical relevance of the resulting data is the urologist's
capability to identify a specific cause of urolithiasis and to treat it
effectively. The Ixion Oxalobacter formigenes Monitor data will be more
meaningful than 24 hour urinary oxalate data alone in that it accurately
identifies and quantifies the high-risk population of kidney stone formers and
stratifies them with respect to cause.
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Kidney stones, while prevalent, are not generally recognized as predictable
or avoidable by many physicians and their patients. Consequently, the
promotional task will be difficult. To meet this challenge, the Company intends
to invest in both physician education programs, and, assuming funds are
available, consumer awareness campaigns. The Company can reach the country's
over 7,300 in-office urologists through a direct mail campaign. In addition,
working with specialized companies in the urology market, the Company proposes
to inform urologists about the Company's planned new kidney stone disease
management products. In addition, the Scientific Advisory Board members and
other recognized scientists will be encouraged to write articles for peer review
scientific journals to stimulate interest and establish further credibility in
the scientific and medical communities.
A similar approach will be used to approach the gynecological market for
the Company's vulvodynia products and the cystic fibrosis market for the
management of kidney stone risk.
In each case, the Company intends to participate in urology, nephrology,
gynecology, and other industry trade meetings and to exploit on-line medical
databases and its own web site. Finally, as stated above, the Company intends to
use third-party sales forces to amplify its efforts. See "Business - Business
Strategy."
Facilities
As an affiliate of the University of Florida's Biotechnology Program, the
Company has leased approximately 1,900 square feet of equipped laboratory space
and approximately 500 square feet of administrative office space in the business
incubator at Progress Park (the University of Florida biotechnology industrial
park), called the Biotechnology Development Institute. As a resident, the
Company shares (at no additional cost) specialized facilities such as animal
rooms, small-scale fermentation capabilities, and glass washing and autoclaving
facilities. Further, the Company uses (again at no additional cost) expensive
and specialized equipment located in the centralized instrument lab. Finally,
the Company has available the services of the University Biotechnology Core
Laboratories including the Recombinant Protein Expression Core, the DNA
Synthesis Core, the Flow Cytometry Core, the Protein Chemistry Core, and the
Electron Microscopy Core.
The Company is developing a small scale facility in its BDI lab suite to
produce preclinical quantities of the Ixion Oxalobacter formigenes Monitor as
well as IxC1-62/47. Commercial scale production, if any, will be subcontracted
to third party contract manufacturers. See "Business - Business Strategy." The
facilities license agreement for the Company's laboratory and administrative
offices at the BDI has one year remaining of its three-year term expiring July
31, 1998 at which time the Company may be required to relocate. Annual payments
(including utilities) are approximately $43,200, $14,000 of which is deferred
under the agreement with the University. The deferred amount bears non-cash
interest at 12% on the year-end outstanding balance, compounded annually. The
Company will repay the liability, if at all, only through a 1% royalty on net
sales of any products developed during its tenancy at the BDI, such royalty not
to exceed the outstanding balance.
If the Company must relocate, comparable rental facilities are available
near its present location at the BDI at rents which are not materially more than
the rent at the BDI. As an incubator graduate, the Company would continue to
have access to the Biotechnology Program's specialized facilities, centralized
equipment, and core laboratories. Relocation will not materially affect the
Company's research and development operations.
Contract Suppliers and Manufacturers. It is the Company's present
intention to enter into agreements with contract testing and manufacturing
entities to test and manufacture commercial quantities of the Company's planned
products in order to avoid the expenditure of significant funds to hire and
train personnel and comply with the extensive regulations, including "good
manufacturing practice" ("GMP") requirements applicable to such a facility.
Legal Proceedings
The Company is not a party to any legal proceedings and is not aware of any
threatened litigation or regulatory action that could have a material adverse
effect on the Company's business, financial condition, or results of operations.
Employees
The Company has five full time employees and six part time employees,
including Dr. Peck, who is an exclusive consultant, Mr. Peck, President and
Chief Financial Officer, Mr. Tedesco, Vice President - Operations and
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Regulatory Affairs, and Ms. Ramsey, Controller. The Company is not subject to
any collective bargaining agreements and believes that its relationship with its
employees is good.
Scientific Advisory Board
None of the members of the Scientific Advisory Board (the "Scientific
Advisors") are employees of the Company. Members devote only a small portion of
their time to the Company and have commitments to other institutions that may
conflict or compete with their obligations to the Company. Scientific Advisors
review and evaluate the Company's research programs, advise the Company with
respect to technical matters in fields in which the Company is involved, consult
on aspects of product planning and feasibility studies, assist in establishing
research priorities, provide guidance on clinical evaluation programs, alert the
Company to potential collaborators, advise the Company on new developments, and
recommend personnel to the Company.
The Scientific Advisory Board meets periodically as a group. In addition,
certain members may meet in smaller groups or individually with Company
scientists. Ixion has confidentiality agreements with each Scientific Advisor
providing that all confidential information shall be the exclusive property of
the Company. Scientific Advisors receive no cash compensation, but are
reimbursed expenses, and, pursuant to the 1994 Board Retainer Plan, 5,000
restricted shares of the Company's Common Stock upon joining, and 1,000
restricted shares annually thereafter. They also receive stock options for 2,500
shares annually after their initial year.
The current members of the Scientific Advisory Board, in chronological
order of their appointment, are the following:
Hans Wigzell, M.D., D.Sc., Dr. Wigzell is presently the Rector of
Stockholm's famed Karolinska Institute. He
received his M.D. and D.Sc. from Karolinska in
1967. From 1982 onwards, he has been Chairman of
the Department of Immunology at Karolinska. Among
his many honors was his service as Chairman of the
Nobel Committee of Karolinska from 1990 to 1992.
Milton J. Allison, Ph.D. Dr. Allison has long been a pioneer in
oxalate research, having discovered and named
Oxalobacter formigenes. He is presently Professor
of Microbiology, Immunology, and Preventive
Medicine, Iowa State University and Microbiologist
Emeritus of the National Animal Disease Center,
USDA, Ames, Iowa. He earned his Ph.D. from the
University of Maryland in 1961.
Saeedur R. Khan, Ph.D. Dr. Khan is Associate Professor of Pathology
at the University of Florida College of Medicine
and a leader in the field of oxalate research and
molecular/microscopy. His current and previous
committee memberships include the NIH Ad hoc
Reviewer on Urinary Stone Grants; member, Center
for the Study of Lithiasis and Pathological
Calcification; and member of the Shands Stone
Center Committee. He earned his B.Sc. in 1962
from Agra University in Agra, India, his M.Sc. in
1964 from the Peshawar University, Peshawar,
Pakistan, and his Ph.D. from the University of
Florida in 1973.
Sheldon M. Schuster, Ph.D. Dr. Schuster is Biotechnology Program Director for
the University of Florida's biotechnology program
and Associate Director for Research for the
University of Florida Cancer Center. He is a
member of the American Association for the
Advancement of Science and the American Society of
Biological Chemistry and Molecular Biology. He
was a co-founder of BioNebraska, Inc., and is a
Director and Senior Vice President and Chief
Scientist of AquaGene, Inc. He received his B.S.
in biochemistry from the University of California,
Davis and his Ph.D. in biochemistry and
pharmacology from the University of Arizona.
Marguerite Hatch, Ph.D. Dr. Hatch is a Professor in the College of
Medicine, Nephrology Division, and Director of
the Kidney Stone Center at the University of
California, Irvine College of Medicine since 1990.
Previously she was Director of the New York Kidney
Stone Center, SUNY Health Science Center. She
earned her B.Sc. with Honors in 1974 from the
University College, Dublin, Ireland and her Ph.D.
in 1978 from Trinity College, Dublin, Ireland.
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MANAGEMENT
Officers, Directors, and Key Employees
The following table sets forth certain information with respect to
officers, directors, and significant employees and consultants of the Company.
Name Age Position
Weaver H. Gaines (1) 54 Chairman and Chief Executive Officer
David C. Peck (1)(2) 50 President, Chief Financial Officer,
and Director
Ammon B. Peck, Ph.D. 52 Senior Vice President and Chief
Scientific Officer and Chairman of
the Scientific Advisory Board
David M. Margulies, M.D. (2) 46 Director
Vincent P. Mihalik (2) 47 Director
John L. Tedesco 42 Vice President - Operations and
Regulatory Affairs
Harmeet Sidhu, Ph.D. 40 Director of Research, Oxalate Division
Janet Cornelius, MS 58 Associate Director of Research,
Diabetes Division
Kimberly A. Ramsey 40 Controller
(1) Member of Executive Committee
(2) Member of Audit and Benefits Committee
Certain of the Company's key personnel are part-time employees or
consultants who, at the Company's present stage of development are not required
full time. Mr. Peck, the Company's President and Chief Financial Officer devotes
time to the Company's affairs as needed (on the average approximately 10 days
per month). Dr. Peck, Senior Vice President, Chief Scientist, and Chairman of
the Scientific Advisory Board, devotes four days per month (see "Peck Consulting
Agreement"). Mr. Tedesco, Vice President Operations and Regulatory Affairs
devotes ten to 11 days per month, Janet Cornelius, Associate Director of
Research, Diabetes Division is half-time (the other half time is in Dr. Peck's
laboratory at the University) and Ms. Ramsey, the Controller, approximately one
day per week. With the exception of Dr. Peck (whose availability to the Company
is limited by the University of Florida to not more than 48 days per year), each
other officer is available when required and is not limited as to the time spent
on Company affairs.
Mr. Gaines is a co-founder of the Company and has been its Chairman and
Chief Executive Officer and a Director since April, 1993. He is the Company's
only full-time officer. He was also the President of the Company from April,
1993 to April, 1994. From April to November 1992, he was a Senior Advisor on the
Washington campaign staff of Bush/Quayle 92. From 1985 to 1992, he held various
executive positions with The Mutual Life Insurance Company of New York and its
operating subsidiaries, including Executive Vice President and General Counsel
of MONY and President of Unified Management, a broker/dealer in Indianapolis. He
is also a director of AquaGene, Inc., and Chairman of the Board of BIO+Florida,
the Florida biotechnology trade association. Mr. Gaines is a graduate of
Dartmouth College and the University of Virginia School of Law.
Mr. David Peck is a co-founder of Ixion, its President since April, 1994,
Chief Financial Officer since May, 1995, and a Director since March 1993. From
September 1995, Mr. Peck has also been Chief Executive Officer of BACOMPT, a
printing company located in Carmel, Indiana. From 1992 until April 1994, he was
the Chief Operating Officer of NEXCOM, the Navy Exchange Service Command, a
multi-billion dollar retail operation. He has a long history of executive
positions in management, marketing, and planning with prominent financial firms
including Merrill Lynch, Citicorp, Bank of America, and Chemical Bank. Mr. Peck
has served with several national consulting firms (including Arthur D. Little,
Inc. and the Naisbitt Group) in the areas of operations, systems, planning,
marketing, and technology (clients included Hoffman-LaRoche, Bristol-Myers,
Johnson & Johnson, and Merck) and has held faculty positions with eight
universities, including Syracuse, Rutgers, Pace, and Fordham. He is the author
of two books on financial services and investments. Mr. Peck earned his BA and
MBA degrees from Syracuse University. Mr. Peck is Dr. Peck's brother. He is
employed as a consultant.
Dr. Ammon Peck is the scientific founder of the Company and has been its
Senior Vice President and Chief Scientist and Chairman of the Scientific
Advisory Board since April, 1993. He was a director from March, 1993, to May,
1995. Dr. Peck has been at the University of Florida since 1979 and is presently
Professor of Pathology and Laboratory Medicine at Florida's College of Medicine
and former President of the medical faculty. (See "Management - Consulting
Agreement with Dr. Peck.") He received a B.S. in Bacteriology & Russian Studies
and an additional B.S. in
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Computer Science from Syracuse University. His Ph.D. in Medical Microbiology was
received from the University of Wisconsin. He is a member of the American
Association of Immunologists, the American Association for the Advancement of
Science, the American Diabetes Association, the Juvenile Diabetes Foundation,
and the New York Academy of Sciences. Dr. Peck is Mr. Peck's brother. He is
employed as a consultant.
Dr. Margulies, a Director since 1994, is currently Executive Vice President
and Chief Scientist as well as a director-nominee of Synetic, Inc., a
publicly-held company in two principal lines of business: plastics technologies
and healthcare communications. From July 1996 to January 1997, Dr. Margulies was
a founder and Chairman and CEO of CareAgents, Inc., a developer of
Internet-based clinical commerce applications, which was acquired by Synetic in
January 1997. From 1991 to July 1996, Dr. Margulies was a Director, an Executive
Vice President, and Chief Scientist of Cerner Corporation, a publicly-held
company that supplies enterprise-level clinical applications. He received his
B.A. from Amherst College and M.D. from Harvard Medical School.
Mr. Mihalik, a Director since 1995, is presently Executive Vice President,
Group Personnel, Corange International Holding BV, the parent company of
Boehringer Mannheim Corporation. Until November of 1996, he was Senior Vice
President Global Marketing for the Diabetes Care Business Unit of Boehringer
Mannheim Corporation. From August 1994 to November 1995, Mr. Mihalik was Senior
Vice President, Strategic Business Development/Commercial Operations for
Diabetes Care - Americas. He joined Boehringer Mannheim in 1990 and held the
position of President, Patient Care Systems Division. He is a member of the
International Diabetes Federation, the American Diabetes Association, the
American Association of Clinical Chemistry, and the Clinical Laboratory
Management Association. He earned his B.S. in Biology from Pennsylvania State
University and his M.B.A. from the Kellogg Graduate School of Management.
Mr. Tedesco joined Ixion in December 1996 as Vice President - Operations
and Regulatory Affairs. He is also currently President of Brandywine Consulting,
Inc., a consulting company specializing in product development, regulatory
affairs, quality control, and protein purification, a position he has held since
1996. From 1994 to 1996, Mr. Tedesco was Vice President, Analytical and
Development Services at Tektagen, Inc., and from 1992 to 1994, Director of
Process Development and Manufacturing at Amylin Pharmaceuticals, Inc. Mr.
Tedesco is a member of the Regulatory Affairs Professional Society, the
International Society of Pharmaceutical Engineering (ISPE), and the Parenteral
Drug Association. He earned a B.S. degree in biology at Pennsylvania State
University, and a M.S. degree in biology at the University of Wisconsin. He did
post graduate work at Marquette University where he also taught for two years.
He is employed as a consultant.
Dr. Harmeet Sidhu joined the Company as a full-time consultant in May of
1995 and became a full-time employee in January of 1997. From May 1995 to
January 1997, Dr. Sidhu held the position of postgraduate fellow and visiting
scientist at the University of Florida on a fellowship funded entirely by Ixion.
From 1992 to May 1995, she was an Assistant Professor in the Biochemistry
Department at the Postgraduate Institute of Medical Education and Research
("P.G.I.M.E.R.") in Chandigarh, India. She has been actively involved in the
area of biochemical mechanisms and medical management of hyperoxaluria for many
years. She is a graduate of Delhi University with a B.Sc. in Chemistry and
received her M.Sc. and a Ph.D. in biochemistry from P.G.I.M.E.R.
Ms. Janet C. Cornelius joined the Company on July 1, 1997. Previously,
since 1995, she was Scientific Research Manager in Dr. Peck's laboratory in the
Department of Pathology, University of Florida Medical School, where she was
responsible for Islet Progenitor/Stem Cell (IPSC) work in collaboration with Dr.
Peck. She is a co-inventor of the IPSC technology for developing a cure for
diabetes. From 1975 to 1995 she held the title of Biological Scientist in the
same department. Ms. Cornelius received her B.S. in Biology from Dalhousie
University, Halifax, Nova Scotia, and her Masters Degree in Medical Science from
the University of Florida.
Kimberly A. Ramsey joined the Company in June 1995. From September 1993 to
date, she has been a supervisory accountant at Environmental Consulting &
Technology in Gainesville, Florida. From 1992 to 1993 she was a staff accountant
with the Jaymark Companies of Orlando, Florida. She is a member of the Institute
of Management Accountants. She received her B.S. in Accounting from the
University of Florida.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified. Officers are elected
annually to serve, subject to the discretion of the Board of Directors, until
their successors are elected or appointed. The Company's Bylaws authorize the
Board of Directors from time to time to determine the number of its members. The
Board currently consists of four members whose terms expire in 1998. Successors
to those directors whose terms have expired are required to be elected by
stockholder vote; vacancies in
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unexpired terms and any additional positions created by board action are filed
by action of the existing Board of Directors.
The Executive Committee, consisting of Messrs. Peck and Gaines, is
responsible for all matters which arise between meetings of the Board to the
extent permitted by Delaware law. The Audit and Benefits Committee, composed of
Messrs. Peck and Mihalik and Dr. Margulies, recommends to the Board of Directors
the appointment of the Company's independent auditors, reviews the compensation
of such auditors, and reviews with them the plans for and results and scope of
their auditing engagement. It also determines the salaries and incentive
compensation of the officers, key employees, and key consultants of the Company
and administers the Company's 1994 Stock Option Plan and 1994 Board Retainer
Plan. A majority of its members must be outside directors.
The following table summarizes the compensation of those persons who were,
at December 31, 1996, the Company's Chairman and Chief Executive Officer, its
President, and its Senior Vice President and Chief Scientist for the years ended
December 31, 1994, 1995, and 1996.
Summary Compensation Table
Long-Term
Annual Compensation
Compensation Awards
Restricted Securities
Name Deferred Cash All Other Stock Awards Underlying
Year Salary Salary Compensation Options/SAR
Weaver H. Gaines 1994 $75,000 $ 0 $0 $0 0
(1) 1995 $31,250 $43,750 $0 $0 0
Chairman and CEO 1996 $25,000 $60,000 $0 $0 0
David C. Peck(2) 1994 $45,000 $ 0 $0 $0 0
President & CFO 1995 $35,000 $25,000 $0 $0 0
1996 $25,000 $35,000 $0 $0 0
Ammon B. Peck 1994 $17,500 $ 0 $0 $0 0
(3) 1995 $ 7,500 $22,500 $0 $0 0
Sr. V.P. & 1996 $ 5,000 $35,000 $0 $0 0
Chief Scientist
(1) Mr. Gaines joined the Company at its inception in March 1993.
(2) Mr. Peck joined the Company in April 1994. He is paid a consulting fee
rather than a salary.
(3) Dr. Peck began consulting for the Company in June 1994. He is paid a
consulting fee rather than a salary.
There have been no stock option grants to the Company's executive officers to
date.
Annual Bonus Plan
In August, 1994, the Board of Directors adopted an annual incentive
compensation plan (the "Annual Bonus Plan"), administered by the Audit and
Benefits Committee, pursuant to which officers, employees, and key consultants
may be awarded cash bonuses (if the Company has sufficient cash to pay such
bonuses prudently) or deferred bonuses, based on the financial performance of
the Company. For 1997, the Audit and Benefits Committee determined that awards
could range up to 50% of a participant's base salary or consulting fee. Awards
under the Annual Bonus Plan may be made during the first quarter of each year at
the discretion of the Committee, based on achievement of goals set by the
Committee. For each participant, the award ranges from the maximum award if the
Company achieves its approved goals, to no award if the Company achieves less
than 70% of its approved goals. No awards were made relating to 1996.
Deferred Compensation Plan
In January, 1994, the Board of Directors adopted a Deferred Compensation
Plan for officers, key employees, and consultants of the Company, permitting
such persons to defer the receipt of all or a portion of their compensation.
Under the Deferred Compensation Plan, an unfunded deferred compensation account
is established for each participant. The only obligation of the Company
regarding such account is to make the payments when they become payable. Any
amount credited to such account is solely for record-keeping, and is not
considered to be held in trust or in escrow or in any way vested in the
participant. Payments under the Deferred Compensation Plan are to be made only
upon termination of employment (which may be by death, disability, retirement,
or otherwise) and may be in a lump sum or as an annuity. In the case of certain
senior participants, if termination is by death or dismissal without cause, at
the election of the participant, the balance in his account may be converted
into Common Stock of the Company at a price
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per share not greater than the lowest price per share (adjusted for stock
splits, stock dividends, the issuance of convertible securities, warrants, or
options, or other dilution) at which shares of the Company's Common Stock have
been issued (or agreed to be issued) at any time in the 365 days preceding the
date of termination. A termination is deemed without cause for substantially the
same occurrences described under "Employment Agreements," below. Amounts in the
account bear interest, compounded annually, at a rate established by the Board
of Directors, currently 8.0%.
At December 31, 1996, balances in the deferred accounts for the Company's
executive officers and key consultant were as follows:
Name Capacities in Which Served Deferred Compensation
Balance (1)
Weaver H. Gaines Chairman and Chief $199,655
Executive Officer
David C. Peck President and Chief $119,630
Financial Officer
Ammon B. Peck, Ph.D. Senior Vice President, $ 35,141
Chief Scientist, and
Chairman, Scientific
Advisory Board
(1) Includes accrued interest.
Employment Agreements
The Company has entered into written agreements (the "Employment
Agreements") with two of its executive officers, Messrs. Gaines and D. Peck,
which currently provide for annual base compensation of $95,000 and $60,000,
respectively. Base compensation levels are to be reviewed at least annually.
Upon a determination by the Board that the Company has obtained adequate
financing, base compensation may be increased to not less than the average cash
base compensation reported by an appropriate salary survey (as determined by the
Board) for executive officers at biotechnology companies of equivalent size and
status. The effective date of the Employment Agreements is August 31, 1994, and
the current term of each expires December 31, 1999. The Employment Agreements
are renewable automatically for one-year terms unless either party gives written
notice of termination at least 92 days before the end of the then current term.
Annual bonus compensation, if any, shall be determined by the Board of
Directors.
The Employment Agreements provide that either the Company or the executive
has the right to terminate the agreement at any time upon 60 days' notice. A
termination by the Company "for cause" or by the executive not for "Good Reason"
is effective without further benefits, upon a finding by the Board of Directors.
Termination without cause (as defined in the Employment Agreements), or
termination by the executive for "Good Reason" (as defined in the Employment
Agreements) requires the Company to pay severance benefits equal to the
aggregate base salary at the then current rate payable through the end of the
then current term, but not less than two times the executive's base
compensation. In addition, the employee is eligible for annual bonus
compensation calculated in accordance with the Annual Bonus Plan. Finally, all
restricted stock is immediately vested, all outstanding stock options are
immediately vested and accelerated, and the executives have the right to
purchase Common Stock of the Company pursuant to the terms of the Deferred
Compensation Plan. Termination is deemed without cause or for "Good Reason" if
(i) there is a reduction in the executive's annual aggregate compensation or
benefits, (ii) there is a diminution in the executive's position, powers,
authority, duties, or responsibilities, or (iii) there is a material breach of
the Employment Agreement by the Company.
The Employment Agreements contain covenants that an executive must refrain
from engaging in any business competitive with the Company during the period of
his employment and for six months after termination or resignation and must not
use, disclose or make accessible to any third party any proprietary information
of the Company during the period of his employment, or thereafter. All
inventions relating to biotechnology generally conceived while rendering
services to the Company must be assigned to the Company.
Consulting Agreement with Dr. Peck
The Company has an exclusive consulting agreement expiring on December 31,
1999, with Dr. Ammon B. Peck for consulting services relating to the Company's
business and technology. The fee is $50,000 per year. Dr. Peck is obligated to
devote 48 days of service per year to the Company, including travel time, and
has agreed not to engage in competitive activities with Ixion during the term of
the agreement, or for two years thereafter. Generally, under the terms of Dr.
Peck's employment by the University of Florida, the latter has a right of first
refusal to any intellectual property and must approve waivers by Dr. Peck of the
University's intellectual property rights in any consulting agreement. Dr. Peck
has agreed to assign to the Company any inventions or intellectual property
rights developed by
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him while performing services under the consulting agreement in any inventions
or intellectual property rights waived by the University. See "Government
Regulation - Florida Conflicts of Interest." The consulting agreement may be
canceled by either party on 30 days' written notice. The Company has a life
insurance policy on the life of Dr. Peck in the amount of
$500,000 payable to the Company.
Consulting Agreement with Brandywine Consultants, Inc.
In December of 1996, Company entered into a consulting agreement,
terminable on 90 days' notice by either party, with Brandywine Consultants, Inc.
(the "Brandywine Consulting Agreement"), of which John L. Tedesco is President.
Under the Brandywine Consulting Agreement, Mr. Tedesco was elected to the office
of the Company's Vice President - Operations and Regulatory Affairs, and he and
other Brandywine consultants will provide consulting services in connection with
the strategic planning and execution of the Company's drug and device
development efforts, as well as services in the area of corporate development
and financing. Brandywine must devote not less than 80 hours per month to the
Company's affairs, for which it is paid $5,000 monthly. In addition, upon the
achievement of certain milestones, Brandywine will be issued warrants for up to
20,000 shares of Ixion Common Stock, expiring five years from the date of issue,
and exercisable at a price of $5.00 per share. Warrants for 3,000 shares,
expiring in February 2002, were issued on June 23, 1997 upon the approval of the
Product Development Plan prepared by Brandywine. Additional warrants for 3,000
shares, expiring in October 2002, were issued on October 24, 1997 upon
acceptance of the Master Plan for Regulatory Compliance, also prepared by
Brandywine. Brandywine will receive warrants for 4,000 shares upon the Company's
filing for an IND and warrants for 10,000 shares upon the approval of an IND.
Finally, the Company will pay Brandywine a fee on any capital raised through
private investors or corporate collaborators introduced by a Brandywine
consultant.
1994 Stock Option Plan
In August 1994, the Board of Directors adopted and the shareholders
approved the 1994 Stock Option Plan (the "Plan"). The Plan was amended in June
1997. The purpose of the Plan is to provide incentive to officers, directors,
consultants, members of the Scientific Advisory Board, and key employees who
are, or will be given responsibility for the management or administration of the
Company's business and the growth of the Company, and to provide those personnel
with an opportunity to participate in the growth, development, and financial
success of the Company.
The Plan reserves an aggregate of 250,000 shares (approximately 6.0% of the
4.0 million authorized shares) of the Company's authorized but unissued Common
Stock for grants of options to employees and an additional 75,000 shares for
grants of options to members of the Board of Directors and members of the
Scientific Advisory Board under the Board Retainer Plan. At September 30, 1997,
options to purchase 43,900 shares were outstanding, and 281,100 shares remained
reserved for grants of options under the Plan.
The Plan permits the grant of both "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code (the "Code") and
nonqualified stock options. The Committee, in its discretion, may grant options
to the Company's employees, consultants, non-employee directors, and members of
the Scientific Advisory Board; provided, however, that only employees may be
granted incentive stock options. The Committee must be composed of at least two
outside directors (if there are two outside Directors, otherwise such number of
outside directors as are available for service) and has complete discretion to
select the eligible individuals who are to receive option grants. Outside
directors who are members of the Committee may not be awarded discretionary
grants, but are awarded options for 2,000 shares upon election to the Committee
and options for 2,500 shares, all exercisable at the then fair market value,
annually thereafter.
Generally, options become exercisable as to 20% of the shares subject to
option after the optionee's first full year of continuous service with the
Company and as to 1/12 of 20% of the shares at the end of each additional full
month of continuous service thereafter. Options granted to members of the
Scientific Advisory Board generally vest at the rate of 25% at the end of each
three-month period following the grant.
No incentive stock option may be exercised more than ten years after its
grant date, or in the case of nonqualified stock options, ten years and one day
after the date of its grant. No option is transferable by the optionee other
than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by the optionee, his or her
guardian, or legal representative. Subject to certain exceptions, vested
incentive stock options expire one year after the optionee's death or
disability. Vested nonqualified options expire one year after termination of
employment for any reason including death.
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The exercise price of incentive stock options may not be less than the fair
market value of the shares on the date of grant (or 110% of the fair market
value for incentive stock options granted to holders of 10% or more of the stock
of the Company or any subsidiary of the Company). The price may be paid in cash,
by promissory note, or previously owned shares of the Company.
1994 Board Retainer Plan
The Company does not pay cash compensation to outside members of the Board
of Directors or to members of the Scientific Advisory Board, but does reimburse
expenses incurred in connection with meetings. Accordingly, the Board of
Directors adopted the 1994 Board Retainer Plan (amended June 1997) to grant
shares of Common Stock to such members as well as to permit grants of stock as
hiring bonuses for key employees. Members of both boards are also eligible for
grants under the 1994 Stock Option Plan.
Unvested shares granted are subject to reacquisition by the Company at no
cost if the grantee ceases to be a director. With respect to directors, the
reacquisition option will typically lapse as to 20% of the shares granted after
the grantee's first full year of continuous service with the Company and as to
1/12 of 20% of the granted shares at the end of each additional full month of
continuous service thereafter. Scientific Advisors' shares are not subject to
reacquisition by the Company after a year.
New outside members of the Board or the Scientific Advisory Board receive
5,000 shares upon joining, and each will receive 1,000 shares annually
thereafter during the pendency of the Board Retainer Plan. The Audit and
Benefits Committee of the Board may change the amount granted each eligible
person at any time in its complete discretion. 75,000 shares were reserved by
the Board for award to Directors of Members of the Scientific Advisory Board
under the Board Retainer Plan, of which 57,000 shares have been issued. No
specific number of shares have been reserved for grants to key employees in
connection with the commencement of employment. 27,000 shares have been issued
to employees as hiring bonuses
CERTAIN TRANSACTIONS
The following is a summary of certain transactions among the Company and
related persons.
Commencing with the founding of the Company, Messrs. Gaines and D. Peck
made loans to the Company pursuant to the terms of a convertible promissory note
(the "Subordinated Notes"). The amount outstanding varied from month to month.
On June 30, 1996, $16,159.04 (the entire outstanding balance including accrued
interest) of the Subordinated Notes were converted into 21,544 shares of Common
Stock (17,560 shares to Mr. Gaines and 3,984 shares to Mr. D. Peck). The
Subordinated notes were converted pursuant to their terms at a price per share
not greater than the lowest price per share (adjusted for stock splits, stock
dividends, or other dilution) at which shares of Ixion's Common Stock had been
issued during the 12 month period immediately prior to the notice of election to
convert, in this case at a price of $.75 per share. Prior to their conversion,
the loans bore interest at 8.0%, compounded monthly by additions to principal.
No cash interest was ever paid on the Subordinated Notes.
On August 31, 1994, Messrs. Gaines and D. Peck each converted $9,000 of
principal amount of Subordinated Notes into an aggregate of 900,000 shares of
the Company's Common Stock, at a price of $0.02 per share. That price was
determined by the Board of Directors to be the fair market value of such stock
on such date.
On August 31, 1994, the Board of Directors accepted Dr. Ammon B. Peck's
offer to assign to the Company all his interest in oxalate technology (subject
to prior rights of the University of Florida under the University's patent
policy) and to agree to execute an exclusive consulting agreement with the
Company in exchange for an aggregate of 650,000 shares of Common Stock at a
price of $0.02 per share. The Board of Directors valued the assignment of such
rights at not less than $13,000, and determined that amount to be the fair
market value of the shares on such date. This transaction was consummated on
October 17, 1994.
As of October 10, 1994, members of the immediate families of the founders
of the Company, including a partnership in which Mr. Gaines has an undivided 25%
interest, purchased an aggregate of 140,000 shares of the Company's Common Stock
pursuant to an Agreement to Purchase Shares dated as of such date, for a price
of $0.10 per share, or $14,000 in the aggregate.
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As of January 1, 1996, the Company purchased used laboratory equipment with
a replacement value in excess of $60,000 from Carl Therapeutic, Inc. (controlled
by a vice president of the Company), pursuant to a chattel mortgage agreement in
the amount of $32,309. None of this equipment had been acquired by Carl
Therapeutic within the previous two years. The agreement calls for monthly
payments of $897.47 commencing August 1, 1996. There is no interest on the
outstanding balance. The loan is secured by a security interest in the
laboratory equipment.
On April 16, 1996, the Chairman and Chief Executive Officer and the
President of the Company each entered into a revolving agreement to extend the
Company up to $25,000 in the form of bridge loans. Under these agreements, the
Company borrowed a total of $32,099.56, all of which was repaid in cash by the
Company on June 14, 1996. Outstanding loans bear cash interest at the rate 8%
(subject to adjustment as to outstanding balances each January 1), paid monthly
and upon repayment of the principal. In addition, the Chairman, on June 21,
1996, agreed to increase his bridge loan commitment to an amount up to $150,000.
The Company may borrow from these revolving facilities from time to time for
working capital purposes.
On October 24, 1997, the Board of Directors approved a competitive bid by
BACOMPT, a printer in Carmel, Indiana, of which Mr. Peck is a part owner and the
chief executive officer, to provide prospectus printing and fulfillment services
in connection with the Offering, for an amount not to exceed $25,000. The
Company believes that the terms of the BACOMPT transaction are at least as fair
to the Company as could have been obtained from unaffiliated third parties.
Because of their managerial positions and stock holdings in the Company,
and their activities related to the organization of the Company, Messrs. Gaines
and Peck, and Dr. Peck may be deemed to be "promoters" as that term is used
under the Securities Act.
It is the Company's policy that any material transactions or loans, and any
forgiveness of loans, between officers, directors, or material shareholders and
the Company must be approved by a majority of the Company's independent
directors, if any, who do not have an interest in the transaction. Furthermore,
all such transactions or loans must be entered into on terms that are no less
favorable to the Company than those that can be obtained from unaffiliated third
parties. All of the above transactions were entered into in compliance with the
Company's policy.
PRINCIPAL SHAREHOLDERS
The table below sets forth information as of the date of this
Prospectus and, as adjusted, assumes the sale of all of the Common Stock offered
pursuant to this Prospectus. The table also assumes, with respect to each
individual stockholder, the exercise of all warrants, options or conversion of
all convertible securities held by such stockholder, and exercisable within 60
days of the date of this Prospectus. It does not assume the exercise or
conversion of securities held by any other holder of securities. The table is
based on information obtained from the persons named below with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the aggregate outstanding shares of
Common Stock, (ii) each officer and director and (iii) all officers and
directors as a group.
Amount and Nature of
Beneficial Ownership
Name and Address of Number of Percentage of
Beneficial Owners (1) Shares Shares Owned
Prior to After
Offering Offering (2)
Ammon B. Peck, Ph.D. 655,000(3) 26% 23%
David C. Peck 415,984(4) 17% 14%
Weaver H. Gaines 553,512(5) 22% 19%
David M. Margulies 18,667(6) (7) (7)
Vincent P. Mihalik 12,567(8) (7) (7)
All officers and 1,661,730 66% 57%
directors as a group
(6 persons)
(1) Address is 12085 Research Drive, Alachua, FL 32615 unless otherwise
indicated.
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(2) Assumes sale of all Units offered hereby, but does not assume exercise or
conversion of other securities held by anyone other than the named persons.
(3) Includes 50,000 shares held by Dr. Peck's wife in trust for her brothers as
to which Dr. Peck disclaims beneficial ownership, and 5,000 shares issuable upon
conversion of Unsecured Convertible Notes held by members of Dr. Peck's
immediate family sharing his household as to which Dr. Peck disclaims beneficial
ownership.
(4) Includes 12,000 shares issuable upon conversion of Unsecured Convertible
Notes held by members of Mr. Peck's immediate family sharing his household as to
which Mr. Peck disclaims beneficial ownership.
(5) Includes 40,000 shares held by WABS Associates, a general partnership
composed of Mr. Gaines and his three siblings. Mr. Gaines disclaims beneficial
ownership of 30,000 of such shares, and 5,952 shares issuable upon conversion of
Unsecured Convertible Notes held by Mr. Gaines.
(6) Includes 2,667 shares issuable upon exercise of currently exercisable
options, but excludes 4,833 shares issued under options not currently
exercisable.
(7) Less than 1.0%.
(8) Includes 1,567 shares issuable upon exercise of currently exercisable
options but excludes 4,433 shares issuable under options not currently
exercisable.
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock and .25 Charitable Benefit
Warrant to purchase an additional share of Common Stock. The Common Stock will
be immediately separated from the Charitable Benefit Warrants, and will be
immediately transferable.
Common Stock
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 4,000,000 shares of Common Stock, $0.01 par value. As of
September 30, 1997, there were 2,464,544 shares of Common Stock outstanding,
held of record by approximately 60 shareholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and have no cumulative voting
rights. Holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock offered hereby will also
be fully paid and nonassessable.
Charitable Benefit Warrants Included in the Units
Each whole Charitable Benefit Warrant entitles the holder to purchase one
share of Common Stock at a price of $20.00 per share. Four Units are required to
acquire one whole Charitable Benefit Warrant. Approved qualified charitable
organizations may exercise Charitable Benefit Warrants at any time until the
expiration date (December 9, 2007, unless extended) (the Warrant Expiration
Date"); holders other than approved qualified charitable organizations may not
exercise except between December 9,2006, and the Warrant Expiration Date. The
Charitable Benefit Warrants will be detached from the Common Stock immediately
on purchase.
The Charitable Benefit Warrant included in the Units will be issued
pursuant to a Warrant Agreement among the Company and SunTrust Bank, Atlanta, as
warrant agent (the "Warrant Agent"), and will be in registered form. The
Registered Holder is the person in whose name any certificate representing the
Charitable Benefit Warrants shall be registered on the books maintained by the
Warrant Agent. Charitable Benefit Warrants may not be resold and may only be
transferred to an approved qualified charitable organization; provided, however,
that transfer to a testamentary trust, legatee, or heir by will or by descent
upon the death of a Registered Holder, will be permitted upon proper proof as
decided by the Company in its absolute discretion. A Registered Holder may
transfer Charitable Benefit Warrants to an approved qualified charitable
organization at any time from the time of issuance and prior to the close of
business on the Warrant Expiration Date.
The Charitable Benefit Warrant has been designed to permit purchasers of
Units in the Offering to make tax deductible contributions of the value of the
Charitable Benefit Warrant to an approved qualified charitable organization as a
new modality for channeling funds to medical research. An approved qualified
charitable organization means a
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charitable organization, institution, foundation, or research institute
described in Section 501(c)(3) of the Internal Revenue Code (the "Code"), which
is excluded from the definition of a private foundation as referred to in
Section 509(a) of the Code, which is eligible to receive tax-deductible
contributions under Section 170 of the Code, and which has been approved by the
Company as described below.
The following are the approved qualified charitable organizations as of the
date of this Prospectus.
Juvenile Diabetes Foundation
Joslin Diabetes Center, Inc.
American Kidney Fund
National Vulvodynia Association
Crohn's & Colitis Foundation of America
Cystic Fibrosis Foundation
Oxalosis and Hyperoxaluria Foundation
Mycological Society of America
Intestinal Disease Foundation
National Kidney Foundation
National Institute of Diabetes and Digestive and
Kidney Diseases
North American Mycological Society
University of Florida Research Foundation, Inc.
Florida Cystic Fibrosis, Inc.
Qualified charitable organizations may be added to the approved list by the
Company, in its absolute discretion, from time to time until the Warrant
Expiration Date. In order to be added to the approved list, a charitable
organization must be tax exempt, and it must be eligible to receive tax
deductible contributions in accordance with Section 170 of the Code. Charitable
organizations may be added at the election of the Company, or they may be
nominated by a Registered Holder. Registered Holders wishing to nominate a
charitable organization must send their nomination in writing to the Company,
together with proof of such charitable organization's status as an organization
described in Section 501(c)(3) of the Code which is excluded from the definition
of a private foundation as referred to in Section 509(a) of the Code and which
is eligible to receive tax deductible contributions in accordance with Section
170 of the Code. Charitable organizations that fall into the excluded categories
are generally those that either have broad public support or actively function
in a supporting relationship to such organizations.
In order to be tax-exempt, an organization must be organized and operated
exclusively for one or more of the purposes set forth in Section 501(c)(3), and
none of the earnings of the organization may inure to any private shareholder or
individual. In addition, the organization may not attempt to influence
legislation as a substantial part of its activities, nor may it participate at
all in campaign activities for or against political candidates. The Company will
favor charitable organizations that dedicate a material portion of their assets
or revenue to research activities connected with the cure and treatment of
diabetes and oxalate-related diseases.
Each of the Warrants will entitle the holder to purchase one share of
Common Stock at a price of $20.00 per share. An approved qualified charitable
organization may exercise at any time from the date of issuance and prior to the
close of business on the Warrant Expiration Date. A holder who is not an
approved qualified charitable organization may not exercise during the first
nine years. Such holder may only exercise during the period commencing December
9, 2006, and ending at the close of business on the Warrant Expiration Date. No
fractional shares will be issued upon the exercise of the Charitable Benefit
Warrants. The exercise price of the Charitable Benefit Warrants bears no
relationship to any objective criteria and should in no event be regarded as an
indication of any future market price of the securities offered hereby.
The exercise price of the Charitable Benefit Warrants, and the number and
kind of shares of Common Stock or other securities and property issuable upon
exercise of the Warrants are subject to adjustment in certain circumstances,
including a stock dividend or a subdivision or combination of the Common Stock.
Additionally, an adjustment will be made upon a reclassification or in case of a
consolidation or merger of the Company with or into another company or the sale
of all or substantially all of the assets of the Company, in order to enable
approved qualified charitable organization holders of Charitable Benefit
Warrants to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable in such event by a holder of the number
of shares of Common Stock that might otherwise have been purchased upon exercise
of the Charitable Benefit Warrant. No adjustment for previously paid cash
dividends, if any, will be made upon exercise of the Charitable Benefit Warrant.
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Charitable Benefit Warrants do not confer upon the holder any voting or any
other rights of a stockholder of the Company. Upon notice to the Warrant
holders, the Company has the right to reduce the exercise price or extend the
expiration date of the Charitable Benefit Warrants.
The Charitable Benefit Warrants may be exercised only upon surrender of the
Charitable Benefit Warrant certificate on or prior to the expiration date of
such Warrant at the offices of the Warrant Agent, with the form of "Subscription
Form" on the reverse side of the Charitable Benefit Warrant certificate
completed and executed as indicated, accompanied by payment of the full exercise
price (by certified check payable to the order of the Warrant Agent) for the
number of Charitable Benefit Warrants being exercised.
Unsecured Convertible Notes
In 1996 the Company issued $787,270 total principal amount, composed of
$215,600 in 10% Unsecured Convertible Notes (the "10% Notes") and $571,670 in
Variable Conversion Rate Unsecured Convertible Notes (the "Variable Notes") due
2001 (in the aggregate hereafter called the "Notes"), which were issued under a
Note Purchase Agreement (the "Note Purchase Agreement"), dated as of September
13, 1996, between the Company and the initial purchasers of the Notes. The 10%
Notes accrue interest at the stated rate until maturity, or conversion, and pay
interest quarterly. The 10% Notes are convertible into shares of the Company's
Common Stock at any time prior to maturity at a conversion price of $4.20 per
share. The Variable Notes are non-interest bearing and are convertible into
shares of the Company's Common Stock, at any time prior to maturity, at variable
conversion prices ranging from $4.20 to $2.10. The variable conversion prices
are based on the length of time the investor holds the Variable Notes prior to
conversion, as shown in the table below:
Conversion Date Conversion Price
End of Year 1 Year 2 Year 3 Year 4 Year 5
November $4.10 $3.70 $3.30 $2.90 $2.50
February $4.00 $3.60 $3.20 $2.80 $2.40
May $3.90 $3.50 $3.10 $2.70 $2.30
August $3.80 $3.40 $3.00 $2.60 $2.10
Outstanding Common Stock Purchase Warrants
As of October 31, 1997, there were outstanding warrants to purchase 23,630
shares of Common Stock. Warrants for 17,630 shares entitle the registered holder
to purchase Common Stock at a price of $2.00 per share through August 31, 2000.
Warrants for 6,000 shares entitle the registered holder to purchase 3,000 shares
of Common Stock at a price of $5.00 per share through February 2002 and 3,000
shares at the same price through October 2002. The exercise price of the
warrants and the number of shares of Common Stock to be obtained upon exercise
of the warrants are subject to adjustment in certain circumstances, including a
stock dividend to holders of Common Stock, a subdivision or combination of
outstanding shares of Common Stock, or the issuance of capital stock in a
reclassification or reorganization of Common Stock. The exercise price of the
warrants is subject to adjustment in the event that the Company (i) issues,
sells, or otherwise distributes Common Stock at a price which is less than the
then current market price of the Common Stock, (ii) issues options (other than
options issued under the 1994 Stock Option Plan or the 1994 Board Retainer Plan)
whose exercise price is less than the then current market price of the Common
Stock, (iii) issues convertible securities whose conversion price is less than
the then current market price of the Common Stock, or (iv) pays a dividend of
cash or other property in any one year greater than 10% of the then current
market price of the Common Stock. The Company must give advance notice to
warrant holders of any of the above events as well as any merger, sale,
transfer, dissolution, or winding up.
The warrants do not confer upon the holder any voting or other rights of a
shareholder of the Company. Upon notice to the holders of the warrants, the
Company has the right to reduce the exercise price or extend the expiration date
of the warrants. See "Shares Eligible for Future Sale - Registration Rights" for
a description of the registration rights of holders of certain of the warrants.
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Limitation of Liability
As permitted by Delaware law, the Certificate of Incorporation provides
that no director of the Company will be liable for monetary damages for breach
of fiduciary duty as a director, except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or involving intentional misconduct or a knowing violation of
law, (iii) for approval of certain unlawful dividends or stock purchases or
redemptions, and (iv) for any transaction from which the director derived an
improper personal benefit. In appropriate circumstances, equitable remedies such
as an injunction or other forms of non-monetary relief would remain available
under Delaware law.
The Company intends to purchase and maintain directors' and officers'
insurance as soon as the Board of Directors determines practicable, in amounts
which they consider appropriate, insuring the directors against any liability
arising out of the director's status as a director of the Company regardless of
whether the Company has the power to indemnify the director against such
liability under applicable law.
The Company has been advised that it is the opinion of the Commission that
insofar as the foregoing provisions may be invoked to disclaim liability for
damages arising under the Securities Act, or to claim indemnification for such
liability, such provisions are against public policy as expressed in the
Securities Act and are, therefore, unenforceable.
Transfer Agent and Registrar and Warrant Agent
The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Charitable Benefit Warrants is SunTrust Bank, Atlanta.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax considerations
relevant to the acquisition, holding, and disposition of Units, Common Stock,
and Charitable Benefit Warrants pursuant to this Offering. This discussion is
not a complete analysis of all potential tax considerations to prospective
purchasers. The discussion is limited solely to U.S. federal income tax matters
and is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations, administrative rulings, and pronouncements of the Internal
Revenue Service ("IRS"), and judicial decisions, all as of the date hereof and
all of which are subject to change at any time, possibly with retroactive
effect.
This discussion is limited to those initial purchasers of Units who would
hold the Common Stock and Charitable Benefit Warrants as "capital assets" for
U.S. federal income tax purposes. This discussion does not address U.S. federal
income tax consequences that may be applicable to particular categories of Unit
holders, including insurance companies, tax-exempt persons, financial
institutions, dealers in securities, persons with significant holdings of
Company stock, and non-United States persons, including foreign corporations,
foreign partnerships, and nonresident alien individuals. This discussion does
not address any tax considerations under the laws of any state, locality, or
jurisdiction, or foreign country.
The Company will not seek a ruling from the IRS as to any of the matters
covered by this discussion, and there can be no assurance that the IRS will not
successfully challenge the conclusions reached in this discussion.
BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW DEPEND UPON
EACH HOLDER'S PARTICULAR TAX STATUS, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED
BELOW TO THEIR PARTICULAR SITUATIONS, AS WELL AS THE APPLICATION OF ANY STATE,
LOCAL, FOREIGN, OR OTHER TAX LAWS.
The Units
Because the original purchasers of Common Stock also will acquire
Charitable Benefit Warrants, each share of Common Stock likely will be treated
for federal income tax purposes as having been issued as part of an "investment
unit" consisting of the Common Stock and associated Charitable Benefit Warrants.
The purchase price of an investment unit is allocated between its component
parts based on their relative fair market values at the time of purchase. The
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portion of the purchase price allocable to the Common Stock and Charitable
Benefit Warrants, respectively, will be the holder's initial tax basis in the
Common Stock and Charitable Benefit Warrants, respectively.
The Common Stock
Dividends. The Company does not currently intend to make distributions with
respect to the Common Stock. However, any distributions that are made by the
Company with respect to the Common Stock will be characterized as dividends and,
therefore, will be includable in the recipient's gross income to the extent of
the Company's current or accumulated earnings and profits, if any, as determined
for U.S. federal income tax purposes. To the extent that a distribution on the
Common Stock exceeds the holder's allocable share of the Company's current or
accumulated earnings and profits, such distribution first will be treated as a
return of capital that will reduce the holder's adjusted tax basis in such
Common Stock, and the excess will be treated as taxable gain. The availability
of current or accumulated earnings and profits, if any, in future years will
depend on future profits and losses which cannot be accurately predicted. Thus,
there can be no assurance that all or any portion of a distribution on the
Common Stock will be characterized as a dividend for U.S. federal income tax
purposes. Corporate stockholders will not be entitled to claim the dividends
received deduction with respect to distributions that are not characterized as
dividends. See the discussion regarding the dividends received deduction below.
Subject to important restrictions, dividends received by a corporate holder
of Common Stock generally will qualify for the 70 percent dividends received
deduction provided by Section 243(a)(1) of the Code. Under certain
circumstances, a corporate holder may be subject to the alternative minimum tax
with respect to the amount of its dividends received deduction. Also, under
certain circumstances, a corporation that receives an "extraordinary dividend,"
as defined in Section 1059(c) of the Code, is required to reduce its stock basis
by the nontaxed portion of such dividend. Corporate holders are advised to
consult their tax advisors concerning possible limitations on the availability
of the dividends received deduction, as well as the potential application of
Section 1059 of the Code with respect to dividends received from the Company.
Sale or other Taxable Disposition of Common Stock. Upon a sale or other
taxable disposition (other than a redemption) of Common Stock, a holder
generally will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash plus the fair
market value of any property received upon such sale or disposition and (ii) the
holder's adjusted tax basis in the Common Stock being sold. The holder's
adjusted tax basis in the Common Stock will be that amount of the purchase price
of a Unit allocated to the Common Stock as described above.
Redemption of Common Stock. The Company has no plans to redeem Common
Stock. A redemption of Common Stock generally will be a taxable event to the
redeemed stockholder. The amount received in the redemption will be treated as a
distribution taxable as a dividend to the redeemed stockholder (and may
constitute an extraordinary dividend under Section 1059) unless the redemption:
(a) is treated as a distribution "not essentially equivalent to a dividend" with
respect to the stockholder; (b) is "substantially disproportionate" with respect
to the stockholder; (c) "completely terminates" the stockholder's equity
interest in the Company; or (d) is of stock held by a noncorporate stockholder
and is in partial liquidation of the Company. In determining whether any of
those tests has been met, there generally must be taken into account Common
Stock actually owned and certain Common Stock constructively owned by the
stockholder. If any of those tests is met as to a stockholder, the redemption of
the Common Stock generally would be treated as to that stockholder as an
exchange giving rise to capital gain or loss (measured by the difference between
the amount received and the holder's tax basis in the redeemed Common Stock).
Even in such a case, however, payments received upon redemption which represent
accrued but unpaid dividends may be taxed as ordinary income dividends, and the
extraordinary dividend rule discussed above could apply. Prospective purchasers
should consult their own tax advisors as to the application of the foregoing
rules.
The Charitable Benefit Warrants
Exercise of the Charitable Benefit Warrants. The exercise of a Charitable
Benefit Warrant will not result in a taxable event to the holder. Upon exercise
of a Charitable Benefit Warrant, the holder's aggregate basis in the Common
Stock received upon exercise (the "Warrant Shares") will be the sum of (a) its
basis in the Charitable Benefit Warrant and (b) the cash paid upon exercise of
the Charitable Benefit Warrant. The holding period for capital gain and loss
purposes for the Warrant Shares will not include the period during which the
Charitable Benefit Warrant was held by such holder.
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Expiration of the Charitable Benefit Warrants. Upon the expiration of an
unexercised Charitable Benefit Warrant, the holder will recognize a loss equal
to the adjusted tax basis of the Charitable Benefit Warrant in the hands of the
holder. Such loss will be a capital loss, provided the Warrant Shares would have
been a capital asset in the hands of the Charitable Benefit Warrant holder had
the Charitable Benefit Warrant been exercised, and will be long-term capital
loss with respect to Charitable Benefit Warrants held for more than one year at
the time of the expiration.
Adjustments Under the Charitable Benefit Warrants. Pursuant to the terms of
the Charitable Benefit Warrants, the number of shares that may be purchased upon
exercise of the Charitable Benefit Warrants is subject to adjustment from time
to time upon the occurrence of certain events. Under Section 305 of the Code, a
change in conversion ratio or any transaction having a similar effect on the
interest of a Charitable Benefit Warrant holder may be treated as a distribution
with respect to any holder whose proportionate interest in the assets or
earnings and profits of the Company is increased by such change or transaction.
Thus, under certain future circumstances which may or may not occur, such an
adjustment pursuant to the terms of the Charitable Benefit Warrants may be
treated as a taxable distribution to the Charitable Benefit Warrant holders to
the extent of the Company's current or accumulated earnings and profits, without
regard to whether such holders receive any cash or other property. If the
Charitable Benefit Warrant holders receive such a taxable distribution, their
bases in the Charitable Benefit Warrants will be increased by an amount equal to
the taxable distribution.
The rules with respect to adjustments are complex and Charitable Benefit
Warrant holders should consult their own tax advisors in the event of an
adjustment.
Charitable Contribution of Charitable Benefit Warrants. Upon charitable
contribution of a Charitable Benefit Warrant to an approved qualified charitable
organization, the transferor will be entitled to a deduction in respect of a
charitable contribution in an amount equal to the fair market value of the
Charitable Benefit Warrant to such transferor at the time of such contribution,
subject to the usual requirements for deductions in respect of charitable
contributions, including, without limitation, certain annual limitations on
deductions based on adjusted gross income and other requirements referred to
below.
The fair market value of the Charitable Benefit Warrant at the time of any
such contribution will be based on the value of the Charitable Benefit Warrant
in the hands of the transferor at that time. That is, the Charitable Benefit
Warrant will be valued as a warrant that may be exercised only during the period
commencing December 9, 2006 and ending on the Warrant Expiration Date,
notwithstanding that an approved qualified charitable organization may exercise
the Charitable Benefit Warrant at any time after issuance. The holder shall
value the Charitable Benefit Warrant at the price at which it would change hands
between a buyer and seller, neither able to exercise the warrant outside of the
one-year period commencing December 9, 2006 and ending on the Warrant Expiration
Date, neither under any compulsion to buy or sell, and both with reasonable
knowledge of the relevant facts. The holder shall consider all relevant facts as
of the applicable valuation date in valuing the Charitable Benefit Warrant,
including the history and prospects of the Company, its publicly available
financial data, the market price of the Common Stock, the size of the Charitable
Benefit Warrant block to be valued, and the nature of the restrictions upon the
Charitable Benefit Warrant. Individuals and certain other transferors are
required to obtain an appraisal of the fair market value of property contributed
if the deduction claimed for the contribution of such property and all similar
property exceeds $5,000 in any one taxable year (including donations to
different donees). Certain other substantiation requirements apply as well.
The amount of any deduction in respect of a charitable contribution of
appreciated property is reduced by, among other things, the amount of gain which
would not have been long-term capital gain if the property contributed had been
sold by the taxpayer at its fair market value (determined at the time of such
contribution). To avoid that reduction, a holder must hold the property for a
period of time such that its disposition would result in long-term capital gain,
which currently is any period longer than one year.
The substantiation and other requirements for a deduction in respect of
charitable contribution are, in part, highly technical. Accordingly, a holder of
Charitable Benefit Warrants who is planning to contribute Charitable Benefit
Warrants to an approved qualified charitable organization is urged to consult
his or her own tax advisor with respect to those requirements.
Backup Withholding
Federal income tax backup withholding at a rate of 31% on dividends and
proceeds from a sale, exchange, or redemption of Common Stock will apply unless
the holder (i) is a corporation or comes within certain other exempt
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categories (and, when required, demonstrates that fact) or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. The amount of any backup withholding from a payment to a
holder will be allowed as a credit against the holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
SHARES ELIGIBLE FOR FUTURE SALE
At the completion of this Offering, there will be 2,864,544 shares of
Common Stock outstanding if all Units are sold. There will be 43,900 shares of
Common Stock issuable upon the exercise of outstanding options, 23,630 issuable
upon the exercise of outstanding warrants, and up to 323,557 shares of Common
Stock issuable upon conversion of the Company's Unsecured Convertible Notes.
There is no current market for the Company's securities, and it is unlikely
there will be one at the conclusion of this Offering.
Should the Company elect to register its securities in the future, it
cannot predict whether a market for its securities will develop, or, if one
develops, the effect, if any, that market sales of restricted shares of Common
Stock (described below) or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market would
likely adversely affect any prevailing market price for the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities.
Sales of Restricted Securities
All 2,464,544 shares of Common Stock outstanding prior to the Offering, all
outstanding warrants and options, and all Unsecured Convertible Notes, as well
as the shares of Common Stock issuable upon exercise of such warrants and
options or conversion of the Unsecured Convertible Notes were or will be issued
and sold by the Company in private transactions not involving a public offering
in reliance upon exemptions under the Securities Act. These securities are
treated as "restricted securities" and may not be resold except in compliance
with the registration requirements of the Securities Act or pursuant to an
exemption therefrom.
Registration Rights
Pursuant to the Agreement to Purchase Shares dated as of October 10, 1994,
the holders of 140,000 shares of Common Stock ("Contingently Registerable
Securities") are entitled to certain contingent piggyback registration rights,
subject to the terms and conditions of the Agreement to Purchase Shares. Under
such Agreement, if at any time during the period ending October 9, 2004, Ixion
registers any shares of Common Stock under the Act on certain SEC forms, one or
more holders of the Contingently Registerable Securities may request that all or
a part of their securities be included in the registration statement. The
Company is required to bear all registration and selling expenses (other than
underwriter's fees, discounts, or commissions) in connection with the
registration of Contingently Registerable Securities. See "Certain Relationships
and Related Transactions."
Pursuant to the Employment Agreements, Messrs. D. Peck and Gaines, holders
of record of an aggregate of 911,544 shares of the Company's Common Stock as of
September 30, 1996 (the "Registerable Securities") are entitled to certain
demand registration rights, subject to the terms and conditions of such
Employment Agreements. Subject to certain exceptions, if the Company is then a
public company, at any time during the contract term (and until the third
anniversary of termination), either or both of Messrs. D. Peck and Gaines may
demand that the Company register at least 100,000 shares under the Act on an
appropriate SEC form. Each executive is entitled to only one demand registration
under his Employment Agreement. Each executive may also request inclusion of all
or a portion of his Registerable Securities in any registration by the Company
under the Act. The Company is required to bear all registration and selling
expenses (other than underwriter's fees, discounts, or commissions) in
connection with the registration of Registerable Securities. See "Management -
Employment Agreements."
Holders of 17,630 outstanding warrants have certain piggyback registration
rights for the Common Stock issuable upon exercise of such warrants, subject to
the terms and conditions of the warrants. Pursuant to the terms of such
warrants, until June 30, 2001, if the Company registers any sales of Common
Stock under the Securities Act, it must notify the warrant holders in order that
they may request inclusion in such registrations statement. The expenses of the
registration (other than transfer taxes, underwriting commissions, and fees of
warrant holders' counsel) shall be paid by the Company.
55
<PAGE>
Pursuant to the Note Purchase Agreement relating to the Unsecured
Convertible Notes, until August 31, 2006, Note holders who convert their
Unsecured Convertible Notes into shares of Common Stock are also entitled to
certain contingent piggyback registration rights. The expenses of the
registration (other than transfer taxes, underwriting commissions, and fees of
the converting Note holders' counsel) shall be paid by the Company.
PLAN OF DISTRIBUTION
The Company proposes to sell up to 400,000 Units composed of 400,000 newly
issued shares of Common Stock and 100,000 newly issued Charitable Benefit
Warrants at a price of $10.00 per Unit directly to members of the public
residing in selected states. Announcements of this Offering, in the form
prescribed by Rule 134 of the Securities Act, will be communicated to selected
persons. There is no required minimum number of Units to be sold, and all funds
received will go immediately to the Company. If only a few Units are sold, the
result could be that all the proceeds will be used to pay the expenses of the
Offering. The Offering will begin on the date of this Prospectus and continue
for up to twelve months (unless extended) or until all of the Units offered are
sold or such earlier date as the Company may close or terminate the Offering.
All Units will be sold at the public offering price of $10.00 per share and a
minimum purchase of 100 Units ($1,000.00) is required. Since there is no minimum
number of Units to be sold, there is no escrow account for the deposit of
subscribers' funds and no arrangements to return the funds if all of the Units
offered are not sold.
The Company plans to offer and sell the Units directly to investors and has
not retained any underwriters, brokers, dealers, or placement agents in
connection with the Offering, except in Florida as described below. However, the
Company reserves the right to use brokers, dealers, or placement agents,
particularly when the securities laws of a state require sales to be made
through a broker-dealer qualified in such state. The Company could pay
commissions equal to as much as 10 percent of the gross proceeds although the
Company does not currently intend to pay more than $200,000 in aggregate
commissions. The Company will effect offers and sales of Units through printed
copies of this Prospectus delivered by mail and electronically, by contacting
prospective investors by publicizing the Offering through a posting on the
Company's World Wide Web site (which was first established in July of 1996), by
publicizing the Offering through newspaper advertisements, and by contacting
additional potential investors by direct e-mail and regular mail solicitation.
Any voice or other communications will be conducted in certain states through
the Company's executive officers, and in other states, where required, through a
designated sales agent, licensed in those states. Under Rule 3a4-1 of the
Exchange Act, none of these employees of the Company will be deemed a "broker,"
as defined in the Exchange Act, solely by reason of participation in this
Offering, because (1) none is subject to any of the statutory disqualifications
in Section 3(a)(39) of the Exchange Act, (2)in connection with the sale of the
Units offered, none will receive, directly or indirectly, any commissions or
other remuneration based either directly or indirectly on transactions in
securities, (3) none is an associated person (partner, officer, director, or
employee) of a broker or dealer, and (4) each meets all of the following
conditions: (a) primarily performs substantial duties for the issuer otherwise
than in connection with transactions in securities; (b) was not a broker or
dealer, or an associated person of a broker or dealer, within the preceding 12
months; and (c) will not participate in selling an offering of securities for
any issuer more than once every 12 months.
The Company intends to register the Units, and where required, itself as a
broker/dealer under the securities laws of some, but not all states. At present,
the Company does not intend to offer Units or to qualify as a broker/dealer in
the following states: Arizona, Hawaii, Kentucky, Louisiana, Nebraska, North
Carolina, North Dakota, Oregon, and Vermont, because qualification in those
states is unduly difficult or expensive under their respective securities laws.
The Company reserves the right to seek qualification in such states at any time
prior to the termination of the Offering. The Company plans to seek to qualify
the Units for sale in California, the District of Columbia, Florida, Georgia,
Indiana, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania,
Tennessee, Texas, Virginia, and other states, if qualification can, in the
opinion of management, be obtained for reasonable cost or on reasonable terms.
No sales will be made to residents of any states where the Offering is not
approved.
Residents of Florida must purchase Units through a broker/dealer registered
in Florida. The Company has made arrangements with Unified Management
Corporation ("Unified"), whose address is 429 N. Pennsylvania St., Indianapolis,
IN 46204, phone 317-634-3300 or 800-862-7283 to sell Units to Florida residents.
Unified has no commitment to purchase Units from the Company for resell or to
otherwise sell Units, on a firm commitment basis, on a best efforts basis, or
any other basis, but will be paid a commission of 2.0% of the gross proceeds of
all sales of Units to residents of Florida resulting from the Offering, and will
be reimbursed by the Company for reasonable expenses, if any. The Company has
agreed to indemnify Unified against certain liabilities, including liabilities
under the Securities
56
<PAGE>
Act. Mr. Gaines, Chairman of the Company is a member of the Board of Directors
of Unified Financial Services, Inc., the parent of Unified, and Mr. Peck, the
President of the Company, is the holder of all of the Series A non-voting
Preferred Stock of Unified Financial Services, Inc. Neither Mr. Gaines, nor Mr.
Peck will benefit, directly, or indirectly, from the commissions, if any, to be
paid to Unified.
Residents of California purchasing Units must meet one of the following
suitability requirements: an investor must (1) be an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933; or (2) a
person who (a) has an income of $65,000 and a net worth of $250,000 or (b) has a
net worth of $500,000 (in each case excluding home, home furnishings, and
personal automobiles; or (3) a bank, savings and loan association, trust company
registered under the investment company act of 1940, pension or profit-sharing
trust, corporation, or other entity which, together with the corporation's or
other entity's affiliates, have a net worth on a consolidated basis according to
the most recent regularly prepared financial statement (which shall have been
reviewed but not necessarily audited, by outside accountants of not less than
$14,000,000 and subsidiaries of the foregoing; or (4) a person (other than a
person formed for the sole purpose of purchasing the Units offered hereby) who
is purchasing at least $1,000,000 in aggregate amount of the Units.
Residents of Virginia purchasing Units must have a net worth of at least
$225,000 or a net worth of at least $60,000 and an annual income of at least
$60,000. Net worth in all cases is calculated exclusive of home, furnishings and
automobiles. Virginia residents may not invest more than 10% of their readily
marketable assets in the offering.
To subscribe for Units, each prospective investor must complete, date,
execute and deliver to the Company a Unit Purchase Agreement and have paid the
purchase price of the Units subscribed for by check payable to Ixion
Biotechnology, Inc. A copy of the Unit Purchase Agreement is included with this
Prospectus and is available on line at the Company's web site.
The Company reserves the right to reject any Unit Purchase Agreement in its
entirety or to allocate Units among prospective investors. If any Unit Purchase
Agreement is rejected, funds received by the Company for such subscription will
be returned to the subscriber without interest or deduction.
Within five days of its receipt of a Unit Purchase Agreement accompanied by
a check for the purchase price, the Company will send by first class mail a
written confirmation to notify the subscriber of the extent, if any, to which
such subscription has been accepted by the Company. Not more than thirty days
following the mailing of its written confirmation, a subscriber's Common Stock
and Charitable Benefit Warrant certificates will be mailed by first class mail.
The Company shall not use the proceeds paid by any investor until the Common
Stock and Charitable Benefit Warrant certificates evidencing such investment
have been mailed.
There is no public market for the Common Stock, and it is unlikely that any
such market will develop after the Offering. The Company does not currently meet
the requirements for listing on an organized stock exchange or quotation of
over-the-counter market maker trades on the NASDAQ market. After completion of
the Offering, the Company may apply for a listing on a United States regional
exchange, if the Company meets certain numerical listing requirements. However,
there can be no assurance that the Company will be listed or that a market will
develop or be sustained. If it does not, the Company has been advised that a
registered securities broker-dealer may provide an order matching service for
persons wishing to buy or sell shares, upon completion of the Offering. However,
there is currently no agreement between the Company and such a registered
securities broker-dealer. The Company may in the future also seek to provide a
passive, bulletin board system on the Internet providing information to buyers
and sellers of the Company's Common Stock to facilitate trading. The System
would not affect transactions and would be obliged to meet the requirements of
the Commission. The Company has not constructed such a system at the date of
this Prospectus. In the absence of a public trading market, purchasers may be
unable to resell the Common Stock for an extended period of time, if at all.
Determination of Offering Price
The Company has arbitrarily determined the offering price of the Units.
Among the factors considered in determining such price were offering prices of
recent biotechnology initial public offerings, the Company's capital
requirements, the percentage of ownership to be held by investors following the
Offering, the prospects for the Company's business and the biotechnology
industry, the assessment of the present early stage of the Company's
development, the prospects for initiation or growth of the Company's revenues,
and the current state of the economy in the United States. The offering price
does not necessarily bear any relationship to the Company's assets, book value,
57
<PAGE>
earnings history, or other investment criteria and should not be considered an
indication of the actual value of the Company's securities.
LEGAL MATTERS
Certain legal matters in connection with validity of the Units offered
hereby will be passed upon for the Company by Bruce Brashear, Esq., Gainesville,
Florida. Certain tax matters in connection with the investment in Charitable
Benefit Warrants will be passed on for the Company by Thacher Proffitt & Wood,
New York, New York. James R. Shorter, Jr., a partner in Thacher, Proffitt & Wood
is the beneficial owner of approximately 1.2% of the Common Stock of the
Company.
EXPERTS
The balance sheet as of December 31, 1996 and the statements of operations,
capital deficiency and cash flows for the years ended December 31, 1996 and
1995, and for the period March 25, 1993 (date of inception) to December 31, 1996
included in this Prospectus have been so included in reliance on the report,
which includes an explanatory paragraph indicating substantial doubt as to the
Company's ability to continue as a going concern, of Coopers & Lybrand, L.L.P.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
58
<PAGE>
UNIT PURCHASE AGREEMENT
[To purchase any of the Units, you must be a resident of a state where the sale
of Units is permitted under the state's securities laws.]
To: Ixion Biotechnology, Inc., 12085 Research Drive, Alachua, FL 32615 USA
Phone: 904-418-1428 - - -Fax: 904-462-0875 - - - Email: [email protected]
Florida Subscribers Only:
To: Ixion Biotechnology, Inc., c/o Unified Management Corporation -
429 Pacific Street, Indianapolis, IN 46204.
Phone: 800-862-7283 Fax: 317-632-7805
I have received and had an opportunity to read the Prospectus by which the Units
are offered.
Enclosed is payment for____________ Units (minimum 100), at $10.00 per unit,
totaling $____________.
Make check payable to Ixion Biotechnology, Inc.
Signature(s)___________________________________________ Date
- ---------------------
Register the Units in the following name(s) and amount(s):
Name(s)___________________________________________ Number of Units
- ------------
As (check one):
Individual _______ Joint Tenants _______ Trust _______ IRA ______
Tenants in Common _______ Corporation _______ Keogh _______
Other ______
For the person(s) who will be registered owners(s):
Mailing
Address:__________________________________________________________________
City, State & Zip Code:
- -------------------------------------------------------------
Business Phone: (_____)___________________ Home Phone:
(-----)---------------------
Social Security or Taxpayer ID Number:
- ------------------------------------------------
CALIFORNIA AND VIRGINIA SUBSCRIBERS - SEE REVERSE OF THIS
AGREEMENT
(Please attach any special mailing instructions other than shown above)
NO UNIT PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE
(You will be mailed a signed copy of this Agreement to retain for your
records.)
Subscription accepted by Ixion Biotechnology, Inc.
- ----------------------------------------
- -------------------------------------
Authorized Officer Date
59
<PAGE>
CALIFORNIA SUBSCRIBERS
California subscribers must meet one of the following suitability
requirements:
I certify that I am (initial one)
an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933; or
a person who (a) has an income of $65,000 and a net
worth of $250,000 or (b) has a net worth of $500,000 (in each case excluding
home, home furnishings, and personal automobiles; or
a bank, savings and loan association, trust company
registered under the investment company act of 1940, pension or profit-sharing
trust, corporation, or other entity which, together with the corporation's or
other entity's affiliates, have a net worth on a consolidated basis according to
the most recent regularly prepared financial statement (which shall have been
reviewed but not necessarily audited, by outside accountants of not less than
$14,000,000 and subsidiaries of the foregoing; or
a person (other than a person formed for the sole
purpose of purchasing the Units offered hereby) who is purchasing at least
$1,000,000 in aggregate amount of the Units.
VIRGINIA SUBSCRIBERS
Virginia subscribers must meet the following suitability requirement:
I certify that I am (initial blank)
a person who (a) has an annual income of $60,000 and a
net worth of at least $60,000 or (b) has a net worth of at least $225,000 (in
each case excluding home, home furnishings, and personal automobiles and that I
am not investing not more than 10% of my readily marketable assets in this
Offering.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Audited Financial Statements
Report of Independent
Accountants................................................................F-2
Balance Sheet as of December 31,
1996.......................................................................F-3
Statements of Operations for the years ended December 31, 1995 and 1996
and for the period March 25, 1993 (date of inception) through December
31, 1996...................................................................F-4
Statements of Capital Deficiency for the period March 25, 1993
(date of inception) through December 31, 1996........................F-5
Statements of Cash Flows for the years ended December 31, 1995 and 1996
and for the period March 25, 1993 (date of inception) through December
31, 1996...................................................................F-6
Notes to Financial
Statements.................................................................F-8
Condensed Unaudited Financial Statements
Balance Sheet as of September 30, 1997.....................................F-17
Statements of Operations for the nine month periods ended September 30,
1996 and 1997 and for the period March 25, 1993 (date of inception)
through September 30, 1997.................................................F-18
Statements of Cash Flows for the nine month periods ended September 30,
1996 and 1997 and for the period March 25, 1997 (date of inception)
through September 30, 1997.................................................F-19
Notes to Condensed Financial Statements....................................F-20
F-1
<PAGE>
Report of Independent Accountants
The Board of Directors
Ixion Biotechnology, Inc.
We have audited the balance sheet of Ixion Biotechnology, Inc. (A Development
Stage Company) as of December 31, 1996, and the related statements of
operations, capital deficiency and cash flows for the years ended December 31,
1996 and 1995 and for the period March 25, 1993 (date of inception) through
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ixion Biotechnology, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 and for the period March 25, 1993 (date
of inception) through December 31, 1996 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company requires additional financing to continue its
development stage activities which raises substantial doubt about its ability to
continue as a going concern. management's plans in regard to these matters are
also described in Note 10. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ Coopers & Lybrand L.L.P.
Orlando, Florida
February 4, 1997, except
for Note 12, for which the
date is June 27, 1997
F-2
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1996
Assets
Current Assets:
Cash and cash equivalents $ 611,539
Accounts receivable 8,159
Prepaid expenses 7,778
Other current assets 500
----------
Total current assets 627,976
Property and Equipment, net 41,409
Patents Pending 118,137
Other 10,341
----------
$ 797,863
-----------
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 46,252
Current portion of notes payable 10,769
Accrued expenses 18,717
-----------
Total current liabilities 75,738
-----------
Long-Term Liabilities:
Notes payable and accrued interest 539,540
Deferred revenue 100,000
Deferred fees and salaries, including accrued
interest, payable to related parties 385,038
-----------
Total long-term liabilities 1,024,578
-----------
Total liabilities 1,100,316
-----------
Capital Deficiency:
Common stock, $.01 par value; authorized
4,000,000, issued and outstanding
2,443,544 shares 24,435
Additional paid-in capital 989,223
Deficit accumulated during the development
stage (1,197,405)
Note receivable from shareholder (6,000)
Less unearned compensation (112,706)
-----------
Total capital deficiency (302,453)
-----------
Total Liabilities and Capital Deficiency $ 797,863
-----------
See accompanying notes to financial statements.
F-3
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Operations
For the Period
March 25,
1993 (Date of
Inception)
through
Year Ended December 31, December 31,
1996 1995 1996
---------- ------- ------------
Revenues:
Income under research agreement $ 139,079 $ - $ 139,079
Income from SBIR grant 20,000 - 20,000
Interest income 7,760 5,060 12,820
Other income 4,366 3,062 10,815
----------- ------- -------
Total revenues 171,205 8,122 182,714
----------- -------- -------
Expenses:
Operating, general and
administrative 276,642 230,423 761,538
Research and development 392,010 130,984 531,380
Interest 56,192 20,927 87201
----------- -------- -------
Total expenses 724,844 382,334 1,380,119
Net Loss $(553,639) $(374,212) $(1,197,405)
----------- -------- ---------
Net Loss per Share $ (0.23) $ (0.18)
----------- ---------
Weighted Average Common Shares 2,411,275 2,025,975
----------- ---------
See accompanying notes to financial statements.
F-4
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency
<TABLE>
<CAPTION>
For the Period March 25, 1993 (Date of Inception) through December 31, 1996
Deficit
Accumulated
Additional During the Unearned
Common Stock Paid-In Development Note Compen-
Shares Amount Capital Stage Receivable sation Total
<S> <C> <C> <C> <C> <C> <C> <C>
Initial sale of common
stock, $.01 per share 100,000 $ 1,000 $ - $ - $ - $ - $ 1,000
Sale of common stock,
$.01 per share 50,000 500 - - - - 500
Net loss for the period March 25,
1993 (date of inception) through
December 31, 1993 - - - (54,268) - - (54,268)
-------- -------- -------- -------- -------- -------- ---------
Balance, December 31, 1993 150,000 1,500 - (54,268) - - (52,768)
Conversion of subordinated
notes payable, $0.02 per share 900,000 9,000 9,000 - - - 18,000
Issuance of stock under Board
Retainer Plan,$0.02 per share 5,000 50 50 - - - 100
Sale of stock, $0.02 per share 5,000 50 50 - - - 100
Issuance of stock in exchange
for certain intellectual
property, $0.02 per share 650,000 6,500 6,500 - - - 13,000
Conversion of deferred consulting
fees, $0.10 per share 10,000 100 900 - - - 1,000
Sale of stock, $0.10 per share 140,000 1,400 12,600 - - - 14,000
Net loss - - - (215,286) - - (215,286)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1994 1,860,000 18,600 29,100 (269,554) - - (221,854)
Sale of stock, $0.75 per share 500,000 5,000 370,000 - - - 375,000
Issuance of stock under Board
Retainer Plan, $0.75 per share 10,000 100 7,400 - - - 7,500
Issuance of 9,608 common stock
warrants - - 9,608 - - - 9,608
Sale of stock, $3.00 per share 3,000 30 8,970 - - - 9,000
Note received from shareholder
for common stock and warrants - - - - (6,000) - (6,000)
Net loss - - - (374,212) - - (374,212)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 2,373,000 23,730 425,078 (643,766) (6,000) - (200,958)
Issuance of stock under Board
Retainer Plan, $3.00 per share 20,000 200 59,800 - - (26,166) 33,834
Issuance of stock, $3.00 per share 14,000 140 41,860 - - (36,540) 5,460
Issuance of stock under Board
Retainer Plan, $10.00 per share 15,000 150 149,850 - - (50,000) 100,000
Issuance of 8,022 common stock
warrants - - 10,857 - - - 10,857
Conversion of subordinated notes
payable to related parties,
$0.75 per share 21,544 215 15,943 - - - 16,158
Issuance of Variable Notes with
..beneficial conversion feature - - 285,835 - - - 285,835
Net loss - - - (553,639) - - (553,639)
-------- -------- -------- -------- -------- -------- ---------
Balance, December 31, 1996 2,443,544 $24,435 $ 989,223 $(1,197,405) $ (6,000) $(112,706) $ (302,453)
--------- ------- --------- ------------ -------- ---------- -----------
--------- ------- --------- ------------ -------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Period
March 25,
1993 (Date
of Inception)
through
Year Ended December 31, December 31,
1996 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (553,639) $(374,212) $(1,178,349)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 8,546 2,107 12,929
Amortization 738 87 825
Amortization of debt discount 19,056 - 19,056
Stock warrants issued under license agreement 10,857 9,608 20,465
Stock compensation 139,295 7,500 146,795
Decrease (increase) in employee advance 900 300 -
Decrease (increase) in prepaid expenses
and other current assets 7,932 (16,035) (8,103)
Decrease (increase) in accounts receivable (8,159) - (8,159)
Increase in deferred revenue 100,000 - 100,000
Increase in accounts payable and
accrued expenses 24,869 29,128 66,312
Increase in deferred fees and salaries 83,256 74,846 358,486
Increase in interest payable 2,325 20,831 33,198
---------- ---------- -------------
Net cash used in operating activities (164,024) (245,840) (455,601)
---------- ---------- -------------
Cash Flows from Investing Activities:
Purchase of property and equipment (13,993) (3,736) (26,140)
Organization costs - - (436)
Payments for patents pending (67,053) (52,428) (119,481)
---------- ---------- -------------
Net cash used in investing activities (81,046) (56,164) (146,057)
---------- ---------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of subordinated
notes payable to related parties - - 30,307
Proceeds from issuance of convertible notes payable 787,270 - 787,270
Proceeds from issuance of common stock - 378,000 406,700
Payment of loan costs (11,080) - (11,080)
---------- ---------- -------------
Net cash provided by financing activities 776,190 378,000 1,213,197
---------- ---------- -------------
Net Increase in Cash and Cash Equivalents 531,120 75,996 611,539
Cash and Cash Equivalents at Beginning of Period 80,419 4,423 -
---------- ---------- -------------
Cash and Cash Equivalents at End of Period $ 611,539 $ 80,419 $ 611,539
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows - Continued
For the Period
March 25,
1993 (Date
of Inception)
through
Year Ended December 31, December 31,
1996 1995 1996
---------- ---------- --------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 5,761 $ 55 $ 6,269
---------- ---------- --------------
---------- ---------- --------------
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Common stock issued for subordinated notes payable $ 16,158 $ - $ 34,158
---------- ---------- --------------
---------- ---------- --------------
Common stock and stock warrants issued for
services or technology $ 10,857 $ 7,608 $ 19,457
---------- ---------- --------------
---------- ---------- --------------
Common stock issued for note receivable $ - $ (6,000) $ (6,000)
---------- ---------- --------------
---------- ---------- --------------
Equipment purchased under an installment
note arrangement $ 28,022 $ - $ -
---------- ---------- --------------
---------- ---------- --------------
Common stock issued under Board Retainer Plans $ 210,000 $ 7,500 $ 217,500
---------- ---------- --------------
---------- ---------- --------------
Other common stock issued as compensation $ 42,000 $ - $ 42,000
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1996 and 1995 and the Period March 25, 1993 (Date of
Inception) through December 31, 1996
1. Significant Accounting Policies:
Organization - Ixion Biotechnology, Inc., a Delaware corporation (the
"Company"), was incorporated on March 25, 1993 and has been in the development
stage since its formation. The Company is in business to develop pharmaceutical
products and medical devices to detect, diagnose, treat or prevent diabetes and
oxalate-induced diseases. The Company has not generated significant revenues to
date and has experienced operating losses since its inception. The Company
expects to incur additional operating losses for the next several years as the
Company expands its research and development and regulatory activities and
prepares for the manufacturing and marketing of its products.
Basis of Presentation - The Company is in the development stage since it is
devoting substantially all of its efforts to establishing its business and its
planned principal operations have not commenced. Successful completion of the
Company's development program, and its transition to profitable operations, is
dependent upon obtaining approval to market its products from the United States
Food and Drug Administration and achieving revenues from the commercial
development of its products.
Cash and Cash Equivalents - The Company considers all highly liquid instruments
with a maturity of three months or less at time of purchase to be cash
equivalents.
Income Taxes - Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Property and Equipment - Property and equipment are stated at cost. Gains and
losses on disposition are recognized in the year of the disposal. Expenditures
for maintenance and repairs are expensed as incurred. Depreciation is computed
using the straight-line method over the estimated lives of the assets (5 years).
Patents Pending - Patents pending consist of direct costs incurred in connection
with the applications for patents. No patents have received final approvals at
December 31, 1996. Amortization of these costs over the estimated life will
begin upon final approvals or expensed immediately if rejected. The Company
periodically evaluates the recoverability of intangibles and measures any
impairment by comparison to estimated undiscounted cash flows from future
operations. The factors considered by management in performing this assessment
include current operating results, trends and prospects as well as the effects
of obsolescence, demand, competition and other economic factors.
F-8
<PAGE>
1. Significant Accounting Policies - Continued:
Research and Development - Research and development costs are charged to expense
as incurred.
Other Assets - Other assets consists of organizational costs and loan costs
associated with convertible notes. The organizational costs are being amortized
on a straight-line basis over five years. Loan costs are being amortized over
the term of the notes payable.
Net Loss Per Common Share - Except as noted below, historical net loss per share
is computed using the weighted average number of common shares outstanding for
the period. Common equivalent shares from stock options, warrants and
convertible notes payable are excluded from the computation as their effect is
antidilutive. However, pursuant to an SEC Staff Accounting Bulletin, common and
common equivalent shares issued during the period beginning 12 months prior to
the initial filing of the proposed public offering, at prices substantially
below the assumed public offering price, have been included in the calculation
as if they were outstanding for all periods presented (using the treasury stock
method and the assumed public offering price).
Reclassifications - For comparability purposes, certain reclassifications have
been made to the 1995 financial statements to conform with the 1996 financial
statement presentation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards - The Financial Accounting Standards Board
recently issued Statement No. 128, Earnings Per Share. This statement is
effective for the year ending December 31, 1997 and establishes standards for
computing and presenting earnings per share. Applying the provisions of this
pronouncement, the Company would have reported Basic Net Loss Per Share and
Diluted Net Loss Per Share of approximately $(.23) per sharej for 1996.
F-9
<PAGE>
2. Property and Equipment:
Property and equipment consists of the following as of December 31, 1996:
Computers and equipment $ 51,525
Computer software 1,357
Library 1,281
-------
54,163
Less accumulated depreciation (12,754)
-------
$ 41,409
-------
-------
3. Notes Payable:
On March 15, 1996, the Company entered into a written agreement to purchase
certain laboratory equipment for a sales price of $32,309, payable in 36 monthly
installments of $897, including interest, beginning August 1, 1996. As of
December 31, 1996, $28,022 in principal remains outstanding under this
agreement.
In September, 1996, the Company completed the private placement of $787,270 in
Convertible Unsecured Notes due 2001. The private placement provided investors
with the option of either 10% Convertible Unsecured Notes ("10% Notes") or
Variable Conversion Rate Convertible Unsecured Notes ("Variable Notes"). The 10%
Notes accrue interest at the stated rate until maturity, or conversion, and pay
interest quarterly commencing on November 30, 1996. The 10% Notes are
convertible into shares of the Company's common stock, at any time prior to
maturity, at a conversion price of $4.20 per share. The Variable Notes are
non-interest bearing and are convertible into shares of the Company's common
stock, at any time prior to maturity, at variable conversion prices ranging from
$4.20 to $2.10. The variable conversion prices are based on the length of time
the investor holds the notes prior to conversion, declining at the rate of $.10
per quarter commencing November, 1996 from the initial conversion price of
$4.20. The fair value of the beneficial conversion feature of $285,835 at
September 1996 has been recorded as debt discount, reducing notes payable and
increasing additional paid in capital. The debt discount is being amortized
using the effective interest method over the term of the Variable Notes and to
the date of the deepest discount. As of December 31, 1996, there were $215,600
of 10% Notes and $571,670 ($304,891 net of unamortized debt discount of
$266,779) of Variable Notes outstanding. Accrued interest on the 10% Notes
totaled $1,796 as of December 31, 1996.
Future principal maturities of notes payable for each of the five years
subsequent to December 31, 1996 are as follows:
Year Ending
1997 $ 10,769
1998 10,769
1999 6,484
2000 -
2001 789,066
----------
Total $ 817,088
----------
----------
F-10
<PAGE>
4. Income Taxes:
The components of the Company's net deferred tax asset and the tax effects of
the primary temporary differences giving rise to the Company's deferred tax
asset are as follows as of December 31, 1996:
Deferred compensation $ 152,000
Net operating loss carryforward 327,000
----------
Deferred tax asset 479,000
Valuation allowance (479,000)
----------
Net deferred tax asset $ 0
----------
----------
Any tax benefits for the years ended December 31, 1996 and 1995 and the period
March 25, 1993 (date of inception) through December 31, 1996 computed based on
statutory federal and state rates are completely offset by valuation allowances
established since realization of the deferred tax benefits are not considered
more likely than not.
5. Common Stock Warrants:
During 1996 and 1995, the Company issued warrants to purchase 8,022 and 7,608
shares, respectively, of common stock to the University of Florida Research
Foundation ("UFRFI"). The warrants were issued as part of a license agreement
with UFRFI whereby Ixion is authorized to occupy space at a UFRFI facility. The
agreement calls for the Company to pay $18 per square foot annually for the
space that the Company currently occupies, payable at $11 per square foot in
cash and $7 per square foot through issuance of common stock warrants.
For the 7,608 warrants issued in 1995, the value assigned was $1.00 per warrant
and rent (prepaid or expense) was charged $7,608 related to this grant. The
value assigned to these warrants was based on the Company's assessment of fair
value at the time of issuance.
The 8,022 warrants issued in connection with the UFRFI license agreement in 1996
are accounted for under the provisions of Statement of Financial Accounting
Standards Board No. 123, Accounting for Stock Based Compensation. This standard
requires equity instruments issued in exchange for goods or services to be
accounted for at the fair value of goods or services received or equity
investments issued, whichever is more measurable. In connection with the
issuance of the 1996 warrants, the Company received cash license payment
reductions of $10,857, the value assigned to the warrants, or $1.35 per warrant,
which was charged to rent (prepaid or expense).
F-11
<PAGE>
5. Common Stock Warrants - Continued:
In addition, during 1995, the Company issued warrants to purchase 2,000 shares
of common stock to an investor. These warrants were issued under a subscription
agreement for the purchase of 3,000 shares of common stock at $3.00 per share
and warrants to purchase 2,000 shares of common stock at an exercise price of
$2.00 per share. The value assigned to the warrants, $1 per warrant, was based
on the Company's assessment of fair value at the time of issuance. The purchaser
paid $5,000 in cash, and $6,000 in the form of a promissory note.
All common stock warrants outstanding as of December 31, 1996 are exercisable at
a price of $2.00 per share and expire on August 31, 2000.
6. Stock Option Plan:
In August, 1994, the Board of Directors adopted the 1994 Stock Option Plan,
under which 250,000 shares of common stock were reserved for issuance upon
exercise of options granted to non-employee directors, officers, employees,
members of the Scientific Advisory Board and consultants of the Company. Options
vest at the rate of 20% per year and are exercisable generally within ten years
after date of grant. Activity under the Company's stock option plan is set forth
below:
Exercise
Shares Price
-------- ----------
Outstanding at January 1, 1994 - -
Granted 2,000 $0.02
Exercised - -
--------
Outstanding at December 31, 1994 2,000 $0.02
Granted 3,500 $0.75
Exercised - -
--------
Outstanding at December 31, 1995 5,500 $0.02 - $0.75
Granted 13,000 $3.00
Exercised - -
--------
Outstanding at December 31, 1996 18,500 $0.02 - $3.00
--------
--------
F-12
<PAGE>
6. Stock Option Plan - Continued:
The status of options outstanding at December 31, 1996 is as follows:
Weighted Weighted
Exercise Average Average Number
Price Shares Remaining Life Exercise Price Exercisable
-------- ------ -------------- ------------ -----------
$.02 2,000 7.5 years $.02 933
$.075 3,500 8.5 years $.075 1,108
$3.00 20,000 9.5 years $3.00 -
------ -----------
18,500 2,041
------ -----------
------ -----------
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for stock issued to employees under this plan. Compensation expense resulting
from stock options is measured at the grant date based upon the difference
between the exercise price and the market value of the common stock. All stock
options were granted at an exercise price equal to the market value at the date
of grant. Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for awards consistent
with the method of FASB Statement No. 123, the Company's reported net loss and
loss per share would not have been materially different.
7. Board Retainer Plan:
The Company does not pay cash compensation to outside members of the Board of
Directors or to members of the Company's Scientific Advisory Board. Accordingly,
in August, 1994, the Board of Directors adopted the 1994 Board Retainer Plan,
under which 75,000 shares of common stock were reserved for non-employee
directors and members of the Scientific Advisory Board.
New outside members of the Board or the Scientific Advisory Board receive 5,000
shares upon joining, and all will receive 5,000 shares annually during the
pendency of the Board Retainer Plan. Shares either vest upon delivery or time of
service. For the shares which vest over time of service, unearned compensation
equivalent to the fair value at the date of grant is charged to capital
deficiency and amortized over the service period to compensation expense. Shares
which vest upon delivery are recorded as compensation expense upon issuance. At
December 31, 1996, a total of 50,000 shares had been granted under this Plan.
Compensation expense recognized in connection with such awards for the years
ending December 31, 1996 and 1995 was $139,295 and $7,500, respectively.
Unearned compensation of $112,706 remains to be recognized as expense over
future periods of service.
F-13
<PAGE>
8. Related-Party Transactions:
Commencing with the founding of the Company, two executives, the Chairman/Chief
Executive Officer and the President, made loans to the Company pursuant to the
terms of a convertible promissory note (the "Subordinated Note Agreement").
Under the terms of the Subordinated Notes, principal amounts were convertible
into common stock at a price per share not greater than the lowest price per
share (adjusted for stock splits, stock dividends, or other dilution) at which
shares of the Company's common stock have been issued during the 12-month period
immediately prior to the notice of election to convert.
On September 30, 1994, these officers each converted $9,000 of Subordinated
Notes into an aggregate of 900,000 shares of the Company's common stock, at a
price of $0.02 per share. On June 30, 1996, the remaining obligation on these
notes was converted by the officers into a total of 21,544 shares of the
Company's common stock, at a price of $0.75 per share.
In addition, the Company has agreed to defer the 1993, 1994 and part of the 1995
and 1996 salaries of the Chairman/Chief Executive Officer and the President
pursuant to agreements between the Company and such executives. Similar
agreements are in effect with the Company's Senior Vice President and Chief
Scientist. Payments are to be made only upon termination of employment (which
may be by death, disability, retirement, or otherwise) and may be in a lump sum
or as an annuity. Amounts bear interest, compounded annually, at a rate
established by the Board of Directors, currently 8.0%. These obligations are
unfunded recorded liabilities of the Company.
On October 10, 1994, Dr. A.B. Peck, who is an executive officer and consultant,
assigned to the Company all his interest in certain oxalate technology (subject
to prior rights of the University of Florida) and agreed to an exclusive
consulting agreement with the Company in exchange for an aggregate of 650,000
shares of common stock at a price of $0.02 per share.
On November 10, 1994, members of the immediate families of the founders of the
Company, including a partnership in which the Chairman/Chief Executive Officer
has an undivided 25% interest, purchased an aggregate of 140,000 shares of the
Company's common stock pursuant to an Agreement to Purchase Shares dated as of
such date, for a price of $0.10 per share, or $14,000 in the aggregate.
On April 16, 1996, the Chairman/Chief Executive Officer and the President of the
Company each entered into an agreement to extend the Company up to $25,000 in
the form of a bridge loan. Interest on the notes is at 8%, but can be reset
annually, at the election of either party, to prime rate in effect on January 1
of any given year, plus 3%. In addition, on June 21, 1996, the Chairman/Chief
Executive Officer agreed to increase his loan commitment to an amount up to
$150,000, if necessary, to enable the Company to continue operations. During
1996, no amounts are outstanding against either of these loan agreements as of
December 31, 1996.
F-14
<PAGE>
9. Sponsored Research Agreement:
On June 5, 1996, the Company entered into an agreement with Genetics Institute,
Inc. ("GI") relating to Islet Producing Stem Cells Technology. Under the
agreement, GI will sponsor certain research by the Company and will provide
funding of $275,000 over a 12-month period, plus patent expenses of
approximately $35,000. The agreement may be extended, at GI's option, for up to
two additional six-month periods. GI will provide funding of $50,000 for each
six-month extension. The revenue under this contract is being recognized on a
pro rata basis consistent with the period over which the research will be
conducted as well as upon delivery of certain research reports. As of December
31, 1996, the Company has recognized approximately $139,000 under the terms of
this agreement, of which $14,000 represents reimbursable patent expenses
incurred for the period. In addition, as of December 31, 1996, the Company has
recorded deferred revenue of $100,000 in connection with this agreement.
10. Management's Plans:
The Company's financial statements for the year ended December 31, 1996 have
been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company incurred a net loss of $553,639 for the year ended
December 31, 1996 and, as of December 31, 1996, had a total capital deficiency
of $302,453.
Management recognizes that the Company must generate additional resources or
reduce operating costs to enable it to continue operations. Management's plans
to secure other financing include a private placement, a public offering, bridge
financing or corporate collaboration. If none of these financing possibilities
are concluded, then the Company would reduce ongoing operating expenses and seek
loans from its officers in amounts that the Company considers necessary to
sustain operations for the next year.
There can be no assurance that the Company will be successful in obtaining the
Required financing. Under current circumstances, the Company's ability to
Continue as a going concern depends upon obtaining additional financing.
11. Risks and Uncertainties:
Approximately 80% of 1996 revenues consisted of revenues related to a single
sponsored research agreement which expires in 1997 unless otherwise renewed.
The Company's product candidates are in an early stage of development. The
Company has not completed the development of any products and, accordingly, has
not received any regulatory approvals or commenced marketing activities. No
revenues have been generated from the sale of its products.
F-15
<PAGE>
11. Risks and Uncertainties - Continued:
The Company's development and commercialization rights for its proposed products
are derived from its license agreements with the University of Florida and
others. To date, the Company owns no patents outright. A deterioration in the
relationship between the Company and the University of Florida could have a
material adverse effect on the Company.
The Company is aware of potentially significant risks regarding the patent
rights licensed by the Company relating to Islet Progenitor/Stem Cells and to
its oxalate technology. The Company may not be able to commercialize its
proposed diabetic products due to patent rights held by third parties other than
the Company's licensors.
12. Subsequent Events:
In February, 1997, the Company issued 1,000 shares of restricted common stock in
exchange for a patent with a remaining legal life of 13 years. The patent was
valued based on the Company's determination of the fair market value of the
stock of $7.50 per share. In addition to the issuance of stock, the Company will
be required to pay royalties of 2% of net sales generated from the patented
technology.
In February, 1997, the Company issued 10,000 shares of restricted common stock
to an employee in exchange for entering into an employment agreement for future
services.
In June, 1997, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock in an initial public
offering (the "IPO").
In April through June, 1997, the Board of Directors granted 25,400 options to
purchase shares of the Company's common stock at exercise prices ranging from
$6.00 to $10.00 per share.
In June, 1997, the Board of Directors issued an additional 7,000 shares of stock
under the Company's Board Retainer Plan. Shares vest over periods ranging from
one to five years.
F-16
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
September 30, 1997
Unaudited
Assets
Current Assets:
Cash and cash equivalents $ 88,103
Accounts receivable 4,522
Prepaid expenses 112
Other current assets 500
Total current assets 93,237
Property and Equipment, net 38,625
Other Assets:
Patents pending, less accumulated amortization of $568 202,245
Other, less accumulated amortization of $2,404 50,725
Total other assets 252,970
Total Assets $ 384,832
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 46,937
Current portion of notes payable 10,570
Accrued expenses 30,353
Interest payable 3,593
Total current liabilities 91,454
Long-Term Liabilities:
Notes payable 572,452
Liability under research agreement 42,317
Deferred rent, including accrued interest 2,425
Deferred fees and salaries, including
accrued interest 407,866
Total long-term liabilities 1,025,150
Total liabilities 1,116,604
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000,
issued and outstanding 2,464,544 shares 24,645
Common stock warrants outstanding 20,494
Additional paid-in capital 1,198,520
Deficit accumulated during the development stage (1,784,366)
Less unearned compensation (191,065)
Total capital deficiency $ (731,772)
Total Liabilities and Capital Deficiency $ 384,832
See accompanying notes to financial statements.
F-17
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
For the Period
March 25,
Statements of Operations 1993 (Date
of inception)
Nine Months Ended through
September 30, September 30,
1997 1996 1997
Unaudited Unaudited
Revenues:
Income under research
agreement $ 135,922 $ 133,333 $ 275,000
Income from SBIR grant 71,650 0 91,650
Interest income 9,223 1,451 22,043
Other income 2,752 3,467 13,567
Total revenues 219,547 138,251 402,260
Expenses:
Operating, general and
administrative 290,271 247,060 1,051,809
Research and development 432,378 275,906 963,758
Interest 83,858 23,473 171,059
Total expenses 806,507 546,439 2,186,626
Net Loss $ (586,960) $ (408,188) $ (1,784,366)
Net Loss per Share $ (0.24) $ (0.17)
Weighted Average Common
Shares 2,456,412 2,438,544
See accompanying notes to financial statements.
F-18
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company) For the Period
March 25,
Statements of Cash Flows 1993 (Date
of inception)
through
Nine Months Ended June 30,
1997 1996 1997
Unaudited Unaudited
Cash Flows from Operating Activities:
Net loss $ (586,960) $ (408,188) $(1,784,366)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 8,542 6,409 21,471
Amortization 2,233 196 3,058
Amortization of debt discount...... 42,875 - 61,931
Stock warrants issued
under license agreement 0 6,657 20,465
Stock compensation 121,640 79,550 268,435
Decrease (increase) in
employee advance 0 900 0
Decrease (increase) in
prepaid expenses and
other current assets 7,666 5,285 (437)
Decrease (increase) in
accounts receivable 3,637 (664) (4,522)
Increase (decrease) in
deferred revenue (100,000) 133,333 0
Increase (decrease) in
liab. under research
agreement 42,317 0 42,317
Increase (decrease) in
accounts payable and
accrued expenses 12,322 65,365 78,634
Increase in deferred fees
and salaries 22,828 9,162 381,314
Increase in interest
payable 1,593 1,797 34,791
--------- ---------- ---------
Net cash used in
operating activities (421,305) (100,198) (876,907)
Cash Flows from Investing Activities:
Purchase of property and
equipment (5,758) (270) (31,898)
Payments for patents pending (50,450) (25,617) (169,931)
Net cash used in investing
activities (56,208) (25,887) (201,829)
Cash Flows from Financing Activities:
Proceeds from issuance of
subordinated notes payable
to related parties 0 0 30,307
Deferred registration
costs - IPO (42,049) 0 (42,485)
Proceeds from issuance of
convertible notes payable 0 537,530 787,270
Proceeds from issuance of
common stock 0 0 406,700
Decrease in notes payable (9,874) 0 (9,874)
Decrease in note receivable
from shareholder 6,000 0 6,000
Payment of loan costs 0 0 (11,080)
Net cash provided by
(used in) financing
activities (3,048) 537,530 1,228,769
Net Increase (Decrease) In Cash and
Cash Equivalents (523,436) 411,446 88,103
Cash and Cash Equivalents at
Beginning of Period 611,539 80,419
Cash and Cash Equivalents at
End of Period $ 88,103 $ 491,865 $ 88,103
See accompanying notes to financial statements.
F-19
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
Nine Month Periods Ended September 30, 1997
1. Significant Accounting Policies:
Basis of Presentation
The accompanying unaudited condensed financial statements for the nine
months ended September 30, 1997 and 1996 and for the period March 25, 1993 (date
of inception) through September 30, 1997 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the Company's financial position, results
of operations, and cash flows for the periods presented. The results of
operations for the interim period ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
Deferred Registration Costs-The Company deferred certain costs related to
its planned initial public offering. These costs will be offset against the
proceeds from the offering or expensed should the offering be abandoned.
Deferred Rent - Deferred rent represents a portion of the rent payable
under the Company's facilities license with the Biotechnology Development
Institute (BDI) and accrued interest thereon. The deferred amount bears non-cash
interest at 12% on the outstanding balance, compounded annually. The Company
will repay the liability, if at all, only through a 1% royalty on net sales of
any products developed during its tenancy at the BDI, such royalty not to exceed
the outstanding balance.
The condensed financial statements should be read in conjunction with the
Company's annual financial statements for the year ended December 31, 1996.
2. Recent Accounting Pronouncements:
In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share. This statement, which is effective for
the Company's annual report for the year ended December 31, 1997, establishes
new requirements for the calculation, presentation and disclosure of earnings
per share. The Company estimates that Basic Earnings Per Share presented in
accordance with Statement No 128 would not differ from what is currently
presented. Diluted Earnings Per Share under Statement No. 128 would not be
required since the Company is reporting losses and effects of additional shares
would be anti-dilutive.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
This statement, which is effective for the Company's annual report for the year
ended December 31, 1998, establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Adoption of this standard is not expected to have a
material impact on the Company's financial statements or results of operations.
3. Income Taxes:
The components of the Company's net deferred tax asset and the tax effects
of the primary temporary differences giving rise to the Company's deferred tax
asset are as follows as of September 30, 1997:
Deferred compensation $155,000
Net operating loss carryforward 392,000
F-20
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
Nine Month Periods Ended September 30, 1997
3. Income Taxes (continued):
Deferred tax asset 547,000
Valuation allowance (547,000)
Net deferred tax asset $ 0
4. Stock Options:
The status of options granted since December 31, 1996 is as follows:
Weighted Weighted
Exercise Average Average Number
Price Shares Remaining Life Exercise Price Exercisable
$6.00 3,000 9.5 years $6.00 0
$7.50 2,000 9.6 years $7.50 0
$10.00 19,400 9.75 years $10.00 3,125
5. Sponsored Research Agreement
On June 5, 1996, the Company entered into an agreement with Genetics Institute,
Inc. ("GI") relating to Islet Producing Stem Cells ("IPSC") technology. Under
the agreement, GI sponsored certain research by the Company plus reimbursed
patent expenses in the amount of $42,317 relating to IPSC patent applications.
Under the terms of the sponsored research agreement, such reimbursed patent
expenses must be repaid to GI over a 36- month period, commencing at a date
still to be determined.
6. Risks and Uncertainties:
Approximately 62% of revenues for the nine months ended September 30, 1997
consisted of revenues related to a singled sponsored research agreement which
expires in 1997, and an addition 33% of such revenues consisted of revenues
related to a single grant under the Small Business Innovation Research program
which likewise expires in 1997.
The Company's product candidates are in an early stage of development. The
Company has not completed the development of any products and, accordingly, has
not received any regulatory approvals or commenced marketing activities. No
revenues have been generated from the sale of its products.
The Company's development and commercialization rights for its proposed products
are derived from its license agreements with the University of Florida and
others. To date, the Company owns no patents outright. A deterioration in the
relationship between the Company and the University of Florida could have a
material adverse effect on the Company.
The Company is aware of potentially significant risks regarding the patent
rights licensed by the Company relating to Islet Progenitor Stem Cells and to
its oxalate technology. Although the Company
F-21
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
6. Risks and Uncertainties (continued):
believes its patents and patent applications are valid, there is no assurance
that it will be able to commercialize its proposed diabetic products due to
patent rights held by third parties other than the Company's licensors.
F-22
<PAGE>
No other person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of any offer to buy any securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Units offered
hereby. Neither the delivery of this Prospectus, nor any sale made pursuant
hereto shall, under any circumstances, create any impression that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
TABLE OF CONTENTS
Page
Available Information 2
Summary 3
Risk Factors 6
Special Note Regarding
Forward-Looking Statements 14
Use of Proceeds 15
Dilution 16
Dividend Policy 16
Capitalization 17
Selected Financial Data 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19
Business 23
Management 42
Certain Transactions 47
Principal Shareholders 48
Description of Securities 49
Certain Federal Income Tax Consequences 52
Shares Eligible for Future Sale 55
Plan of Distribution 56
Legal Matters 58
Experts 58
Unit Purchase Agreement 59
Index to Financial Statements F-1
Until June 16, 1998 (90 days after the date of this Prospectus) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
400,000 Units
Minimum Purchase100 Units
IXION
Each Unit Consisting of
One Share of Common Stock and
.25 Charitable Benefit Warrant
PROSPECTUS
March 19, 1998
