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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON December 13 , 1999
REGISTRATION NO. 333-334765
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
IXION BIOTECHNOLOGY, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 2834 59-3174033
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification
Organization) Code Number)
13709 Progress Blvd., Box 13
Alachua, Florida 32615-9495
904-418-1428
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
Weaver H. Gaines
13709 Progress Blvd., Box 13
Alachua, Florida 32615-9495
904-418-1428
(Name, Address and Telephone Number of Agent for Service)
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Copy to:
Bruce Brashear, Esq.
Brashear & Associates, P.L.
926 NW 13th Street,
Gainesville, FL 32601
352-336-0800
Facsimile No. 352-336-0505
Approximate Date of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Proposed Max Aggregate Amount of Registration
Securities to be Registered Registered (1) Max Offering Offering Price (1)(2) Fee (1)(2)
Price Per Share
<S> <C> <C> <C> <C>
Shares of Voting Common
Stock, par value $.01 150,000 $4.00 $600,000 $1,212
per share ("Common Stock"
Charitable Benefit Warrants
to purchase shares of Voting
Common Stock at $8.00 per share
21,513 Warrants
Voting Common Stock purchaseable
pursuant to Warrants
21,513 Shares $8.00 $172,104 $606
</TABLE>
(1) 400,000 Units, each Unit consisting of one share of common stock and .25
Charitable Benefit Warrants, covering 400,000 shares of common stock and 100,000
Warrants and Warrant Shares were originally registered at a price of $10.00 per
Unit. The Company has withdrawn 250,000 shares of common stock and all unsold
Charitable Benefit Warrants, has reduced the price to $4.00 per share, and has
reduced the Warrant Exercise Price to $8.00 per share. Registration fee was
calculated on original registration amount.
(2) Estimated solely for purposes of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
IXION BIOTECHNOLOGY, INC.
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CROSS REFERENCE SHEET
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Form SB-2 Item Nos. and Caption Prospectus Caption
- -----------------------------------------------------------------------------------------------------------------------------------
1. Front of Registration Statement and Outside Outside Front Cover Page
Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Dilution
7. Selling Security-Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; Plan of Distribution
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and Control Persons Management
11. Security Ownership of Certain Beneficial Owners and Management Principal Shareholders
12. Description of Securities Description of Securities; Shares Eligible For
Future Sale
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position Description of Securities
on Indemnification for Securities Act Liabilities
15. Organization Within Last Five Years Certain Relationships and Related Party
Transactions
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of Operation Management's Discussion and Analysis of Financial
Conditions and Results of
Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Relationships and Related Party
Transactions
20. Market for Common Equity and Related Stockholder Matters Description of Securities
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Accounting and Financial Not Applicable
Disclosure
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Preliminary Prospectus dated Initial Public Offering Prospectus
December 10, 1999
Ixion
150,000 Shares
$4.00 per Share
Minimum Purchase 100 Shares ($400)
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<CAPTION>
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Ixion Biotechnology, Inc. We are a development stage biotechnology company, and have lost money since we were
13709 Progress Blvd., Box 13 founded. We are developing two product lines. One is islet replacement therapy - a
Alachua, FL 32615-9495 cure for type 1 diabetes - based on transplanting artificially-grown human islets.
904-418-1428 We grow these islets from stem cells which we obtain from adult donors.
Fax: 904-418-1583
Email: [email protected] The other product line is a diagnosis and treatment of oxalate-related diseases,
such as kidney stones, cystic fibrosis, hyperoxaluria, and Crohn's disease. Oxalate
is found normally in the body, but can be toxic, especially to mammals.
Unfortunately, the body makes its own oxalate and it is also present in large
amounts in typical diets. In high concentrations, oxalate causes death.
The Offering
Per Share Total This is our initial public offering, and no public market exists for our shares.
--------- ----- The offering price may not reflect the market price, if any, for our shares after
Public Price $ 4.00 $ 600,000 the offering.
Commissions $ .10 $ 14,664
Proceeds to Ixion $ 3.90 $ 585,336
</TABLE>
We are making this offering directly, meaning there are no brokers
involved (except in Florida where we are required to use a broker). We will sell
the shares directly. You must purchase a minimum of 100 shares ($400). Because
there is no minimum total number of shares to be sold, and no escrow, we will
get all funds immediately. We will terminate the offering upon the earliest of:
o the sale of all shares,
o March 31, 2000 (unless extended), or
o Any earlier date on which we decide to close the offering as set
forth in the Plan of Distribution section.
These securities are speculative. The investment involves a high degree of risk,
and you should purchase shares only if you can afford a complete loss. See "Risk
Factors" beginning on page 6 for a list of factors to consider before investing
in our company.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 13, 1999.
<PAGE>
TABLE OF CONTENTS
Page Page
Prospectus Summary 3 Business 23
Risk Factors 6 Management 42
Special Note Regarding Certain Relationships and
Forward Looking Statements 12 Related Party Transactions 48
Use of Proceeds 13 Principal Shareholders 48
Dilution 14 Description of Securities 49
Dividend Policy 14 Shares Eligible for Future Sale 53
Capitalization 15 Plan of Distribution 54
Selected Financial Data 16 Legal Matters 56
Management's Discussion Experts 56
and Analysis of Financial Where You Can Get More Information 57
Condition and Results of Share Purchase Agreement 58
Operations 17 Index to Financial Statements 60
On December 10, 1997, when our initial registration statement first
became effective, we became a reporting company. Since then we have distributed
our annual report containing audited financial statements to our shareholders,
and we made our quarterly reports available to them as well. We intend to
continue that practice.
This prospectus is available in an electronic format at
http://www.ixion-biotech.com. We will also send you promptly, without charge, a
paper copy of this prospectus if you ask for one. Please request paper copies
from us directly at 904-418-1428. Materials available at or linked to our
website are not incorporated by reference into this prospectus.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and financial statements.
About Our Company
We are a development stage, discovery research biotechnology
company, with several potential products in development. We hold world-wide
exclusive licenses to patents and pending patents in two key areas:diabetes and
oxalate-related disorders.
We are developing diabetes products based on our ability to grow
functioning islets of Langerhans starting with stem cells from the pancreas. A
stem cell is an unusual type of cell which can reproduce and differentiate into
more specialized types of cells. We get the stem cells from adult donors. We are
developing colonies of in vitro (in test tube) islet stem cells in commercial
quantities for use in islet replacement therapy to cure diabetes. Islet
replacement therapy involves transplanting new islets to replace islets that
have been destroyed by diabetes. We intend to optimize the growth of functioning
islets or islet progenitors in vitro from stem cells or progenitor cells that we
have established in cell cultures. Islet replacement therapy is the only known
potential cure for type 1 diabetes.
We are also developing products based on our oxalate technology for
the diagnosis and treatment of oxalate-related diseases. Oxalate is found
normally in blood, urine, and other tissues, but it is toxic, especially to
mammals. Unfortunately, oxalate is a common byproduct of metabolism and is also
present in large amounts in typical diets. In high concentrations, oxalate
causes death. Even in smaller concentrations, it is associated with various
pathological disorders, such as calcium oxalate kidney stones, cystic fibrosis,
hyperoxaluria, cardiomyopathy, cardiac conductance disorders, Crohn's disease,
renal failure and toxic death, and vulvodynia.
Our oxalate products are based on genes and enzymes from a bacterium
called Oxalobacter formigenes. O formigenes is a non-pathogenic, anaerobic
intestinal bacterium, which means that it is benign and that it can not live in
oxygen. It normally inhabits the colon where it degrades oxalate in healthy
people. Inadequate colonies of O. formigenes means a reduced ability to cope
with oxalate.
We have four distinct products in development based on our oxalate
technology.
o Ox-Control(TM) - a nutritional supplement made from native O. formigenes
designed to promote healthy levels of oxalate. This product will be
non-prescription.
o A pet food supplement or additive to control oxalate in companion
animals.
o The XEntrIx (TM) Oxalobacter Formigenes Monitor - a molecular diagnostic
test for the rapid and sensitive detection of human O. formigenes.
o IxC1-62/47 - a pill consisting of recombinant (genetically engineered)
enzymes normally found in O. formigenes. These enzymes degrade oxalate.
It has been shown to be effective in lowering urinary oxalate levels in
animal studies. We believe that our pill will greatly diminish the
recurrence of calcium oxalate kidney stones and will have positive
therapeutic effects on other oxalate-related disorders. It will be a
prescription product.
Ox-Control(TM) is the most advanced product in our development pipeline.
We are in the development stage, meaning we are primarily developing
our products and have not started to manufacture or sell them. We have earned
only limited revenues, mostly from research and development payments, and have
an accumulated deficit of $3,663,019 and a working capital deficit of $558,354
at September 30, 1999.
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The Offering
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<CAPTION>
<S> <C>
Securities offered 150,000 shares at a price of $4.00 per share. Minimum purchase is 100 shares.
History of the offering In December, 1997, we commenced the public offering of 400,000 units, for an aggregate
of $4,000,000. Each unit consisted of one share of common stock and 0.25 charitable
benefit warrant. Each whole charitable benefit warrant entitled someone to purchase
one share of common stock at a price of $20.00 per share. On December 10, 1998, we
extended the offering through the earliest of:
o the sale of all securities,
o December 10, 1999 (unless extended), or
o the date we decide to close the offering.
In early 1999, we temporarily suspended the offering, converted the securities offered
from units to shares, retroactively reduced the offering price from $10.00 per unit to
$4.00 per share, and withdrew 250,000 shares and all unsold charitable benefit warrants
from registration. We also adjusted the exercise price for outstanding charitable
benefit warrants from $20 per share to $8 per share and increased the number of shares
purchasable upon exercise of those warrants from 8,605 shares to 21,513 shares. As a
result, a total of 51,630 shares were issued to purchasers in the public offering for
no additional consideration. These shares are included in the shares outstanding on
September 30, 1999.
Shares outstanding on September 2,813,044 shares, including 86,050 shares sold in the offering since December 10, 1997
30, 1999 through September 30, 1999.
Shares to be outstanding after
the offering 2,876,994 shares, if all shares are sold.
Total shares to be outstanding
after offering if all options
and warrants are exercised 5,454,120, if all shares are sold.
Charitable benefit warrants
outstanding 21,513
Total public price $600,000, of which $344,200 has been received through September 30, 1999.
Maximum discounts and
commissions $14,664, of which $1,854 has been paid through September 30, 1999.
Estimated offering expenses $134,000, of which $124,631 has been paid through September 30, 1999
Net proceeds after commissions
and expenses $451,356, if all shares are sold, of which $219,569 has been received through
September 30, 1999.
Use of Proceeds We will spend the proceeds for research and development, capital investment, repayment
of bridge loans from officers, patent prosecution, and working capital and general
corporate purposes. Because there is no minimum number of shares to be sold, and no
escrow, we get all funds immediately.
Risk Factors Investing in our securities is very risky, and you should be able to bear a complete
loss of your investment.
</TABLE>
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Summary Financial Data
This summary is derived from financial statements appearing
elsewhere in this prospectus and should be read in conjunction with them and
with Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Year Ended Nine Months Ended
December 31, September 30,
1997 1998 1998 1999
------- ------ ------ ------
(unaudited)
Statement of Operations Data:
Total revenues $ 221,452 $ 3,722 $ 3,624 $ 20,833
Total expenses 1,003,406 917,961 673,888 790,254
Net loss (781,954) (914,239) (670,264) (769,421)
Net Loss per Share (Basic) $ (0.32) $ (0.37) (0.27) (0.30)
Weighted Average
Common Shares 2,458,440 2,489,677 2,482,687 2,561,053
Balance Sheet Data: September 30, 1999
(unaudited)
Cash and cash equivalents $ 36,737
Working capital deficit (558,354)
Total assets 541,184
Total liabilities 2,248,211
Total capital deficiency (1,707,027)
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RISK FACTORS
Investing in Ixion's securities is very risky. You must be able to
bear a complete loss of your investment. You should carefully consider the
following factors. We have classified the following risk factors into three main
groups, although they overlap to some degree:
o Business risks particular to our company;
o Investment risks of this offering; and
o Business risks which we share in common with other companies in the
biotechnology sector.
The business risks particular to Ixion are the following:
Because we are a new business venture with no products in the
market, investment in our company is risky. Our securities are subject to the
risks inherent in any new business venture. We have limited experience and a
short history of operations, especially with respect to marketing and selling
any products. We have had only minimal revenues, none of which came from the
sale of products. With the exception of our molecular diagnostic test for the
presence of the anaerobic bacterium, Oxalobacter formigenes, none of our
products has been finally designed, developed, tested, or marketed. None,
including the molecular diagnostic test, has received regulatory approval. We
can not assure you that we will be able to complete the design and testing of
our products, that the products will be approved by the FDA or accepted in the
marketplace, or that we will be able to sell them at a profit. Furthermore, as a
young company, we especially vulnerable to the problems, delays, expenses, and
difficulties encountered by any company in the development stage, many of which
are out of our control. Consequently, an investment in our securities is highly
speculative.
We have significant accumulated deficits and we expect expenses to
exceed revenues for the foreseeable future. We lost $769,421 through September
30, 1999. As of September 30, 1999, our accumulated deficit was $3,663,019. We
had a working capital deficit (current assets less current liabilities) at that
date of $558,354. Our losses have resulted principally from expenses of research
and development and from general and administrative expenses. Expenses have
exceeded our revenues. We have not received any revenue from the sale or license
of our molecular diagnostic test, and we cannot assure you that we will be able
to generate significant revenues in the future, or that we will successfully
complete the transition from development stage to successful operations or
profitability. We will have to do significant research, development, testing,
and regulatory work, which, together with our general and administrative
expenses, will result in material operating losses in the foreseeable future.
We do not expect commercialization of our products in the near
future and it may be several years before we receive any revenue from the sale
of products. Certain of our product candidates need significant additional
development, preclinical and clinical trials, regulatory approval, and
additional investment prior to product introduction. We may be unable to market
any products requiring regulatory approval for several years. Furthermore, it is
likely to be a number of years, if ever, before we will receive material
revenues from product sales or royalties. In addition, our products are subject
to the risks of failure inherent in the development of products based on
innovative technologies. Accordingly, we can not assure you
o that we will be successful in our research and development efforts,
o that any of our product candidates will prove safe, effective, and
non-toxic in clinical trials,
o that we will develop any commercially successful products,
o that the patent rights of others will not keep us from marketing our
products, or
o that others will not develop equally-good or better products.
Our products are based on novel scientific approaches. There is, therefore,
substantial risk that these approaches may be unsuccessful.
Our proposed products may not be accepted in the market, adding to
the time before we receive any revenue from product sales. Retail consumers must
accept Ox-Control(TM) and our pet food supplement as beneficial and worthwhile.
In addition, patients, doctors, and third-party payors must accept the XEntrIx
(TM) Oxalobacter Formigenes Monitor and IxC1-62/47 as medically useful and
cost-effective. Market acceptance will require substantial education about the
benefits of our molecular diagnostic test and other products. We can not assure
you that the market will accept
6
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our products, even if approved for marketing, on a timely basis. If retail
consumers, patients, the medical community, and third-party payors do not
accept our products or acceptance takes a long time, then revenues and profits
would be reduced.
Our earnings inadequate to pay fixed charges. We do not expect any
earnings for the foreseeable future. That means, by definition, that earnings
will be inadequate to cover fixed charges, including interest on our outstanding
10% unsecured convertible notes. Payment of principal on our unsecured
convertible notes will depend on our ability to raise additional funds through
the sale of our securities, corporate alliances, or otherwise.
We rely on key personnel who may leave us on short notice. Because
of the scientific nature of our business, we depend greatly on attracting and
retaining management and scientific personnel, especially Dr. Ammon Peck, our
Chief Scientist and Chairman of our Scientific Advisory Board. We have only
two full-time executives: Weaver H. Gaines, Chairman and Chief Executive
Officer and Kimberly A. Ramsey, our Vice President and Controller. David C.
Peck, our President and Chief Financial Officer, is a consultant who devotes
substantial time to another employer. We have an employment contract with Mr.
Gaines, an exclusive consulting agreement with Dr. Peck, and a consulting
agreement with Mr. David Peck. The agreements of Dr. Peck, Mr. Gaines, and Mr.
Peck all contain non-compete provisions, but all allow termination on short
notice. The loss of any of these individuals could have a material adverse
effect on us. We have a $500,000 key person life insurance policy only on Dr.
Peck.
A breach in our relationships with the University of Florida may
have a detrimental effect. We have sought a close and favorable relationship
with the University of Florida. We have licensed both our diabetes and oxalate
technologies from them. We are an affiliate of the Biotechnology Program of the
University, which provides business support services and specialized equipment
to us. Our Chief Scientist and three members of our Scientific Advisory Board
are faculty members at the University. We can not assure you that disputes will
not cause our favorable relationship with the University to deteriorate. A
deterioration in the relationship between us and the University would affect us
adversely.
A breach of the State of Florida and University of Florida conflicts
of interest laws and rules could be harmful to us. Our Chief Scientist and three
members of our Scientific Advisory Board work for the Florida State University
System. As a result, we and they must comply with Florida statutes and
University policy on conflicts of interest. In order for us to do business with
the University (which includes licensing technology or cooperative research),
Dr. Peck must obtain an exemption from the Florida conflict of interest statutes
annually. The University must also approve service on our Scientific Advisory
Board for its employees. If the University were to decline to approve the
outside activities of Dr. Peck or the University employees who are members of
our Scientific Advisory Board, or were to change the terms of its conflicts of
interest policy, it could have a material adverse effect on us.
We depend on licensed technology, the loss of which would mean we
could not manufacture products. Our rights to develop several of our proposed
products come from our license agreements with the University of Florida and
others. In the event that our license agreements terminate for any reason, we
would lose our rights to manufacture and market many of our products.
We are not sure of our ability to protect our proprietary property.
Our success will partly depend on our ability to obtain patent protection in the
United States and abroad. We also must be able to protect our trade secrets and
to avoid infringing the patent rights of others.
We have received four US patents and have two US notices of
allowance pending. We have additional US patent applications and multiple
international patent applications pending. Only two international patent
application have been allowed to date. However, we can not assure you that our
patent rights will provide us 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. We also can not assure you that our existing or future patents will
not 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 we need for developing our products. If our products or
processes infringe upon the patents, or otherwise impermissibly utilize the
intellectual property of others, we might be unable to develop, manufacture, or
sell our products. In such event, we may be required to obtain licenses from
third parties. We can not be sure that we will be able to obtain such licenses
on acceptable terms, or at all.
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We have no product liability insurance and may not be able to get
any on reasonable terms. Our business exposes us to product liability claims
inherent in the testing and marketing of medical products. We currently carry no
product liability insurance, but intend to acquire such insurance prior to
selling any of our products for commercial use. We can not assure you that we
will be able to get or keep adequate liability insurance at a reasonable cost.
Our inability to get or keep insurance at acceptable cost could prevent or
inhibit the commercialization of our products. In addition, a liability claim,
even one without merit, could result in major legal expenses.
We do not expect to pay dividends. We have never paid any cash
dividends on our common stock, and we do not intend to pay any in the
foreseeable future.
We have limited experience in sales and marketing. We have no
experience in pharmaceutical or nutritional supplement sales, marketing, or
distribution. To market any of our products directly, we would have to develop a
substantial marketing and sales force. Alternatively, we intend, for certain
products, to obtain the assistance of companies with established distributions
systems and direct sales forces. We can not assure you that we will be able to
establish sales and distribution capabilities or that we will be able to enter
into licensing or other agreements with established companies to sell our
products.
We own no manufacturing facilities and will be dependent on third
parties to make our products. We own no manufacturing facilities or equipment,
and employ no manufacturing personnel. We expect to use third parties to
manufacture our products on a contract basis. We can not assure you that we will
be able to obtain contract manufacturing services on reasonable terms.
The following risk factors are risks of this particular offering.
We will need additional financing following this offering. Based on
our operating plan, we expect that the net proceeds of this offering, assuming
the sale of all the shares, together with funds we expect to receive from a
transaction with Q-Med, AB (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - The Q-Med Transaction" for
details of the transaction), possible contract research revenue and grant
income, will be adequate to provide for operating requirements for approximately
12 months. However, even if we sell all the shares, we will still need a lot
more money to reach the point of a commercially successful product.
Our plan of operations has been adjusted for three possible levels
of sales of shares, ranging from a total of 150,000 shares sold to 100,000
shares sold. If only 100,000 shares were to be sold, we believe we will still be
able, subject to the uncertainties of research and development, to file for
regulatory approval for the XEntrIX TM Oxalobacter formigenes Monitor, to
continue development of Ox-Control (TM) (our nutritional supplement product),
and to make further progress on our diabetes research over the next 12 months.
Without additional funds, however, we will not be able to file for regulatory
approval for IxC1-62/47, our oxalate therapeutic. Regardless of the total number
of shares sold in this offering, additional financing would be highly desirable
in the next 12 months.
Even if we are able to sell a total of 150,000 shares, we will need
still more capital. Our future capital requirements will depend on
o the costs involved in future capital raising activities,
o continued scientific progress in our research and development programs,
o the size of our programs,
o any new programs,
o the progress of preclinical and clinical testing,
o the costs of obtaining regulatory approvals,
o the costs of patents,
o competing technological and market developments, and
o whether we are able to enter into collaborative agreements.
We intend to seek additional financing even during the pendency of
this offering, through collaborations with corporate partners, private sales of
debt or equity, or other sources. In these efforts to raise capital, we may sell
securities which are senior to the common stock or which further dilute you. We
can not assure you that we will be able to get additional funding on acceptable
terms, or at all. If adequate funds are not available, we will have to curtail
or
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defer our research and development programs or to obtain funds through
arrangements that may require us to give up rights.
There is no minimum amount for this offering, and we can use the
proceeds as soon as we get them. Because there is no minimum number of shares
required to be sold in the offering, all the cash received will go directly to
us to be used as described in the Use of Proceeds section. Since December 10,
1997, when this offering first became effective, through September 30, 1999, we
have sold a total of 86,050 shares for $344,200. The total expenses of the
offering through September 30, 1999, are $124,631. The sale of a total of less
than 150,000 shares through the end of the offering, would materially and
adversely affect us in that we would have to limit our operational expenses, by
curtailing or deferring one or more of our research and development programs or
to obtain funds through arrangements that would require us to relinquish certain
technological or product rights. Such spending reductions would significantly
extend the development time for our products and limit the number of products
developed.
This is a direct public offering and the absence of an underwriter
makes it more difficult to sell shares. We are offering the shares directly,
meaning there are no underwriters, brokers, dealers or placement agents (except
in Florida, where we are required to use a broker). The absence of an
underwriter has adversely affected our ability to sell shares.
Following this offering, the current management and shareholders
will still control our company. At September 30, 1999, the current officers,
directors, members of their families sharing their household, and affiliates own
beneficially or have the right to acquire approximately 84% of our outstanding
shares. In the event we sell all of the shares offered, those persons will still
own or have rights to acquire approximately 82% of our common stock. They will
still be able to control all matters requiring approval by stockholders,
including the election of directors, amendment of our certificate of
incorporation, or approval of a merger or sale of substantially all our assets.
This concentration of ownership may also delay or prevent a change in control
that may be favored by other stockholders.
Because Q-Med, one of our investors, holds an option to acquire up
to 2.7 million shares, there could be a change of control. On April 16, 1999, we
reached an agreement in principle, amended on September 7, 1999, with Q-Med AB,
a biotechnology company based in Uppsala, Sweden. Under the amended agreement,
we issued an option to Q-Med, expiring July 1, 2000, to acquire shares of
newly-issued common stock. Q-Med may acquire either 2,700,000 shares or such
number of shares that, following the exercise of the option, Q-Med owns at least
50% of the shares outstanding on that date. If Q-Med elects to exercise its
option for the maximum possible number of shares (currently 2,700,000 shares),
it would own over 50% of the outstanding stock and would thus control us. See
"Management," "Principal Shareholders," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - The Q-Med
Transaction."
We have the right to change the use of proceeds from that described
in this prospectus and may use some of the funds to pay currently outstanding
loans from officers.. We may use some of the net offering proceeds to repay a
portion of bridge loans from officers rather than to support our research and
development activities. Bridge loans from officers totaled $415,000 at September
30, 1999, not including $30,433 in accrued interest payable. The board of
directors may also change the nature in which the proceeds are used.
There is no public market for our stock, meaning you will have
difficulty selling your shares. If a public market develops, the share price is
likely to be volatile. There is no public market for our common stock, and no
public market is likely after the offering. We may, after termination of the
offering, establish a passive, bulletin board system on the Internet supplying
information to buyers and sellers of our shares to provide limited liquidity.
Any passive bulletin board system must comply with rulings of the SEC strictly
limiting the operations of such system. In the absence of a public trading
market, you may be unable to resell the common stock for an extended period of
time, if at all.
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 perceptions will change over time, affecting
our ability to fund operations. Thus, future trading prices, if any, of our
shares will depend on many factors, including, among others, those mentioned
above, together with
o prevailing interest rates,
o our operating results,
o preclinical and clinical trial results,
o scientific defections,
9
<PAGE>
o personnel turnover at corporate partners,
o general conditions in the biotechnology industry,
o announcements of discoveries of new products by us or our competitors,
and
o the market for similar securities.
In particular, the public market for small biotechnology stocks is highly
volatile and has seen extreme price and volume fluctuations which have
particularly affected the market prices for emerging biotechnology companies and
which often have been unrelated to their operating performances.
Because there is no public market for our stock, we arbitrarily
determined the offering price, which therefore does not bear any necessary
relationship to the actual value of our shares. We have unilaterally and
arbitrarily determined the offering price. Among the factors we considered in
determining the price were
o the consideration we received from the sale of shares to Q-Med AB;
o the recent market for biotechnology stocks;
o offering prices of other early stage biotech initial public offerings,
o our capital requirements,
o our negative book value,
o the percentage of ownership to be held by investors following the
offering,
o the prospects for our business and the biotech industry,
o the early stage of our products,
o the lack of revenue and the prospects for future revenues, and
o the current state of the economy in the United States.
The offering price does not necessarily bear any relationship to our
assets, negative book value, or other investment criteria, and you should not
consider it an indication of the actual value of our shares. If a public market
for our shares were to develop or if we were to merge with another company, the
public market price or the merger price for our shares could be substantially
less than the offering price.
Low-priced ("penny") stocks are often difficult to sell. The SEC
defines a "penny stock" generally as any equity security with a market price
less than $5.00 per share. If the trading price, if any, of our shares were to
fall below $5.00 per share, the shares may become subject to Rule 15g-9 under
the Exchange Act. That rule imposes requirements on broker-dealers that sell
"penny stocks" to persons other than established customers and institutional
accredited investors. A broker-dealer must make a special suitability
determination and have received the purchaser's written consent to the
transaction prior to the sale. Consequently, the rule, if applied to us, would
affect the ability of broker-dealers to sell our shares and would affect the
ability of holders to sell our shares in the secondary market. There is no
liquidity in our shares now, but if a public market arose and we became subject
to the penny stock rules, the market liquidity could be adversely affected.
There are many shares in the hands of current shareholders which are
available for sale in the future which might depress the price of your shares.
Sales of substantial amounts of our common stock (including shares issued upon
the exercise of outstanding options and warrants or upon the conversion of our
Unsecured convertible notes) in the public market, if any, after this offering
or the prospect of such sales could adversely affect the market price of your
common stock and may have a material adverse effect on our ability to raise
capital to fund our operations. Upon completion of this offering, assuming all
shares are sold, we will have 2,876,994 shares of common stock outstanding. The
150,000 shares sold in the offering will be freely tradeable under the
Securities Act, except for any shares held by our "affiliates." Affiliates'
shares will be subject to the limitations of Rule 144. The remaining shares are
"restricted" securities that may be sold only if registered under the Securities
Act, or sold in accordance with Rule 144 or Regulation S. The officers and
directors, who together hold 1,874,944 shares and rights to purchase an
additional 2,840,402 shares (including the Q-Med option for 2,700,000 shares),
of which 2,745,895 can be acquired within the next 60 days, have agreed not to
sell any shares in the public market for a period of 180 days from the
termination of this offering. We are unable to predict the effect that sales
made under Rule 144 may have on any market price for our shares should one
develop. It is likely that market sales of large amounts of our shares after
this offering, if a market for the shares develops, would depress the price of
Ixion stock.
You will experience immediate and substantial dilution when you buy
our stock. At September 30, 1999, we have sold 86,050 shares in the offering. If
you buy shares after that date, you will experience an immediate and substantial
dilution between the initial public offering price of $4.00 per share and the
pro forma net tangible book value
10
<PAGE>
per share of common stock after the offering as follows. The dilution will
amount to $4.68 (117%) if a total of 150,000 shares are sold; $4.72 (118%) if a
total of 125,000 shares are sold; and $4.76 (119%) if a total of 100,000 shares
are sold. You will be further diluted if holders of outstanding options
(including the Q-Med option to acquire 2,700,000 shares at a price of $2.00 per
share), warrants, and unsecured convertible notes who have rights to acquire
common stock at prices below $4.00 per share exercise such rights.
Risk factors that apply to Ixion as a member of the biotechnology industry
include the following:
Preclinical and clinical testing of our products may not result in
regulatory approval. Before obtaining any required regulatory approvals for the
commercial sale of any of our prescription products, we must extensively test
them in preclinical and clinical trials. We have no experience in managing
clinical trials and intend to employ third parties to conduct them. We have not
completed the required preclinical studies for our prescription oxalate
products; and have not even commenced preclinical work on any diabetes product.
Furthermore, we can not assure you that preclinical or clinical trials of any of
our products will result in regulatory approvals. Biotech companies have had
significant setbacks in advanced clinical trials, even after good results in
earlier stages. Clinical failures would have a material adverse effect on our
business, operating results, and financial condition.
There are substantial public controversies relating to stem cell
research which may adversely affect our research projects.. Our islet stem cell
diabetes program involves the use of tissue cloned from human cells, and
therefore may raise ethical, legal, and social issues. Many research
institutions have adopted policies regarding the ethical uses of cloning, and
state and federal legislatures are considering legislation. These policies may
limit the scope of our research in this area. Any inability to conduct research
on human stem or progenitor cells due to such factors as government regulation
or otherwise could have a material adverse effect on us.
We will not be able to commercialize our prescription drug or
device products successfully unless we can get adequate reimbursement from
government and private health insurers, managed care plans, and other
organizations. Third-party payors attempt to keep health care costs down 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. In
particular, services or products which are determined to be "investigational"
or which are not considered "reasonable and necessary" for diagnosis or
treatment may be denied reimbursement coverage. To date, no third-party payer
has agreed to reimburse patients for our molecular diagnostic test for the
detection of Oxalobacter formigenes. As a result, we expect that patients will
initially be billed directly for this test.
We do not know if insurers or third-party payors will ever provide
full reimbursement coverage for our molecular diagnostic test for O. formigenes
test or any of our other drug or device products. If adequate reimbursement
coverage is not available, we do not know whether individuals will want to pay
directly. If insurers or third-party payors do not provide adequate coverage and
reimbursement for our products, our ability to sell them would be adversely
affected.
We will not be able to sell our products if do not receive
necessary governmental approval. Our activities are subject to extensive
regulation by the FDA and health authorities in foreign countries. Regulatory
approval for our planned drug or device products is required before we can
market them. Obtaining regulatory authorization involves, among other things,
lengthy and detailed laboratory and clinical testing, manufacturing validation,
and other complex procedures. The approval process is costly, time-consuming,
and subject to unexpected delays. The FDA has discretion in the approval
process, and we can not predict when or whether the FDA will approve any of our
products. We can not assure you that the FDA will not require additional
information or additional clinical trials that could substantially delay
approval of our applications. Moreover, we can not be sure that FDA approval
will cover the clinical indications we seek or that it will not contain
significant limitations in the form of warnings, precautions, or
contra-indications. Any failure to obtain, or any material delay in obtaining,
regulatory approvals would materially and adversely affect our ability to
generate product sales. Even if we obtain regulatory approvals, a marketed
product is subject to continuing regulatory 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.
Although FDA approval of dietary supplements prior to marketing is
not required, the FDA regulates many aspects of the safety, labeling, and
promotion of dietary supplements. With respect to Ox-Control,(TM) our dietary
supplement, because O. formigenes enzymes have not previously been used in food,
we expect to file a safety notice with the FDA. Any FDA concerns about safety
could slow or preclude commercial launch of the product. Also, because the
11
<PAGE>
dietary supplement law is relatively new and numerous questions about its
requirements remain, we cannot be sure that the FDA will not object to marketing
Ox-Control(TM) as a dietary supplement or to the claims made for it.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus regarding the dates on which we
anticipate commencing clinical trials or filing for regulatory approval,
constitute forward-looking statements under the federal securities laws. Such
statements are subject to risks and uncertainties that could cause the actual
timing of such clinical trials or filings to differ materially from those we
project. With respect to such dates, we have made assumptions regarding, among
other things,
o the successful and timely completion of preclinical tests,
o the approval of investigational new drug applications for each of our
drug candidates by the FDA,
o the availability of a simplified application way to seek market
clearance from the FDA for our molecular diagnostic test,
o the availability of adequate clinical supplies,
o the absence of delays in patient enrollment, and
o the availability of the capital resources necessary to complete the
preclinical tests and conduct the clinical trials.
Our ability to commence clinical trials or file for regulatory
approval on the dates anticipated is subject to risks, including the risks
discussed under "Risk Factors." You should not rely on the dates on which we
anticipate filing regulatory approval or commencing clinical trials.
Statements regarding our research and development plans also
constitute forward-looking statements. Actual research and development
activities may vary significantly from the current plans depending on numerous
factors including
o changes in the costs of such activities from current estimates,
o the results of the programs,
o the results of clinical studies referred to above,
o the timing of regulatory submissions, technological advances,
o determinations as to commercial potential, and
o the status of competitive products.
Our projections regarding the likely effect of Year 2000 issues on
our company is also a forward-looking statement.
All of the above estimates are based on the current expectations of
our management team, which may change in the future due to a large number of
potential events, including unanticipated future developments.
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<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares, after deduction
of estimated offering expenses, and our anticipated use of proceeds at each
level of shares sold is set forth below. There is no minimum number of shares
that must be sold in the offering, and all funds will be paid directly to us.
The offering became effective on December 10, 1997, and was
originally for 400,000 units, each consisting of one share of common stock and
.25 charitable benefit warrants.. Since then, we have sold a total of 86,050
shares, and 21,513 charitable benefit warrants. We will sell no further
charitable benefit warrants. 63,950 shares of common stock remain available for
sale at the date of this prospectus.
We intend to use a majority of the net proceeds (regardless of the
number of shares sold) to pay the expenses of the offering (most of which have
already been paid from sales made to date), to repay bridge loans from officers,
and to fund our 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. We have broad discretion over the amounts and timing of expenditures.
We currently expect to spend the net proceeds as follows:
<TABLE>
<CAPTION>
150,000(1) 125,000(1) 100,000(1)
Shares Sold Shares Sold Shares Sold
<S> <C> <C> <C>
Gross proceeds from
Offering (including 86,050
shares already sold) $ 600,000 $ 500,000 $ 400,000
Less offering expenses 134,000 134,000 134,000
(22%) (27%) (34%)
Maximum commissions 14,644 9,644 4,644
Net proceeds from
Offering (of which
$219,569 has been received) $ 451,356 $ 356,356 $ 261,656
</TABLE>
Use of Net Proceeds (of which $219,569 has been spent)
R&D, diabetes 50,000 50,000 50,000
R&D, oxalate 106,000 90,000 70,000
Repay bridge loans from officers 50,000 25,000 0
Capital equipment 80,000 70,000 50,000
Patents 100,000 85,000 75,000
General corporate 65,356 36,356 16,356
If fewer than a total of 150,000 shares are sold, we would reduce
expenditures, as indicated above. In each case, in the opinion of management,
the net proceeds of this offering, together with funds received from Q-Med (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - The Q-Med Transaction") and anticipated revenues from grants and
operations, will allow our product development and operations for at least 12
months. Unless Q-Med exercises its option, we would not be able to file an
investigative new drug application with the FDA with regard to IxC1-62/47, the
oxalate therapeutic, with the FDA. We would, however, be able to make further
progress on our diabetes research during the year 2000 without additional
capital. If only 100,000 shares are sold in total (given that 86,050 shares have
already been sold through the date of this prospectus), and Q-Med terminates our
agreement without exercising its option, our operations would be severely
curtailed and additional financing would be needed in the next 12 months.
Until required for operations, our policy is to invest our cash
reserves, if any, in bank deposits, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments, and other investment-grade quality
instruments.
13
<PAGE>
DILUTION
As of September 30, 1999, our common stock had a negative net
tangible book value of $(2,201,058) or $(.78) per share. The negative net
tangible book value reflects the sale of 86,050 in this offering. The following
table sets forth the difference between the price to be paid by shareholders
purchasing after the date of this prospectus and the negative net tangible book
value at September 30, 1999, as adjusted to give effect to the offering.
150,000 125,000 100,000
Shares Sold Shares Sold Shares Sold
Assuming a public offering price of $ 4.00 $ 4.00 $ 4.00
Net proceeds (of which $219,569
has been received) $ 451,356 $ 356,356 $ 261,356
Net tangible book deficit per share for
existing shareholders before offering 1 $ (0.78) $ (0.78) $ (0.78)
Increase per share attributable to payment
for shares purchased by new investors $ 0.10 $ 0.06 $ 0.02
Pro forma net tangible book deficit
after offering 2 $ (0.68) $ (0.72) $ (0.76)
Dilution per share to new investors 2, 3 $ 4.68 $ 4.72 $ 4.76
(1) "Net tangible book deficit per share" means Ixion's tangible net
deficit (tangible assets less total liabilities and less unamortized
debt discount) divided by shares of common stock outstanding at
September 30, 1999 and reflects the sale of 86,050 shares in this
offering). (2) "Dilution" means the difference between the public
offering price per share and the net tangible book deficit per share
after giving effect to the offering.
(3) Does not include the effects of any options or warrants or
conversion of our unsecured convertible notes.
We were initially capitalized by a sale of common stock to our
founders. As of September 30, 1999, we have completed two private placements of
common stock, a private placement of unsecured convertible notes, the sale of
86,050 shares in this offering, and the sale of 225,000 shares to Q-Med A.B. The
following table sets forth the difference between our officers, directors,
promoters, and affiliates, and purchasers of the shares in the offering with
respect to the number of shares purchased (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 shares offered are sold.
<TABLE>
<CAPTION>
Shares Issued1 Total Consideration 1 Average Price
Number Percent2 Amount Percent2 Per Share
<S> <C> <C> <C> <C> <C>
Officers, directors,
promoters and
affiliates 4,855,646 85.5% $8,417,283 83.2% $1.43
New Investors 150,000 2.6% $ 600,000 7.1% $4.00
</TABLE>
(1) Includes 2,840,402 shares which may be issued to officers,
directors, promoters, and affiliates upon exercise of stock options
or conversion of unsecured convertible notes, 2,745,895 of which
(including the option for 2,700,000 shares held by Q-Med) are
issuable within 60 days of September 30, 1999, and assumes the sale
of all shares offered.
(2) Shares purchased (or with rights to purchase) divided by the
sum of total shares outstanding after offering, plus all shares
officers, directors, affiliates, and promoters have rights to
purchase.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common
stock and do not intend to do so for the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September
30, 1999, and as adjusted to reflect the receipt of the net proceeds from this
offering. Please read this table together with our financial statements and
notes included elsewhere in this prospectus.
September 30, 1999
As Adjusted
<TABLE>
<CAPTION>
150,000 125,000 100,000
Actual Shares Sold Shares Sold Shares Sold
------ ----------- ----------- -----------
Debt:
<S> <C> <C> <C> <C>
Short-term debt including current
portion of long-term debt...................$ 603,833 $ 603,883 $ 603,883 $ 603,883
Long-term debt less current portion 1..... 1,644,328 1,644,328 1,644,328 1,644,328
Stockholders' Equity (Deficiency):
Common Stock, $0.01 par value, 20,000,000
shares authorized, 2,813,044 shares issued
and outstanding,2 2,876,950 (150,000 sold),
2,851,950 (125,000 sold), or 2,826,950
(100,000 sold), as adjusted 3................ 28,130 28,770 28,520 28,270
Additional paid-in capital 2................2,197,197 2,452,358 2,352,608 2,252,858
Deficit accumulated during the
development stage...........................(3,663,019) (3,663,019) (3,663,019) (3,663,019)
Less unearned compensation................ (269,335) (269,335) (269,335) (269,335)
Total capital (deficiency)...............$(1,707,027) $(1,451,227) $(1,551,227) $(1,651,227)
</TABLE>
(1) Includes deferred fees and deferred salaries, including accrued interest,
payable to related parties.
(2) Actual common stock at September 30, 1999 includes $860.50 from the 86,050
shares sold through that date in this offering, and actual Additional
paid-in capital includes $343,339.50 from the 86,050 shares sold through
that date.
(3) Excludes 173,500 shares reserved for issuance pursuant to the exercise of
outstanding stock options issued under the 1994 Stock Option Plan, 53,134
of which are exercisable, 45,143 shares reserved for issuance pursuant to
outstanding warrants (including 21,513 issuable pursuant to charitable
benefit warrants previously sold in this offering, 142,500 shares reserved
for issuance to employees and 9,000 reserved for issuance to directors and
members of the Scientific Advisory Committee pursuant to options available
for grant under our 1994 Stock Option Plan, 128,550 shares reserved for
issuance under our 1994 Board Retainer Plan, as amended, up to 323,557
shares issuable upon conversion of our unsecured convertible notes, and up
to 2,700,000 shares issuable upon exercise of the Q-Med option (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - The Q-Med Transaction").
15
<PAGE>
SELECTED FINANCIAL DATA
We are providing the following selected financial data to aid you in
your analysis of this potential investment. We derived this information from our
1997 and 1998 audited financial statements included elsewhere in this
prospectus. The selected financial data at September 30, 1998 and 1999, for the
nine months ended September 30, 1998 and 1999, and for the period March 25, 1993
(Date of Inception) through September 30, 1999 are derived from our unaudited
financial statements included elsewhere in this prospectus and include, in our
opinion, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly our financial position at those dates and results of
operations for those periods. Please read the data set forth below in
conjunction with our 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 For the Nine Months
Inception) through Year Ended Ended
September 30 December 31 September
Statement of Operations Data: 1999 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues: (unaudited) ( unaudited)
Income under research agreement $ 275,001 $ 135,922 $ - $ - $ -
Income from research grants 109,817 71,650 - - 18,167
Interest income 25,153 10,147 465 367 1,172
Other income 18,750 3,733 3,257 3,257 945
---------- ---------- ---------- ---------- -----------
Total revenues 428,721 221,452 3,722 3,624 20,833
---------- ---------- ---------- ---------- -----------
Expenses:
Operating, general and administrative 1,743,685 336,572 370,397 307,097 278,179
Research and development 1,905,129 554,751 424,606 269,474 394,392
Interest 439,926 112,083 122,958 97,317 117,684
---------- ---------- ---------- ---------- -----------
Total expenses 4,091,740 1,003,406 917,961 673,888 790,254
---------- ---------- ---------- -----------
Net Loss $(3,663,019) $ (781,954) $(914,239) $(670,264) $ (769,421)
============ ========== ========== ========== ===========
Basic and Diluted Net Loss per Share $ (0.32) $ (0.37) $ (0.27) $ (0.30)
======== ========== ========== ===========
Weighted Average Common Shares 2,458,440 2,489,677 2,482,687 2,561,053
========= ========== ========== ===========
Balance Sheet Data: September 30,
(unaudited)
1998 1999
-------- --------
Cash and cash equivalents 39,073 36,737
Working capital (deficit) (329,470) (558,354)
Total assets 358,852 541,184
Total liabilities 1,718,053 2,248,211
Total capital deficiency (1,359,201) (1,707,027)
</TABLE>
16
<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. Our 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
Ixion is a development stage, biotechnology company. We are in the
development stage because we are devoting substantially all of our efforts to
establishing our business, and our planned principal operations have not
commenced.
Since we were founded in March of 1993, we have principally been
doing research and development, securing patent protection, and raising capital.
We have not received any revenues from the sale of products. In June 1998, we
reached an agreement with the University of Florida Diagnostic Referral
Laboratories for them to provide a service to physicians using our molecular
diagnostic test, the XEntrIx TM Oxalobacter formigenes Monitor. We have received
no revenue to date under this agreement. We do not expect any of our drug or
device product candidates (which require regulatory approval) to be commercially
available for at least several years, but our nutritional supplement product is
scheduled for 2000. From inception through September 30, 1999, we incurred
cumulative losses of $3,663,019. These losses were due primarily to expenditures
on general and administrative activities, research and development, patent
preparation and prosecution, and interest charges.
We expect to continue to incur substantial research and development costs
resulting from
o ongoing research and development programs,
o manufacturing of products for use in clinical trials and preclinical
and clinical testing of our products.
We also expect that general and administrative costs, including
o amortization of patents,
o additional administrative personnel.
o legal and regulatory costs necessary to support preclinical development
and clinical trials, and
o the creation of a marketing and sales organization, if warranted,
will increase in the future, assuming we can finance the increased requirements.
Accordingly, we expect to incur operating losses for the foreseeable future.
We have only a limited operating history upon which you can base an
evaluation of our prospects. You should consider the risks, expenses, and
difficulties encountered by companies at an early stage of development when
evaluating our prospects. To address these risks, we must, among other things,
o successfully develop and commercialize our products,
o secure all necessary proprietary rights,
o respond to competitive developments, and
o continue to attract, retain and motivate qualified persons.
There can be no assurance that we will be successful in addressing
these risks.
Our operating expenses will depend on several factors, including the
level of research and development expenses and our success in raising capital.
Research and development expenses will depend on the progress and results of our
product development efforts, which we cannot predict. We may sometimes 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, we believe that period-to-period comparisons in the future are
not necessarily meaningful and you should not rely on them as an indication of
future performance. Due to all of the foregoing factors, it is possible that our
17
<PAGE>
operating results will be below the expectations of market analysts, if any, and
investors. In such event, the prevailing market price, if any, of our common
stock would likely be materially adversely affected.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Total revenues increased by 474% from $3,624 for the nine months
ended September 30 1998 to $20,833 for that period in 1999 mainly as a result of
the new research contract award under the STTR Program, and as a result of an
increase in interest income generated from increased cash flows. We expect
income to continue to increase in 1999 as a result of the award which will
provide approximately $40,000 of income in 1999, and as a result of another NIH
grant awarded on September 30, 1999 for $100,000.
Operating, general, and administrative expenses decreased 9% from
$307,097 for the first nine months of 1998 to $278,179 for the equivalent period
of 1999. These decreased expenses reflect decreased personnel during the first
quarter of 1999, decreased legal fees, and decreased advertising expenses in the
first nine months of 1999 compared to the first nine months of 1998. Our general
and administrative expense should increase during the remainder of 1999 as a
result of an increase in personnel and an increase in the scale of operations
and an increase in amortization of capitalized patent costs as new patents are
issued.
Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory and
animal supplies, laboratory rent and associated utilities, depreciation on
laboratory equipment, development activities, payments for sponsored research,
and scientific advisors and regulatory consultants fees. Research and
development expenses increased 46% from $269,474 for the first nine months of
1998 to $394,392 for the first nine months of 1999, mainly due to an increase in
laboratory personnel, rent, utilities, R&D-related travel expenses, interest
charges on the purchase of lab equipment and on deferred fees and salaries, and
scientific advisors fees; offset somewhat by a reduction in preclinical expenses
and lab supplies. Our research and development expenses will increase during the
remainder of 1999 as a result of an increase in the scale of operations as a
result of the receipt of the research grants referred to above.
Interest expense increased 21% from $97,317 for the first nine
months of 1998 to $117,684 for the first nine months of 1999 due primarily to
interest on bridge loans from officers, and the compounding of interest on
deferred fees and salaries, including deferred interest, payable to related
parties
Years Ended December 31, 1998 and 1997
Our revenues under a research agreement with Genetic Institute
decreased from $135,922 in 1997 to $0 for 1998 because all contractual payments
from Genetics Institute have been made. Revenues under our SBIR grant declined
from $71,650 in 1997 to $0 in 1998 because the grant was fully expended.
Revenues under the Genetics Institute agreement and the SBIR eased at the end of
1997. We expect revenues from new research grants during 1999.
Interest income decreased 95% from $10,147 in 1997 to $465 in 1998.
This decrease was attributable to the expenditure of the proceeds from the sale
of our unsecured convertible notes in the last quarter of 1996, which proceeds
had been invested during 1997. Interest income relating to the investment of
proceeds of the unsecured convertible notes ceased in the first quarter of 1998.
Operating, general and administrative expenses increased 10.0% from
$336,572 in 1997 to $370,397 1998. These increased expenses reflect increased
legal expenses, increased advertising and promotion, and increased salaries,
compared to 1997. We expect our general and administrative expense to modestly
decrease during 1999 as a result of a continued reduction in the scale of
operations, offset, to some degree, by increased rent, depreciation, and
amortization of capitalized patent costs as new patents are issued.
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 decreased 23.5% from $554,751 in
1997 to $424,606 in 1998, primarily as a result of a reduction in the scale of
research and development and concomitant reduction in lab supplies, together
with
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the termination of our consulting contract with our regulatory advisor, and
a reduction in the stock compensation expense relating to our scientific
advisors, offset, to some degree by an increase in lab rent. Future research and
development expenses are dependent on our success in raising capital.
Interest expense increased 9.7% from $112,083 in 1997 to $122,958 in
1998 due primarily to interest on bridge loans from officers, and the
compounding of interest on deferred fees and salaries, including deferred
interest, payable to related parties. Interest expense will continue to increase
during 1999 and beyond, as a result of the continued compounding of interest on
deferred fees and salaries accounts and bridge loans from officers.
Liquidity and Capital Resources
In December, 1997, we commenced the public offering of 400,000 units
of newly issued securities, for an aggregate of $4,000,000. Each unit consisted
of one share of common stock, $0.01 par value, and 0.25 of charitable benefit
warrants. Each whole charitable benefit warrant entitled the holder to purchase
one share of common stock at a price of $20.00 per share. Ixion is directly
making the offering (except in Florida where sales must be made through a
broker) in selected states, primarily over the Internet. There is no minimum
number of shares to be sold in the offering, and all funds received have gone
and will go immediately to us. On December 10, 1998, we extended the offering
through the earliest of:
o the sale of all securities,
o December 10, 1999 (subject to extension), or
o the date we decide to close the offering.
In early 1999, the offering was temporarily suspended, and the board
of directors approved changes in the offering including a withdrawal from
registration of all unsold charitable benefit warrants, a reduction in the
number of shares offered from 400,000 to 150,000, a retroactive reduction in the
offering price to $4.00 per share of common stock, a concomitant adjustment in
the exercise price for outstanding charitable benefit warrants (from $20/share
to $8/share) and an increase in the number of shares purchasable upon exercise
of those warrants from 8,605 shares to 21,513 shares. This action by the board
resulted in the additional issuance of 51,630 shares to purchasers in the public
offering for no additional consideration, and a reduction in the maximum
potential aggregate offering amount from $4,000,000 to $600,000. As a result, in
September, a total of 51,630 additional shares were issued to purchasers in the
public offering for no additional consideration and are included in the shares
outstanding on September 30, 1999.
In February, 1999, we received notice that the NIH had awarded us a
$100,000 Phase I grant under the Small Business Technology Transfer Program for
research in our oxalate technology. The effective date of the grant was June 15,
1999. We began drawing on these funds in July. We have subcontracted
approximately $60,000 to the University of California, Irvine, but the remaining
$40,000 will be available during 1999 to support oxalate research at Ixion. In
September we also received notice of the award of a $200,000 grant (covering a
23-month period) from the NIH to support our diabetes research. These funds
became available starting September 30, 1999. We have subcontracted $25,000
under this grant. We have other grant applications pending.
During 1998 and the first quarter of 1999, our development
activities were funded primarily by the proceeds from the offering and bridge
loans from the Chairman and Chief Executive Officer and the President.
Operations during the second and third quarters of 1999 were funded primarily
from $450,000 advanced by Q-Med through September in connection with the Q-Med
transaction described below. The bridge loans total $415,000 at September 30,
1999, not including accrued but unpaid interest. Interest on the bridge loans
from officers is currently 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%. We have no agreement with the officers to advance further funds, however,
the officers have continued to fund operating requirements voluntarily to meet
working capital needs. Although additional bridge loans are not likely to be
necessary during the remainder of 1999 because of the Q-Med transaction, we can
not assure you that, should such loans be necessary in the future, the officers
will continue to voluntarily fund them. We do not have any bank financing
arrangements. Our long-term indebtedness consists primarily of deferred fees and
salaries payable to related individuals and our unsecured convertible notes.
At September 30, 1999, we had $36,737 in cash and cash equivalents.
Until required for operations, our policy is to invest any excess cash reserves
in bank deposits, money market funds, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade quality
instruments.
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In connection with a sponsored research agreement with Genetics
Institute, Inc. which was concluded during 1997, some patent-related expenses
were reimbursed by Genetics Institute. We may be contractually obligated to
repay these reimbursed expenses in installments over a 36 month period upon a
notice to or by Genetics Institute to the effect that their option to negotiate
for a license to our technology, contained in the sponsored research agreement
has expired. We have not given nor received such notice, and, accordingly,
reimbursement has not commenced. We have accrued $42,317 as a long term
liability pending final notice under the agreement.
Through September 30, 1999, we have paid offering-related expenses
of $124,631 which have been applied against the proceeds of the public offering.
We expect further offering-related expenses to be modest.
Annual expenses for the first year of our current three-year term
(with two one-year renewal options) lease, including repayment of funds provided
by lessor for tenant improvements and an emergency generator, were approximately
$121,000. We expect that annual lease expenses will continue to be approximately
the same for 2000. We will continue to have a need to purchase additional
laboratory equipment. We estimate that we will need to purchase at least $50,000
of capital laboratory equipment in the coming year.
We have incurred negative cash flows from operations since our
inception. We have spent and expect to continue to spend, substantial funds to
complete our planned product development efforts, commence clinical trials, and
diversify our technology. Our future capital requirements and the adequacy of
available funds will depend on numerous factors, including
o the completion of the Q-Med transaction described below
o the success of the continuing public offering of our securities,
o the successful commercialization of Ox-Control(TM)(our nutritional
supplement) the XEntrIx(TM)Oxalobacter formigenes Monitor (our
diagnostic test), and IxC1-62/47 (our lead therapeutic compound),
o progress in our product development efforts,
o the magnitude and scope of development efforts,
o progress with preclinical studies and clinical trials,
o the cost of contract manufacturing and research organizations,
o cost of filing, prosecuting, defending, and enforcing patent claims and
other intellectual property rights,
o competing technological and market developments, and
o the development of strategic alliances for the development and marketing
of our products
The Q-Med Transaction
On April 16, 1999, we reached an agreement in principle with Q-Med
AB, a biotechnology company based in Uppsala, Sweden, which was amended on
September 7, 1999. Under the amended agreement, we agreed to the following:
o We issued an option to Q-Med to acquire shares of newly-issued common
stock under the following terms:
o exercise is at the sole discretion of Q-Med;
o the number of shares to be acquired shall be 2,700,000 or a number
of shares such that, following the exercise of the option, Q-Med
shall own at least 50% of our outstanding shares (on a fully
diluted basis);
o Q-Med must purchase all or none of the option shares;
o the option expires not later than July 1, 2000;
o the cash purchase price for the option shares is $2.00/share; and
o the option price will be paid over a two-year period.
o Q-Med shall purchase 37,500 shares per month (at the $2.00 per share
price) through the expiration of the option or the agreement. Q-Med
will retain these shares without regard to whether they exercise their
option. Q-Med has purchased a total of 300,000 shares for $600,000
through November under this agreement;
o a royalty-free license to Q-Med's non-animal, stabilized hyaluronic acid
technology for use as an encapsulation material for our transplantable
islets; and
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o if the option is exercised, the redemption of up to $787,000 of our
convertible unsecured notes which note holders elect not to convert
in August 2001; and
o the agreement is cancelable by Q-Med on not less than 90 days' notice.
If Q-Med were to exercise its option for all 2,700,000 shares, it
would own over 50% of our company.
Q-Med, a growing, profitable Swedish company, develops,
manufactures, and sells natural, specialized medical implants. All of
Q-Med's products are constructed using a proprietary form of non-animal,
stabilized hyaluronic acid. Hyaluronic acid is a natural polysaccharide, first
isolated in 1934. Its main function in the body is to lubricate moveable parts
like joints and muscles and to transport substances to and within cells. The
majority of Q-Med's revenues are accounted for by Restylane(R) for the filling
out of lips, facial wrinkles, and facial folds.
Through November 15, 1999, we have received $600,000 in payments
from Q-Med, A.B. and issued a total of 300,000 shares of common stock in
accordance with the amended agreement in principle, described below. Included in
this amount is the $300,000 we received on April 20, 1999 in the form of a
convertible note from Q-Med. On August 2, 1999, the note was converted into
150,000 shares of restricted Ixion common stock. Also included in the $600,000
invested by Q-Med is a $75,000 payment in each of the months of August,
September, October and November for which we issued 37,500 restricted shares of
common stock each month.
We cannot assure you that Q-Med will not terminate the agreement,
that it will exercise its option on or before July 1, 2000, or that it will
otherwise complete the contingent elements of the transaction on satisfactory
terms, or at all. In the event our plans change or our assumptions change or
prove to be inaccurate or we fail to complete the Q-Med transaction, we will
require additional financing. We will be required to obtain additional funds in
any event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our drug and device products through
regulatory approval to commercialization. The terms and prices of any equity or
debt financings or corporate combination may be significantly more favorable to
new investors than purchasers of the shares sold in the offering, resulting in
significant dilution to current investors. We do not have any material committed
sources of additional financing. We can not assure you that additional funding,
consolidation, or alliance, if necessary, will be available on acceptable terms,
if at all. If adequate funds are not available, we may be required to further
delay, scale-back, or eliminate certain aspects of our operations or attempt to
obtain funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products, or potential markets. If adequate funds are not available,
our business, financial condition, and results of operations will be materially
and adversely affected.
Product Research and Development Plan
Our plan of operation for the remainder of 1999 and for 2000
consists primarily of research and development and related activities, resources
permitting, including:
o further research into the biology of islet and islet stem cell growth
and differentiation, aimed at developing cell lines of functioning
islets for transplantation into diabetic patients;
o further research into identifying and characterizing novel growth
factors associated with islets to discover factors important in islet
cell differentiation and possible regulation of diabetes and to
identify stem cell markers to which we hope to produce monoclonal
antibodies useful in stem cell isolation;
o differential gene expression studies on differentiated islet cells;
o further research into encapsulation materials for transplantation of
islets;
o development of OX-Control(TM), a nutritional supplement product not
requiring regulatory approval;
o further preclinical development of a quantitative and/or kit version of
our molecular diagnostic test, the XEntrIx(TM)Oxalobacter formigenes
Monitor;
o further preclinical development of our oxalate therapeutic compound,
IxC1-62/47;
o continuing the prosecution and filing of patent applications; and
o hiring additional employees.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances,
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determinations as to commercial potential, the status of competitive products,
and, most important, our success in raising capital. The focus and direction of
our operations will also be dependent upon the establishment of collaborative
arrangements with other companies, and other factors.
We can not assure you that we will be able to commercialize our
technologies or that profitability will ever be achieved. We expect that our
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, most of which are outside our
control.
Year 2000 Compliance
Many computer systems and computer chips embedded in equipment are
unable to tell the difference between the year 1900 and the year 2000. This is
known as the Year 2000 issue. Many businesses are at risk for possible
miscalculations or systems failures as a result of their computers, software, or
equipment's not being Year 2000 compliant.
Our assessment of Year 2000 compliance issues is substantially
complete.
Software and Computers. Our computers all run Windows operating
systems which are Year 2000 compliant according to our tests and information
received from Microsoft. We have been assured by the vendors that our office
applications programs are Year 2000 compliant. We have been also been assured by
the vendor that our finance and accounting software, our only mission-critical
software, is Year 2000 compliant.
Equipment. Most of our laboratory equipment does not use a
computer or embedded chip. Our policy is that all new equipment that we
purchase must be Year 2000 compliant. Our assessment of our laboratory
equipment is complete, and all essential equipment is compliant.
Suppliers. We have contacted key suppliers regarding their Year 2000
compliance in order to determine if there might be any effect on our operations.
In general, our suppliers (primarily scientific reagent and disposable equipment
vendors), have developed or are in the process of developing plans to address
Year 2000 issues. We will continue to monitor and evaluate the progress of our
suppliers.
In general our review of the potential consequences of Year 2000
compliance issues on us leads us to believe that those issues will prove to be
immaterial to our business, operations, and financial condition. Accordingly, we
do not have contingency plans and have no plans to develop any. No material
expenses have been incurred to date, and none are anticipated.
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BUSINESS
Ixion Biotechnology, Inc.
Ixion is a development stage, discovery research biotechnology
company, with several product candidates in development. We are the holder of
world-wide exclusive licenses to patents and pending patents in two key areas:
diabetes and oxalate-related disorders.
We are developing diabetes products based on our islet producing
stem cell technology, including a proprietary line of in vitro (in test tube)
islet stem cells for use in islet replacement therapy. This development program
is aimed at optimizing the growth of functioning islets or islet progenitors in
vitro from islet producing stem cells which Ixion has established in cell
cultures. Islet replacement therapy is the only known potential cure for type 1
diabetes. We believe that islet replacement therapy, if it can be developed
successfully, 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 our islet transplantation therapy, we have
an ongoing discovery program to identify and characterize islet stem cells as
well as novel growth factors associated with them. The goal of this program is
to discover factors important in islet stem cell differentiation and to identify
stem cell markers to which we hope to produce antibodies useful in stem cell
isolation and research. All of our potential diabetes products are in the
discovery research stage.
Diabetes is a chronic, complex metabolic disease. Type 1 diabetes
(often referred to as insulin dependent diabetes or juvenile diabetes) is
characterized by an inability to produce insulin due to the destruction of the
insulin-producing cells of the pancreatic islets of Langerhans. Type 1 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 1 diabetes, the most severe form of the disease, and must take
insulin. An additional one and one-half million type 2 patients in the United
States also take insulin. Annual expenditures on all forms of diabetes are
nearly $100 billion.
We are also developing both Ox-Control(TM) - a nutritional
supplement - and IxC1-62/47 - a prescription drug product - based on our oxalate
technology. Ox-Control(TM) will help promote healthy levels of oxalate in the
body. The prescription drug and device products will be for the diagnosis and
treatment of oxalate-related diseases. Our oxalate technology is based on genes
from the non-pathogenic anaerobic intestinal bacteria, Oxalobacter formigenes.
O. formigenes produces enzymes which degrade oxalate in healthy people.
Inadequate colonies of O. formigenes result in reduced ability to degrade
oxalate. Excess oxalate plays a role in a variety of disorders including
o kidney stones,
o hyperoxaluria,
o cardiomyopathy,
o cardiac conductance disorders,
o cystic fibrosis,
o Crohn's disease,
o renal failure and toxic death, and
o 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.
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We have four distinct products in development based on our oxalate
technology.
o Ox-Control(TM) - a nutritional supplement made from native O. formigenes
designed to promote healthy levels of oxalate. This product will be
non-prescription.
o A pet food supplement or additive to control oxalate in companion
animals.
o The XEntrIx (TM) Oxalobacter Formigenes Monitor - a molecular diagnostic
test for the rapid and sensitive detection of human O. formigenes.
o IxC1-62/47 - a pill consisting of recombinant (genetically engineered)
enzymes normally found in O. formigenes. These enzymes degrade oxalate.
It has been shown to be effective in lowering urinary oxalate levels in
animal studies. We believe that our pill will greatly diminish the
recurrence of calcium oxalate kidney stones and will have positive
therapeutic effects on other oxalate-related disorders. It will be a
prescription product.
Ox-Control(TM) is the most advanced product in our development
pipeline. It has been formulated as a pill taken orally consisting of
oxalate-degrading enzymes from O. formigenes in an enteric coating. These
enzymes degrade oxalate. It will be aimed at maintaining healthy levels of
oxalate in the body. We do not expect this product to require regulatory
approval. Our pet food supplement or additive will be aimed at reducing the
incidence of kidney stones in companion animals, initially cats.
The XEntrIX TM Oxalobacter formigenes Monitor is the diagnostic
component of our oxalate-related disease management product. It is a DNA probe
for the rapid and sensitive detection of human O. formigenes. 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 XEntrIX TM
Oxalobacter formigenes Monitor, on the other hand, can accurately and reliably
detect very small numbers of O. formigenes, can be made quantitative, and is
capable of automation.
IxC1-62/47 is the therapeutic component of our oxalate-related
disease management product. It is an orally administered pill consisting of a
recombinant form of the same two enzymes from O. formigenes which are used in
Ox-Control.(TM) We believe 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.
We intend to file an Investigational New Drug application with the
Food and Drug Administration for our 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 XEntrIX TM Oxalobacter formigenes Monitor. The
date on which we will be able to make these filings depends upon our cash
resources.
Ixion is in the development stage. We have earned only limited
revenues, the majority of which have been research and development payments, and
we have an accumulated deficit of $3,663,019 from our inception through
September 30, 1999.
Industry Description and Outlook
In 1998, the U.S. biotechnology industry was composed of
approximately 1,300 companies, public and private. The public market for
biotechnology financing for small companies was very poor during 1998 and 1999
and many companies are running low on cash. 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 were 21
million diabetics in Europe and as many as 100 million worldwide. Type 1
diabetes 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 2
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 1 diabetics.
Approximately 25 percent of the new type 2 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
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disease. Approximately 30% to 40% of people with Type 1 diabetes will develop
diabetic nephropathy leading to kidney dialysis and renal transplants. Overall,
diabetes is the seventh leading cause of death in the U.S.
Current therapies, including insulin shots 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. We believe 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
help control the complications of the disease. While islet transplantation is
the only known potential cure for type 1 diabetes, transplant therapy is an
early stage procedure and results for the adult islet transplants performed to
date have been disappointing, as is common for early stage procedures,. Although
there can be no assurance, we believe 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
1,000 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 and ten of every 1,000 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. We believe that it may
be clinically important to screen and treat patients with oxalate-associated
diseases 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 appears
to 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 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 inflammatory bowel disease is unknown, with many theories,
none proven. Many persons with inflammatory bowel disease also have elevated
levels of urinary oxalate, 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 inflammatory bowel disease
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 few years 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.
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Pet Food Market. There are approximately 60 million cats and 53
million dogs in the U.S. In Europe, dogs outnumber cats. Companion animal health
care products totaled approximately $2 billion globally, of which
biotechnology-derived products, including the minimal regulated feed supplement
segment accounted for $680 million in sales.
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.
Business Strategy
We expect to develop products for both the less heavily-regulated
nutritional supplement market and the heavily-regulated drug, device, and
biologic markets. Our strategy is to accelerate the development of our
nutritional supplement, Ox-Control,(TM) to generate near term revenue. At the
same time, we intend to continue development of our prescription drug, device,
and biologic products where the product development cycle is much longer and
more expensive. We will continue to seek strategic partners to participate in
the development of both types of products. Other elements of our strategy
include the following:
Basic Research. Ixion has used and intends to continue to use
cooperative research and development agreements with the University of Florida
and other research institutions 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. It typically ranks in the top 10 in the
United States in gross royalties received from patent licenses, and the top 20
in the United States in the number of U.S. patents obtained.
Technology Evaluation and Development. We use our affiliation with
the University of Florida Biotechnology Program and the members of our
Scientific Advisory Board to seek out cutting-edge university based
biotechnology. Our scientific and business team will review early stage academic
inventions, identify discoveries which are commercially promising, obtain
licenses from the universities, and develop the discoveries to add .
Our relationship with the scientists at the University of Florida
and other institutions is based upon personal relationships between our
management and members of our Scientific Advisory Board, on the one hand, and
other members of the University of Florida and other institutions' faculties on
the other. The relationship with the University of Florida is helped by our
nearby location and by the business consulting provided by our management to
University faculty at no cost, by arrangement with the Biotechnology Program. We
have no formal agreement providing general access to rights to university
research, nor to advance notice of disclosures by university researchers.
Ixion intends to continue to develop collaborative arrangements with
leading researchers at the University of Florida and at other research
institutions in our core areas to diversify and strengthen our intellectual
property estate and to establish our reputation and credibility in the
scientific and medical communities.
Collaborative Product Development and Marketing with Established
Companies. Ixion hopes to develop products in collaboration with other
companies. Collaborative agreements may call for our partners to provide
research funds as well as clinical and other support during product development,
although we may develop and test ideas independently before entering into a
collaborative agreement. We contemplate that our partners will provide an
established and trained marketing and sales force, as well as manufacturing
experience, clinical trial expertise, support for patent prosecution, and other
capabilities.
Independent Product Development. The quality of our scientific team
also permits independent product development. Independently developed products
will provide us with the flexibility either to market the product directly or
enter into agreements with pharmaceutical partners on terms more favorable to
us. While independent product
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development is riskier than collaborative development, we may be able to retain
a higher proportion of any eventual product revenue stream.
Contract Clinical Trial and Manufacturing Services. Initially, we
have elected to retain contract vendors to support clinical studies and product
development. Moreover, we will not initially construct our own manufacturing
facilities. By contracting with a qualified manufacturing company, Ixion will be
able to obtain immediate access to the necessary regulatory skill base at low
entry costs. We thus expect to minimize the time to market, maintain control
over development candidates, and reduce our financial risk when product risk is
the greatest.
Product Development
Our first target product for diabetes will be cell lines of cultured
islet or stem cells for use in islet replacement therapy for diabetes. Our first
target products for oxalate-related diseases will be Ox-Control,(TM) our
nutritional supplement product, and our pet food supplement product, followed by
the XEntrIX TM Oxalobacter formigenes Monitor and the IxC1-62/47 prescription
treatment for oxalate-related conditions. We also plan other products that will
detect and measure the presence of oxalate in urine or blood. Certain of these
products may also be suitable for use in research applications and, subject to
certain limitations, would not require FDA approval prior to use in that
context.
Descriptions of Planned Diabetes Products. Ixion intends to develop
products to enhance research into the disease of diabetes, as well as
therapeutic approaches where our 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. About 3,000 patients die each year while
waiting for a pancreas graft. Xenotransplants using porcine islets face
additional difficulties, such as the possibility of cross-species viral
infection. 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. We believe that a source of reproducible islet cells would
significantly improve the speed and results of research into transplanted islets
for diabetes.
Ixion's islet technology permits the successful growth of in vitro
pancreas-derived, pluripotent (e.g., able to differentiate) islet-producing
cells from mice and humans. When mouse cells were implanted into clinically
prediabetic mice, the implanted mice were successfully weaned from insulin until
they were sacrificed for further studies. We have also been successful in
propagating human islet cells from children and adult donors as well, but have
not transplanted such islets at the date of this prospectus.
The following table summarizes the current status of our islet
research and development program for diabetes products.
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<PAGE>
<TABLE>
<CAPTION>
Product Development-Diabetes Islet Technology
<S> <C> <C>
Status (1)
Product Type Planned Uses
- -----------------------------------------------------------------------------------------------------------------------------------
Cultured Islets
or Stem Cells Implantation in vivo of encapsulated cells to reverse diabetes Research
- -----------------------------------------------------------------------------------------------------------------------------------
Genetically Engineered Islets
or Stem Cells Implantation in vivo without encapsulation to reverse diabetes Concept
- -----------------------------------------------------------------------------------------------------------------------------------
Islet Growth Factors Correct disease deficiencies Research
Promote greater efficiency in culturing cells for transplantation
Elucidation of diabetes disease process
Monitor disease stages
- -----------------------------------------------------------------------------------------------------------------------------------
Nucleic Acid Probes Genetic and phenotype analysis Concept
- -----------------------------------------------------------------------------------------------------------------------------------
Surface Antibodies Analysis of health or disease of biopsy specimens Research
Identification of cells
Enrichment of specific cell types
Isolation and identification of cells by stage of
differentiation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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. Our oxalate products fall into four
classifications:
o Nutritional supplement or probiotic to promote healthy levels of oxalate
which are regulated by the FDA under the provisions of the Dietary
Supplement Health and Education Act of 1994;
o Companion animal feed supplements to promote healthy levels of oxalate
in dogs and cats;
o A diagnostic test for the presence of Oxalobacter formigenes; and
o A drug for the therapeutic treatment of oxalate-related diseases.
A nutritional supplement is one of a broad group of products
including vitamins, minerals, and enzymes. They may or may not be used under a
doctor's supervision, but they are purchased directly by the consumer from
retail outlets or by mail order. A probiotic would deliver whole live O.
formigenes to the colon where they would break down oxalate.
Our oxalate technology is based on cloned, sequenced, and expressed
genes encoding the oxalate degrading enzymes from the intestine dwelling
bacteria, Oxalobacter formigenes as well as the enzymes themselves. O.
formigenes is a gram negative anaerobe present in humans and other animals. In
the GI tract of a healthy human or mammal, O. formigenes breaks down oxalate
that is in food, thus preventing its absorption into the blood stream.
Ox-Control,(TM) an Oxalate-Reducing Nutritional Supplement. Our
initial product is Ox-Control,(TM) an oral formulation of enzymes derived from
native O. formigenes, for use in promoting healthy levels of oxalate in the
body. This product has been formulated to be taken in pill form with meals to
assist in the breakdown of dietary oxalate. We expect this product will not
require FDA approval prior to marketing.
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<PAGE>
Companion Animal Food Supplement. An additional oxalate-based
product is an animal food formulated to maintain healthy levels of oxalate in
companion animals, particularly dogs and cats.
The XEntrIX TM Oxalobacter formigenes Monitor. We have used the O.
formigenes genes to construct a DNA-based diagnostic test (the XEntrIX TM
Oxalobacter formigenes Monitor) to detect the presence of O. formigenes in
easily-collectable stool samples. Except for our XEntrIX TM Oxalobacter
formigenes Monitor, there is no method of rapidly and easily detecting the
presence or absence of O. formigenes in the body. The current tests for O.
formigenes are laborious, time consuming, and unreliable.
The XEntrIX TM Oxalobacter formigenes Monitor is a significant
improvement over current tests for O. formigenes and would be an important
potential addition to routine diagnostic testing for several reasons.
o Our XEntrIX TM 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.
o Our DNA-based method relies upon standard DNA techniques and does not
require anaerobic cultures of organisms since it provides direct
detection of DNA extracted from fecal samples and amplified using
polymerase chain reaction ("PCR").
o Because it is based upon PCR and subsequent hybridization to
species-specific sequences, the XEntrIX TM Oxalobacter formigenes
Monitor is simple to perform and provides the required level of
sensitivity, accuracy, selectivity, and throughput necessary for a
commercial diagnostic test.
o The XEntrIX TM 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.
We are focusing ongoing development of the XEntrIX TM Oxalobacter formigenes
Monitor on the following areas:
o Extended evaluation and enhancement of probe specificity with respect
to other intestinal organisms to assure the absence of cross reactivity
and misdiagnosis. Organisms currently evaluated include the following:
Bacteroides ovatus, Proteus vulgaris, Enterobacter cloacae,, Eschericia
coli, Enterobacter, aerogenes, Clostridium perfringens, Closteridium
sordellii, Veillonella parvula, Streptococcus pneumoniae,
Staphylococcus aureus, Pseudomonas aerogenosa, Streptococcus bovis,
Enterococcus faecalis, Staphlycoccus epidermidis, Moorella
thermoautotrop, Shigella boydii, Proteus mirabilis, Salmonella
typhimurium, Citrobacter brakii, Lactobacillus acidophilus, Moraxella
osloensis, Moorella thermoacetica, Alcaligenes sp., and Klebsiella
oxytoca.
o Development of probes against clinically important intestinal organisms
such as those listed above. These, coupled with the quantitative
version of the XEntrIX TM Oxalobacter formigenes Monitor, will provide
for a panel of clinically important diagnostic tests for enteric
bacteria.
o Development of a quantitative kit version of the XEntrIX TM Oxalobacter
formigenes Monitor.
In June of 1998, we agreed with the University of Florida Diagnostic
Referral Laboratories for them to offer a service to physicians using the
protocols and reagents of our XEntrIX TM Oxalobacter formigenes Monitor under
the provisions of the FDA's analyte specific reagent regulation. The Diagnostic
Referral Laboratories are responsible for marketing the new service, which costs
$295 per sample. No reimbursement is yet available for patients requesting this
test. Sales to date have been immaterial, in part because of the lack of
available products for addressing the condition once it is diagnosed.
We intend to file an application under Section 510(k) of the FDA Act
for clearance to market the XEntrIX TM Oxalobacter formigenes Monitor. There is
no assurance that the XEntrIX TM Oxalobacter formigenes Monitor will qualify for
the 510(k) procedure, in which case we will have to file an application for
premarket approval with the FDA. In either case, the approval process may be
lengthy, but is likely to be longer if a premarket approval application is
required.
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<PAGE>
IxC1-62/47 Enzyme Therapy for Oxalate-Related Disease. In addition
to the XEntrIX TM 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 re-establishment or
enhancement 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.
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 developed the process of purifying
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) further animal studies. We are also purifying the native form
of the oxc and frc enzymes from O. formigenes, to provide comparative data to
the recombinant versions. We have not determined whether the recombinant or
native enzymes will be used therapeutically. The current intention is to file an
investigative new drug application for the IxC1-62/47 enzymatic therapy for
oxalate-related disorders when resources permit.
The XEntrIX TM 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.
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. We believe that a robust colony of O. formigenes prevents
recurrent calcium-oxalate kidney stone formation in persons susceptible to
excess oxalate absorption and may ameliorate other disease states. We believe
that we are 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 the future 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 our oxalate
product research and development program.
30
<PAGE>
<TABLE>
<CAPTION>
Product Development-Oxalate Technology
<S> <C> <C>
Product Type Planned Uses Status (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Ox-Control(TM)Nutritional Develpment
Supplement Promotion of healthy levels of oxalate in the body
- -----------------------------------------------------------------------------------------------------------------------------------
Companion Animal Food Promotion of healthy levels of oxalate in companion animals Development
Supplement
- -----------------------------------------------------------------------------------------------------------------------------------
XEntrIX TM Oxalobacter
formigenes Monitor Detection of O. formigenes in stool for oxalate-related and other Preclinical
oxalate-related disorders
- -----------------------------------------------------------------------------------------------------------------------------------
IxC1-62/47 Enzyme
Therapy Preclinical
Treatment of oxalate-related disorders:
Kidney Stones
Crohn's Disease
Cystic Fibrosis
Hyperoxaluria
Vulvodynia
Other oxalate-related diseases
- -----------------------------------------------------------------------------------------------------------------------------------
Blood Oxalate Assay Concept
Diagnostic oxalate detection kit for blood
- -----------------------------------------------------------------------------------------------------------------------------------
Dialysis Cartridge Concept
Rapid removal of excess oxalate in blood
- -----------------------------------------------------------------------------------------------------------------------------------
Oxalate Degrading Catheter Research
Prevention of urinary infection relating to catheters
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
"Development" indicates product development of products not
requiring regulatory approval.
Licensed Technology
We have exclusively licensed from the University of Florida Research
Foundation, on a world-wide basis, commercial rights in two areas: in vitro
grown islet producing stem cells for curing diabetes, and materials and methods
for detection of oxalate and Oxalobacter formigenes.
Under the UF Research Foundation licenses, we have been issued three
US oxalate patents and one US islet patent. We have received notice of
allowances of claims in two US patents. Still pending under these licenses are
five US oxalate patent applications and one islet patent application. We have
also filed internationally on each of these patent families, but no foreign
patent has issued, although we have received notices of allowance of oxalate
patents in Australia.
The license agreements require the UF Research Foundation to file
and prosecute the patents and require us to reimburse the costs. They must also
take all steps to defend such patent rights, also at our expense. If the UF
Research Foundation fails to take any such action, we have the right to defend
such rights at our own expense.
Except for royalty rates and certain other immaterial differences,
the terms of our patent licenses with the UF Research foundation are
substantially identical. The UF Research Foundation licensed its rights under on
an exclusive, worldwide basis for the life of any patents granted thereunder. We
have rights under the UF Research Foundation 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 our license, we must use our 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, we must provide annual business plans showing our plan for product
development.
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<PAGE>
Under the UF Research Foundation licenses, we paid a license issue
fee, are obligated to pay royalties on our net sales or net sales of our
sublicensees, and must reimburse the UF Research Foundation for patent costs.
There are no minimum annual royalties. We are also obliged to obtain product
liability insurance prior to the sale for commercial purposes of licensed
products. There is no assurance that we will be able to obtain such insurance on
reasonable terms.
We have also entered into an interinstitutional agreement with the
University of Florida Research Foundation covering a patent application relating
to a method for DNA-based quantitation of enteric bacteria that was jointly
discovered by our scientists and employees of the University of Florida. Because
the intellectual property belonged to both parties, our use of the discovery did
not required a license; however, in order to secure exclusive rights, we entered
into the interinstitutional agreement. Under the interinstitutional agreement,
we have the exclusive right to negotiate, execute, and administer license
agreements in the diagnostic field, or to develop diagnostic products using the
new discovery. We will pay the Foundation a royalty on any product sales or
sublicense royalties. We also have the exclusive right to prosecute the patent
application, at our expense. In order to maintain our rights, we must use our
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, we must provide annual business plans showing our
plan for product development.
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 our
licensed technologies. We are aware of patent applications previously filed by
and patents already issued to others that could conflict with our patents or
patent applications, either by claiming the same methods or compounds or by
claiming methods or compounds that could dominate those licensed to us. In
addition, we can not assure you that we are aware of all patents or patent
applications that may materially affect our ability to make, use, or sell any
products. United States patent applications are confidential while pending in
the United States Patent and Trademark Office, and patent applications filed in
foreign countries are often first published months 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 us and
limit our ability to obtain meaningful patent protection. If patents are issued
to other companies that contain competitive or conflicting claims, we may be
required to obtain licenses to these patents or to develop or obtain alternative
technology. We can not assure you that we will be able to obtain any such
license on acceptable terms or at all. If such licenses are not obtained, we
could be delayed in or prevented from the development or commercialization of
our product candidates, which would have a material adverse effect on us.
We are aware of potentially significant risks relating to our islet
technology and to our oxalate technology, particularly bacterial oxalyl-CoA
decarboxylase, an enzyme used in the XEntrIX TM Oxalobacter formigenes Monitor
and our IxC1-62/47 enzyme therapy. We may not be able to commercialize our
proposed diabetic products based on our method of proliferating islets and stem
cells in vitro or our proposed drug or device oxalate-related disease management
products, due to patent rights held by third parties. As a result, our position
with respect to the use of islets or stem cells or products containing
oxalyl-CoA decarboxylase are uncertain and involve legal and factual questions
that are unknown or unresolved. Although we believe our patents and patent
applications provide a competitive advantage in our efforts to discover,
develop, and commercialize useful products, if any of these questions is
resolved unfavorably, we may not have the right to commercialize products
relating to certain aspects of islet 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. Our inability
to commercialize any of these products would have a material adverse effect on
us.
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 patented method is similar, but not identical, to our islet
technology. Archer's patent was licensed to CytoTherapeutics, Inc. in 1991.
CytoTherapeutics may have filed patent applications in foreign countries based
upon Archer's patent and may have additional patent applications on the same
general subject matter pending in the United States.
We are 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 Dr. Hayden
Coon and others. Subsequently, on June 7, 1995, Human Cell Cultures filed in the
U.S. a continuation of its second (now abandoned) U.S. application, and has been
issued US patents. Dr. Coon's patents claim methods which are
32
<PAGE>
also similar, but not identical, to our islet technology. There may have been
additional patent applications filed in the United States or foreign countries
based upon Dr. Coon's work.
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 our 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. We can not assure you that the owners of
Archer's patent nor the owners of Coon's patents will not challenge our islet
patents or patent or that we will succeed in defending any such challenges. We
also can not assure you that the sale of islet products by us would not be held
to infringe United States and foreign patent rights of the owners Archer's
patent and Coon's patent. 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 were determined that products derived
from our islet technology infringe Archer's patent or Coon's patents, we would
not have the right to make, use, or sell our islet products in one or more
countries in the absence of a license from the owners of such patents. We can
not assure you that we could obtain a license from such owners on acceptable
terms or at all.
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 Human Genome 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 our bacterial oxalyl-CoA decarboxylase is found to infringe the
patent owned by Human Genome Sciences, then we would not have the right to sell
certain products in one or more countries without a license from Human Genome
Sciences. There can be no assurance that we 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 us, may also
be necessary to enforce any patents to which we have rights or to determine the
scope, validity, and enforceability of other parties' proprietary rights, which
may affect our product candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. Our licensors may also have to participate in interference
proceedings declared by the Patent Office to determine the priority of an
invention, which could result in substantial cost to us. There can be no
assurance that our licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. Further, with respect to the technology licensed by us from the UF
Research Foundation, they are primarily responsible for any litigation,
interference, opposition, or other action pertaining to patents or patent
applications related to the licensed technology, and we are required to
reimburse them for the costs. As a result, we generally do not have the ability
to institute or determine the conduct of any such patent proceedings unless they
do not elect to institute or elects to abandon such proceedings. In cases where
they elect to institute and prosecute patent proceedings, our rights will be
dependent in part upon the manner in which they conduct the proceedings. The UF
Research Foundation could elect not to vigorously pursue or defend or to settle
such proceedings on terms that are not favorable to us. An adverse outcome in
any patent litigation or interference proceeding could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties, or require us to cease using such technology, any of which could have a
material adverse effect on us.
We can not assure you that any existing patent application, or any
future patent application will issue or that any patents, if issued, will
provide us with adequate patent protection with respect to the covered products,
their uses, technology, or processes. In addition, under our licenses, we are
required to meet specified diligence requirements to retain our rights.
In January 1997, we 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
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pathogens such as staphyloccus, enterococcus, and neisseria. Under the
Fischer/Jensen license agreement, we paid a license issue fee of 1,000 shares
of our common stock and are obligated to pay royalties of 2% on net sales by
Ixion or our 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 (expiring in 2010).
In June 1997, we entered into a patent license agreement with the
Milton J. Allison Revocable Trust, obtaining exclusive, world-wide rights to the
inventions of Dr. Milton Allison, a member of our Scientific Advisory Board,
relating to the administration of cells of O. formigenes or natural enzymes from
O. formigenes (or other microorganisms) to treat oxalate-related conditions.
Except for royalty rates and patent issue fees, the terms of this license
agreement are substantially similar to the terms of the Fischer-Jensen patent
license discussed above.
Because the inventions covered by our licenses and the
interinstitutional agreement were made with federal assistance (which is typical
of university-based discoveries), they are subject to the rights of the federal
government under 35 USC Title 18, "Patent Rights in Inventions Made with Federal
Assistance," including "march in" rights under which the government has the
right to require us to grant an exclusive license under any of such inventions
to a third party if the government determines that (1) adequate steps have not
been taken to commercialize such inventions, (2) such action is necessary to
meet public health or safety needs, or (3) such action is necessary to meet
requirement for public use under federal regulations. The government's 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 our
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 by him in the area in which he is employed belongs to
the University (subject to the rights of the federal government described above,
and to Ixion's rights under the consulting agreement it has with him).
It is our policy to require our 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 us. These agreements provide that all confidential information developed or
made known to the individual during the course of his or her relationship with
us 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 us
shall be assigned to us as our exclusive property (subject, in the case of Dr.
Peck, to the prior rights of the University of Florida). There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for our trade secrets or other proprietary information in the
event of an unauthorized disclosure or will be effective to assign inventions.
Certain of our research has been funded in part by research grants
from the NIH and other government agencies. In connection with any such funding,
the U.S. Government will have the rights described above.
In order to produce or use the XEntrIX TM Oxalobacter formigenes
Monitor in its current formulation or to produce the Blood Oxalate Assay (and
other immunodiagnostic products) in commercial quantities for resale, it will be
necessary to license certain rights from Roche Diagnostics, Inc., the holder of
patents on the 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. Ixion does not anticipate that the
terms of such license will have a materially adverse effect on us.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our 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 ours. Academic institutions,
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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.
We expect our products to address a broad range of markets. Our
competition will be determined in part by the potential indications for which
our products are developed and ultimately approved by regulatory authorities. 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 our 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. Our
competitive position will also depend on our 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. We expect our products to compete primarily
on the basis of product efficacy, safety, patient convenience, reliability,
value, and scope of patent rights.
Government Regulation
In the United States, the FDA regulates distribution, manufacture,
labeling, and promotion of nutritional supplements, 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.
Dietary Supplements. We believe that, in the United States,
Ox-Control(TM) will be regulated by the FDA as a dietary supplement. The FDA
regulates many aspects of the safety, labeling, and promotion of dietary
supplements, but most dietary supplements do not require FDA pre-approval before
they can be commercially marketed. The category of dietary supplements is
defined by statute, and generally includes products that, inter alia, contain a
dietary ingredient, are intended for ingestion, and are labeled as dietary
supplements. If a dietary supplement ingredient has not previously been used in
food, the manufacturer or distributor must provide evidence of safety to FDA at
least 75 days before the product is commercially distributed. In addition, there
are significant restrictions on the kinds of claims that may be made for dietary
supplements. Fore example, if a dietary supplement is claimed to treat or
prevent a disease, FDA will consider the product a drug and generally require
FDA approval prior to commercial marketing. also, if a dietary supplement is
claimed to affect the structure or function of the body, the claim must be
accompanied by a disclosure that the claim has not been evaluated by the FDA and
that the product is not intended to diagnose, treat, cure, or prevent any
disease. Failure to comply with applicable requirements can, among other
consequences, result in compliance letters, seizures, injunctions, and criminal
prosecution. To date, FDA's enforcement efforts have been directed primarily
toward prevent marketers of dietary supplements from making drug claims without
appropriate approvals.
Because O. formigenes enzymes, and O. formigenes itself, have not
previously been used in food, we expect to file a safety notice with FDA. Any
FDA concerns about safety could slow or preclude the commercial launch of the
product. Also, because the dietary supplement law is relatively new and numerous
questions about its requirements remain, we cannot be sure that the FDA will not
object to marketing the nutritional product as a dietary supplement or to the
claims made for it.
In addition to FDA regulation, or competitors, the Federal Trade
Commission, or other governmental and private agencies may challenge our product
or product claims, or the adequacy of the data that we use to substantiate our
claims. Failure to adequately defend or modify a challenged claim could result
in a court's or agency's issuing an order requiring us to stop making the claim.
FDA Authorization to Market. Drugs, medical devices, or biologics
may not be commercially distributed 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 our planned products, such as islet
replacement therapy for diabetes, will be regulated as drugs and biologics. The
Food, Drug, and Cosmetic Act and the Public Health Service Act provide that
drugs and biologics may not be commercially distributed within the United States
unless they have been approved by the
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FDA. The process required by the FDA before drugs and biologics may be marketed
in the United States generally involves five steps:
o preclinical laboratory and animal testing,
o submission to the FDA of an investigational new drug application which
must be effective prior to the initiation of human clinical studies,
o adequate and well-controlled clinical trials to establish safety and
efficacy for its intended use,
o submission to the FDA of an new drug application or biologics license
application, and
o review and approval of the new drug application or biologics license
application 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 investigational new drug
application. If a company is not notified by the FDA within 30 days of
submission, the company may initiate Phase I clinical trials. Clinical trials
are typically conducted in three sequential phases, although the phases may
overlap.
o 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.
o 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.
o 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 a 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 a new drug application (in
the case of a drug) or biologic license application (in the case of a biologic).
The FDA may request additional information, including additional animal studies
or clinical trials that may extend the review process and delay marketing
approval. The manufacturer must also pass a premarket inspection of its
compliance with good manufacturing practices. There can be no assurance that the
FDA will authorize marketing of the product, or that it will do so in a timely
manner. Once granted, a new drug application or product license application may
place substantial restrictions on how the product is marketed. After FDA
approval of the new drug application or biologic license application 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 our planned products (such as the in vitro
diagnostic products such as the XEntrIX TM Oxalobacter formigenes Monitor), will
be regulated as medical devices. The FDA regulates the clinical testing,
manufacture, labeling, distribution, and promotion of medical devices. 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 good manufacturing
practices), and class II devices are subject to general and specific controls
(for example, performance standards, patient registries and FDA guidelines).
Generally, class III devices are those which must receive a premarket approval
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) 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
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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 application before marketing can begin.
Premarket approval applications must demonstrate, among other matters, that the
medical device is safe and effective. A premarket approval 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 premarket approval 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 the
quality systems regulations. There can be no assurances that the FDA will
authorize marketing of the product under a 510(k) or a premarket approval, 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 requirements, which usually involve FDA review
of the investigation before it may begin. Clinical investigations of many in
vitro diagnostic tests are exempt from the investigational device exemption
requirements, provided the testing meets certain exemption criteria, including
labeling as an "investigational use only" product. In addition, in vitro devices
may be distributed for "research use only," provided they are intended for
laboratory research and labeled for research use. The FDA's current policy is to
encourage manufacturers of in vitro devices for "investigational use only" or
"research use only" to establish a certification program under which these in
vitro devices 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 "investigational use only" or
"research use only" product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.
Once granted, a 510(k) clearance or premarket application approval
may place substantial restrictions on how a device is marketed. Even where a
device is exempted from 510(k) clearance or premarket application approval, the
FDA may impose restrictions on marketing. For example, FDA has exempted many
analyte specific reagents not sold as finished test kits from obtaining 510(k)
clearance or premarket application approval. These reagents, however, may be
marketed only to clinical laboratories certified under the Clinical Laboratories
Improvements Act to conduct tests of high complexity and are subject to a number
of labeling requirements.
Ixion's Products. We have agreed, as discussed above, with the
University of Florida Diagnostic Referral Laboratories for them to offer a
service to urologists and other physicians based on the protocols and reagents
of our XEntrIX TM Oxalobacter formigenes Monitor. We believe this agreement is
permitted under the provisions of the FDA's analyte specific reagent regulation;
however, we can not assure you that our reliance on that regulation will be
accepted by the FDA.
The XEntrIX TM Oxalobacter formigenes Monitor and Blood Oxalate
Assays, when manufactured by or for us, 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, we intend to request
authorization under the 510(k) procedure for the XEntrIX TM Oxalobacter
formigenes Monitor and perhaps the Blood Oxalate Assay. Premarket approval
applications may, however, be required for each of these products.
We believe that our islet replacement therapy and IxC1-62/47, the
enzyme therapy for treatment of oxalate-related disorders, will require either a
new drug application or a biologic license application before they may be
commercially distributed. There can be no assurance that the FDA will accept our
views on the regulatory status of our 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. The law or
government regulations may change in ways that could prevent or delay marketing
authorization for our products. Delays in receipt of, failure to receive, or
loss of previously received approvals could have a material adverse effect on
our 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.
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Complying with these requirements requires substantial time, money, and effort.
We intend to rely on our 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 us to enter into supply contracts with the
government, and criminal prosecution.
Non-U.S. Marketing. For marketing outside the United States, we 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. We intends to rely on our strategic partners both in the United
States and abroad for assistance with these matters.
University Conflicts of Interest. Because Dr. Peck, our Chief
Scientist, Dr. Allison, Dr. Hatch, Dr. Khan, Dr. Schatz, and Dr. Schuster,
members of our Scientific Advisory Board, are employees of public universities,
they, and consequently we, are subject to statutes and guidelines relating to
conflicts of interest. In order for Ixion to conduct business with the
university employers of these members of our Scientific Advisory Board
(including licensing University of Florida technology or entering into research
support agreements or subcontracts), we must obtain and maintain an exemption
for Dr. Peck from the application of the Florida conflict of interest statutes,
and obtain approvals for outside activities for the others.
Exemptions for Dr. Peck are issued pursuant to a monitoring plan
which requires us, among other things, to promptly disclose every material
transaction between us 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 by Dr. Peck at the beginning of each academic year (or upon
material alterations in the terms of the relations between us and him). The
approval process can take 12 or more months. While we have no reason to believe
that Dr. Peck's requests for renewal will not be approved, there is no assurance
that the exemptions will be renewed, or, if renewed, that it will be renewed on
reasonable terms. Furthermore, it is not clear what the effect of a non-renewal
will be should the University decline to renew the exemptions on a timely basis
or at all.
Manufacturing and Marketing
We have 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 our products in other
countries outside of the United States. While using third parties for
distribution or marketing permits us to avoid the costs of establishing a
distribution or marketing network in a particular area, this strategy also makes
us 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. The markets for our various product candidates are
quite distinct.
o The Ox-Control(TM)nutritional supplement will be sold directly to end
users through dispensing physicians, vitamin and health food stores,
and by mail order or internet direct retail sales.
o Food formulations for companion animals may be sold as premium pet
foods by veterinarians or specialty pet food shops, or in grocery
stores or other mass market outlets.
o Prescription drug and device products will be targeted toward
prescribing physicians.
We believe there will be demand for the XEntrIX TM 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 XEntrIX TM Oxalobacter formigenes Monitor.
For the use of the XEntrIX TM Oxalobacter formigenes Monitor, the
blood oxalate assay, and our IxC1-62/47 enzyme therapy in the management of
kidney stones, we plan to target the country's approximately 7,300 in-office
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urologists. For the use of the XEntrIX TM Oxalobacter formigenes Monitor and
IxC1-62/47 enzyme therapy for managing kidney stone risk in cystic fibrosis
patients, we plan to target the cystic fibrosis treatment centers in the United
States. For the use of the XEntrIX TM Oxalobacter formigenes Monitor and
IxC1-62/47 enzyme therapy in the diagnosis and treatment of vulvodynia, we
intend to approach the market through the 35,000 gynecologists practicing in the
United States.
Marketing Strategy. The strategy for marketing our islet replacement
therapy will depend on collaborations with third parties with greater marketing
resources than we.
The marketing strategy for the XEntrIX TM Oxalobacter formigenes
Monitor depends upon educating urologists and nephrologists of its clinical
usefulness. 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 XEntrIX TM 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 XEntrIX TM 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. XEntrIX TM 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.
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, we intend to
invest in both physician education programs, and, assuming funds are available,
consumer awareness campaigns. We 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, we propose to inform urologists about our
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 our vulvodynia products and the cystic fibrosis market for the management of
kidney stone risk.
In each case, we intend to participate in urology, nephrology,
gynecology, and other industry trade meetings and to exploit on-line medical
databases and our own web site. Finally, as stated above, we intend to use
third-party sales forces to amplify our efforts.
Contract Suppliers and Manufacturers. It is our present intention to
enter into agreements with contract testing and manufacturing entities to test
and manufacture commercial quantities of our 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" requirements
applicable to such a facility.
Facilities
In October 1998, we leased approximately 3,600 rentable square feet
of equipped laboratory space and approximately 1,413 rentable square feet of
office space at 13709 Progress Blvd., Alachua, Florida. Our lease has a
three-year term, expiring in September 2001, with two one-year renewal options.
We are developing a small scale facility in our lab suite to produce preclinical
quantities of our XEntrIX TM Oxalobacter formigenes Monitor as well as
IxC1-62/47. Commercial scale production will be subcontracted to contract
manufacturers. Annual expenses for the first year of lease, including repayment
of funds provided by lessor for tenant improvements and an emergency generator,
were approximately $121,000. We expect that annual lease expenses will continue
to be approximately the same for 2000.
For a fee of $1,000 for 1999, we have a graduate membership
agreement with the Biotechnology Development Institute under which we have
access to specialized facilities such as animal rooms, small-scale fermentation
capabilities, and glass washing and autoclaving facilities. As a graduate
member, we may also use the specialized equipment located in the centralized
instrument lab in the Biotechnology Development Institute at no extra cost, and
we may use the
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services of the University's Core Laboratories including the Recombinant
Protein Expression Core, the Flow Cytometry Core, the Protein Chemistry Core,
and the Electron Microscopy Core at a special graduate membership rate.
We believe these facilities will be adequate for the foreseeable
future.
Legal Proceedings
We are not a party to any legal proceedings and are not aware of any
threatened litigation or regulatory action that could have a material adverse
effect on our business, financial condition, or results of operations.
Employees
We have seven full time employees. Our six part time employees
include Dr. Peck, who is an exclusive consultant, and Mr. Peck, President and
Chief Financial Officer. Ixion is not subject to any collective bargaining
agreements and believes that our relationship with our employees is good.
Scientific Advisory Board
None of the members of the Scientific Advisory Board is an employee.
Scientific advisors spend only a small portion of their time on our affairs and
have commitments to other institutions that may conflict or compete with their
obligations to us. Scientific advisors collaborate with us on research grant
applications, review and evaluate our research programs, advise us about
technical matters, consult on product planning and feasibility studies, assist
in establishing research priorities, provide guidance on clinical evaluation
programs, alert us to potential collaborators, advise us on new developments,
and recommend personnel.
The Scientific Advisory Board meets periodically as a group. In
addition, some members may meet in smaller groups or individually with our
scientists. Ixion has confidentiality agreements with each scientific advisor
providing that all confidential information shall be our exclusive property.
Scientific advisors are not paid in cash, but are reimbursed expenses, and,
pursuant to the 1994 Board Retainer Plan, receive 5,000 restricted shares of
Ixion'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 are the
following:
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.
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 from the University College, Dublin,
Ireland and her Ph.D. in 1978 from Trinity College, Dublin, Ireland.
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 undergraduate degree from Agra
University in Agra, India, his masters of science degree from the Peshawar
University, Peshawar, Pakistan, and his Ph.D. from the University of Florida.
Desmond Schatz, M.D. Dr. Schatz is the Medical Director of the
Diabetes Center and Associate Professor of Pediatric Endocrinology at the
University of Florida Medical School. He is a Diplomate of the American Board
of Pediatric Endocrinology and a member of the American Diabetes Association,
the International Diabetes Federation, and the Immunology of Diabetes Society.
He received his undergraduate degree from St. David's College in Johannesburg,
South Africa, and his medical degree from the University of the Witwatersrand
Medical School in Johannesburg.
Sheldon M. Schuster, Ph.D. Dr. Schuster is Biotechnology Program
Director for the University of Florida's biotechnology program. He is a member
of the American Association for the Advancement of Science and the
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American Society of Biological Chemistry and Molecular Biology. He was a
co-founder of BioNebraska, Inc., and is a co-founder and chairman of the
scientific advisory board 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.
Hans Wigzell, M.D., D.Sc. Dr. Wigzell is presently the Rector of
Stockholm's famed Karolinska Institute. He received his medical degree and
doctorate of science. from Karolinska. 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.
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MANAGEMENT
Officers, Directors, and Key Employees
The following table sets forth certain information with respect to
our executive officers, directors, and significant employees and consultants.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Weaver H. Gaines (1) 56 Chairman and Chief Executive Officer
David C. Peck (1) 52 President, Chief Financial Officer, and Director
Ammon B. Peck, Ph.D. 54 Senior Vice President and Chief Scientific Officer
and Chairman of the Scientific Advisory Board
Bengt Agerup, Ph.D. 56 Director
Karl-E. Arfors, Ph.D. (2) 63 Director
David M. Margulies, M.D. (2) 48 Director
Vincent P. Mihalik (2) 49 Director
Thomas P. Stagnaro 56 Director
Kimberly A. Ramsey 42 Vice President and Controller
Harmeet Sidhu, Ph.D. 43 Vice President and Director of Research, Oxalate Division
Vijay K. Ramiya, Ph.D. 39 Director of Research, Diabetes Division
Janet Cornelius, MS 60 Associate Director of Research, Diabetes Division
</TABLE>
(1) Member of Executive Committee
(2) Member of Audit and Benefits Committee
Certain of our key personnel are part-time employees or consultants.
Mr. Peck, our President and Chief Financial Officer devotes time to our affairs
as needed (on the average approximately three days per month). Dr. Peck, Senior
Vice President, Chief Scientist, and Chairman of the Scientific Advisory Board,
devotes four days per month and Janet Cornelius, Associate Director of Research,
Diabetes Division devotes four days per month (the remainder of her time is in
Dr. Peck's laboratory at the University).
Mr. Gaines is a co-founder of Ixion and has been our Chairman and
Chief Executive Officer and a Director since April, 1993. He was also our
President 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 senior executive positions with The Mutual Life Insurance
Company of New York and its operating subsidiaries. He is also a director of
Unified Financial Services, Inc., an SEC-reporting company, AquaGene, Inc., and
past Chairman of the Board of BIO+Florida, the Florida biotechnology trade
association
Mr. David Peck is a co-founder of Ixion, a Director since March
1993, our President since April, 1994, and our Chief Financial Officer since
May, 1995. From October 1995, Mr. Peck has also been Chief Executive Officer
of BACOMPT, a printing company located in Carmel, Indiana. Mr. Peck is Dr.
Peck's brother.
Dr. Ammon Peck is the scientific founder of Ixion 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. Dr. Peck is Mr.
Peck's brother.
Dr. Agerup became a director in July 1999. He founded Q-Med AB of
Uppsala, Sweden in 1987, and, since April 1999, is its head of research and
development. From 1995 to 1999, he was the Managing Director of Q-Med.
Previously he held executive and scientific positions with Pharmacia and
Biomatrix.
Dr. Arfors became a director in 1998. From 1993 to the present he
has been President of Experimental Medicine, Inc., a company he founded.
Previous experience includes various research positions with Pharmacia, AB, of
Uppsala, Sweden, president and co-founder of the La Jolla Institute for
Experimental Medicine, and executive director for biological sciences for the
Liposome Company.
Dr. Margulies, a Director since 1994, became a director and
Executive Vice President and Chief Scientist of CareInsite, Inc in 1999.
Concurrently, he is Executive Vice President of Medical Manager Corp,
CareInsite's parent, a
42
<PAGE>
position he has held since 1997. Both companies are publicly-held. From May
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 Medical Manager in January 1997. From 1990 to May 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
Mr. Mihalik, a Director since 1995, is presently Senior Vice
President and Global Manager, Lab Systems and Molecular Biochemicals, Roche
Diagnostics. From September of 1996 until June 1998, he was Executive Vice
President, Group Personnel, Corange International Holding BV, the parent company
of Boehringer Mannheim Corporation. From 1994 to September of 1996, he was
Senior Vice President Global Marketing, Strategic Planning, Patient Care, of
Boehringer Mannheim Corporation.
Mr. Stagnaro became a director in July 1999. Since 1998 he has been
an independent consultant as well as Chairman of the Board of US Biomaterials.
He is also a director of InKine Pharmaceutical Corporation, a public company.
From 1996 to 1998 he was President and CEO and a director of 3-Dimensional
Pharmaceuticals, Inc., a public company. Previously he was a senior executive
vice president and director of Nabi, Inc., a public company.
Ms. Ramsey was elected Vice President and Controller when she became
a full-time employee in July. She joined Ixion in June 1995 as a part time
controller. Previously from September 1993 she was a supervisory accountant at
Environmental Consulting & Technology in Gainesville, Florida.
Dr. Sidhu was elected Vice President and Director of Research,
Oxalate Division in 1999. She joined us as a full-time consultant in May of 1995
and became a full-time employee and Director of Research, Oxalate Division in
January of 1997. 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.
Dr. Ramiya, joined us in 1998 as Director of Research, Diabetes
Division. From 1996 to 1998, he was a visiting Assistant Professor at the
Laboratory of Immuogenetics at the University of Illinois. Prior to that he
was a Research Assistant Professor at the University of Florida.
Ms. Cornelius joined us on July 1, 1997 as a part-time employee and
Associate Director of Research, Diabetes Division. 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
the islet technology work in collaboration with Dr. Peck. She is a co-inventor
of the islet technology for developing a cure for diabetes. From 1975 to 1995
she held the title of Biological Scientist in the same department.
Directors are elected annually and 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. Our
bylaws authorize the Board of Directors from time to time to determine the
number of its members. The Board currently consists of seven members whose terms
expire in 2000. Successors to those directors whose terms have expired are
required to be elected by stockholder vote; vacancies in 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
Mr. Mihalik, Dr. Margulies, and Dr. Arfors, recommends to the Board of Directors
the appointment of our 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 our executive officers and key consultants and administers our 1994 Stock
Option Plan and 1994 Board Retainer Plan. It is composed entirely of outside
directors.
We do not pay cash compensation to members of our Board of
Directors, but we do reimburse them for expenses incurred in connection with
meetings. New outside directors receive 5,000 shares of restricted stock upon
election to the board, and 1,000 shares of restricted stock annually thereafter,
under the terms of our 1994 Board Retainer Plan. After their first year of
service, outside directors also receive stock option awards annually as
determined by the Audit and Benefits Committee, currently options for 2,500
shares, exercisable at fair market value at the date of the grant.
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<PAGE>
There is no additional compensation for serving on committees except
that members of the Audit and Benefits Committee receive an award of 2,000
options upon appointment. Inside directors receive no additional compensation
for service as a director.
Consulting Agreement with Mr. Stagnaro
Mr. Stagnaro is a financial consultant to us under a consulting
agreement dated September 21, 1998. Pursuant to this agreement, Mr. Stagnaro is
acting as a non-exclusive finder in connection with our search for strategic
partners and investors. We do not pay Mr. Stagnaro a retainer, but we do
reimburse expenses incurred on our behalf. In the event of a transaction between
us and a party introduced by Mr. Stagnaro, we will pay compensation of 5% of the
first million, 3% of the second million, and 1% of all amounts over $2 million.
Research Collaboration with Dr. Arfors
Dr. Arfors is a research collaborator with us and from time to time
may be awarded contracts to perform certain research services in connection with
our diabetes research. We do not pay him a retainer. On September 30, 1999, we
received notice that the NIH had awarded us a $200,000 grant to fund diabetes
research pursuant to a grant application listing Dr. Arfors as a subcontractor.
Dr. Arfors's lab will receive $25,000 from the NIH funds over a 23-month period,
of which a total of $15,000 is to defray a portion of Dr. Arfors's salary.
Executive Compensation
The following table summarizes the compensation of those persons who
were, at December 31, 1998, our Chairman and Chief Executive Officer, our
President, and our Senior Vice President and Chief Scientist for the years ended
December 31, 1996, 1997, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
Securities Underlying
Name Year Salary Options/SARs
<S> <C> <C> <C>
Weaver H. Gaines 1996 $85,000 0
Chairman and CEO 1997 $95,000 0
1998 $95,000 19,000
David C. Peck 1996 $60,000 0
President & CFO 1997 $60,000 0
1998 $60,000 12,000
Ammon B. Peck 1996 $40,000 0
Sr. V.P. & Chief Scientist 1997 $50,000 0
1998 $50,000 10,000
</TABLE>
The following table sets forth certain information concerning all
stock option grants to the Company's executive officers during the year ended
December 31, 1998.
44
<PAGE>
Option/SAR Grants in Last Fiscal year
(Individual Grants)
<TABLE>
<CAPTION>
Number of Securities
Underlying %of Total Options/SARs
Options/SARs Granted to Employees in Exercise Price
Name Granted fiscal Year Per Share Expiration
---- --------------- ------------------- ------------ --------------
Date
<S> <C> <C> <C> <C>
----
Weaver H. Gaines 19,000 42% $10.00 June 30, 2008
David C. Peck 12,000 27% $10.00 June 30, 2008
Ammon B. Peck 10,000 22% $10.00 June 30, 2008
</TABLE>
The following table sets forth certain information concerning option
exercises and option holdings under the Option Plan as of December 31, 1998 with
respect to each of the Company's named executive officers.
Aggregated Options/SAR Exercises in Last Fiscal Year and
Fiscal Year-end Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-The-
Unexercised Options/SARs at Money Options/SARs at FY-end
FY-end Exercisable/Unexerciseable(1)
Name Exercisable/Unexerciseable
<S> <C> <C>
Weaver H. Gaines 0/19,000 $0/$0
David C. Peck 0/12,000 $0/$0
Ammon B. Peck 0/10,000 $0/$0
</TABLE>
(1) Value is based on the public offering price of our shares. There is no
trading market for our common stock, accordingly no options are "in-the-money."
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 bonuses based on our performance. The plan year runs from July 1
to June 30. Awards and performance goals are set by the Audit and Benefits
Committee. For senior vice president and above, awards could range up to 50% of
base salary; vice presidents, up to 30% of base salary; research
director/associate research director, up to 20% of participant's base salary;
and all others, up to 15% of base salary. For each participant, the award ranges
from the maximum award, if we achieve 100% of our approved goals, to no award,
if we achieve less than 70% of our approved goals.
Deferred Compensation Plan
In January, 1994, the Board of Directors adopted a Deferred
Compensation Plan for Ixion's officers, key employees, and consultants,
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. Our only obligation
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
45
<PAGE>
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 at a price 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 our 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 deferred accounts bear interest
during 1999 at 6.29%. Interest is compounded annually at rate established by
the Board of Directors annually, based on the 30-year treasury bond rate in
effect on January 1 of any given year, plus 1.0%.
Employment Agreements
We have entered into written agreements (the "Employment
Agreements") with two of our 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 we have 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, 2000. 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 we or the executive
has the right to terminate the agreement at any time upon 60 days' notice. A
termination by Ixion "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 us 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 pursuant
to the terms of the Deferred Compensation Plan. Termination is deemed without
cause or for "Good Reason" if
o there is a reduction in the executive's annual aggregate compensation or
benefits,
o there is a diminution in the executive's position, powers, authority,
duties, or responsibilities, or
o there is a material breach of the Employment Agreement by Ixion.
The Employment Agreements contain covenants that an executive must
refrain from engaging in any business competitive with us 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 of our proprietary
information during the period of his employment, or thereafter. All inventions
relating to biotechnology generally conceived while rendering services us must
be assigned to us.
Consulting Agreement with Dr. Peck
We have an exclusive consulting agreement expiring on December 31,
2000, with Dr. Ammon B. Peck for consulting services relating to our business
and technology. The fee is $50,000 per year. Dr. Peck is obligated to devote 48
days of service per year to us, 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 us any inventions or intellectual property rights developed by him
while performing services under the consulting agreement in any inventions or
intellectual property rights waived by the University. The consulting agreement
may be canceled by either party on 30 days' written notice. We have a life
insurance policy on the life of Dr. Peck in the amount of $500,000 payable to
us.
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<PAGE>
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 and an opportunity to
participate in our growth, development, and financial success, to officers,
directors, employees, consultants, and members of the Scientific Advisory Board.
The Plan reserves an aggregate of 250,000 shares of our authorized
but unissued common stock for grants of options to employees and consultants and
an additional 75,000 shares for grants of options to members of the Board of
Directors and members of the Scientific Advisory Board. At September 30, 1999,
options to purchase 173,500 shares were outstanding, 9,000 shares were reserved
for grants to directors and members of the Scientific Advisory Board and 142,500
shares remained reserved for grants to employees and consultants.
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 our 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 us 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.
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
our stock or any subsidiary of ours). The price may be paid in cash, by
promissory note, or previously owned shares.
1994 Board Retainer Plan
In 1994, the Board of Directors adopted the 1994 Board Retainer Plan
(amended March 1999) to grant shares of restricted common stock to directors,
members of the Scientific Advisory Board, employees, and consultants. The Board
Retainer Plan is administered by the Audit and Benefits Committee of the Board.
Unvested shares granted are subject to reacquisition by us at no
cost if the grantee ceases to be a director, member of the Scientific Advisory
Board, employee, or consultant. With respect to directors, employees, or
consultants, the reacquisition option will typically lapse as to 20% of the
shares granted after the grantee's first full year of continuous service with us
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 vest 25% per
quarter.
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 determines the amount granted each eligible
person (except themselves) at any time in its complete discretion. Under the
March 1999 amendments to the Board Retainer Plan, up to 250,000 shares may be
issued and outstanding pursuant to the Plan, of which 121,450 have been issued
and are outstanding at September 30, 1999. The Audit and Benefits Committee
determines the specific number of shares to be granted to key employees and
consultants.
47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of certain transactions among Ixion and
related persons during the last two years.
As of January 1, 1996, we purchased used laboratory equipment with a
replacement value in excess of $60,000 from Carl Therapeutic, Inc. (controlled
by one of our vice presidents), 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 called for monthly payments of
$897.47 commencing August 1, 1996. This agreement was completely paid off in
August 1999 in accordance with its terms.
On April 16, 1996, the Chairman and Chief Executive Officer and the
President each entered into a revolving agreement to extend us operating funds
in the form of bridge loans. Outstanding loans currently bear cash interest at
the rate 8% (which 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%), paid monthly and
upon repayment of the principal. We have borrowed a total of $415,000 in
principle amount under these bridge loans all of which is outstanding as of
September 30, 1999. The officers have no commitment to lend additional funds in
the future.
Because of their managerial positions and stock holdings in Ixion,
and their activities related to our organization, Messrs. Gaines and Peck, and
Dr. Peck may be deemed to be "promoters" as that term is used under the
Securities Act.
It is our policy that any material transactions or loans, and any
forgiveness of loans, between officers, directors, or material shareholders and
us must be approved by a majority of our 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 us than those
that can be obtained from unaffiliated third parties. All of the above
transactions were entered into in compliance with our policy.
PRINCIPAL SHAREHOLDERS
The table below sets forth information as of September 30, 1999 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 (1) each person known by us to be the
owner of more than 5% of the aggregate outstanding shares of common stock, (2)
each officer and director and (3) all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percentage of
Shares Owned
Name and Address of Number of Prior to After
Beneficial Owne Shares Offering Offering(1)
- -------------------- -------- -------- -----------
<S> <C> <C> <C>
Bengt Agerup(2) 2,930,000 53.5% 52.5%
Ammon B. Peck(3) 653,833 11.9% 11.6%
Weaver H. Gaines(4) 549,595 10.0% 9.8%
David C. Peck(5) 419,384 7.7% 7.5%
David M. Margulies(6) 24,267 (7) (7)
Vincent P. Mihalik(8) 17,708 (7) (7)
Karl-E. Arfors(9) 6,000 (7) (7)
Thomas P. Stagnaro(10) 5,000 (7) (7)
All officers and 4,621,839 84.3% 82.1%
directors as a group
(10 persons)
</TABLE>
(1) Assumes sale of all shares offered hereby, but does not assume
exercise or conversion of other securities held by anyone other than
the named persons.
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<PAGE>
(2) Dr. Agerup's business address is Q-Med AB, Seminariegatan 21,
SE-752 28 Uppsala, Sweden. Includes 225,000 shares and an option to
purchase 2,700,000 additional shares held by Q-Med, AB, of which
Dr. Agerup is an officer, director, and controlling shareholder.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - The Q-Med Transaction."
(3) Dr. Peck's business address is 13709 Progress Blvd., Box 13,
Alachua, FL 32615. Includes 2,833 shares issuable upon exercise of
currently exercisable options and 50,000 shares held by Dr. Peck's
wife in trust for her brothers as to which Dr. Peck disclaims
beneficial ownership, but excludes 17,167 shares issuable under
options not currently exercisable.
(4) Mr. Gaines's business address is 13709 Progress Blvd., Box 13,
Alachua, FL 32615. Includes 5,383 shares issuable upon exercise of
currently exercisable options, 5,952 shares issuable upon
conversion of unsecured convertible notes held by Mr. Gaines and
40,000 shares held by WABS Associates, a general partnership
composed of Mr. Gaines and his three siblings, but excludes 28,617
shares issuable under options not currently exercisable. Mr. Gaines
disclaims beneficial ownership of 30,000 of the WABS Associates
shares.
(5) Mr. Peck's business address is 13709 Progress Blvd., Box 13,
Alachua, FL 32615. Includes 3,400 shares issuable upon exercise of
currently exercisable options, 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, but excludes 20,600 shares issuable
under options not currently exercisable.
(6) Dr. Margulies's business address is c/o CareInsite, Inc., One
Hampshire Street, Cambridge, MA 02139. Includes 6,267 shares
issuable upon exercise of currently exercisable options, but
excludes 6,233 shares issuable under options not currently
exercisable.
(7) Less than 1.0%.
(8) Mr. Mihalik's business address is c/o Roche Diagnostics
Corporation, 9115 Hague Road, Indianapolis, IN 46250. Includes
4,708 shares issuable upon exercise of currently exercisable
options but excludes 6,292 shares issuable under options not
currently exercisable.
(9) Dr. Arfor's business address is Experimental Medicine Inc., 235
Prospect Avenue, Princeton, NJ, 08540. Includes 2,500 shares
issuable under options not currently exercisable.
(10) Mr. Stagnaro's business address is 13709 Progress Blvd., Box
13, Alachua, FL 32615.
Possible Change of Control
As mentioned above, Q-Med holds an option to acquire our shares
through July 1, 2000. The effect of the option is to permit Q-Med, at any time
until June 30, 2000, to purchase however many shares of our common stock as is
necessary to allow them to own 50% of our outstanding shares immediately after
the purchase. If they elect to exercise the option, they would have effective
control of Ixion immediately following the option exercise. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - The
Q-Med Transaction.")
DESCRIPTION OF SECURITIES
Common Stock
As of September 30, 1999, Ixion's authorized capital consists of
20,000,000 shares of common stock, $0.01 par value. As of that date, we had
2,813,044 shares of common stock outstanding, held of record by approximately
116 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. In the event of liquidation, dissolution, or
winding up of Ixion, 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.
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<PAGE>
Preferred Stock
We have authorized preferred stock of 1,000,000 shares of no par
value. None has been issued. The board of directors, by adoption of an
authorizing resolution, may cause preferred stock to be issued from time to time
in one or more series, and may, with regard to the shares of any series of
preferred stock:
Fix the distinctive serial designation of the shares;
Fix the dividend rate, if any;
Fix the date from which dividends on shares issued before the date
for payment of the first dividend shall be cumulative, if any;
Fix the redemption price and terms of redemption, if any;
Fix the amounts payable per share in the event of dissolution or
liquidation of the Company, if any;
Fix the terms and amounts of any sinking fund to be used for the
purchase or redemption of shares, if any;
Fix the terms and conditions under which the shares may be
converted, if any;
Provide whether such shares shall be non-voting, or shall have
full or limited voting rights, and the rights, if any, of such
shares to vote as a class on some or all matters on which such
shares may be entitled to vote; and
Fix such other preferences, qualifications, limitations,
restrictions, and special or relative rights not required by law.
None of these actions would require stockholder approval.
Unsecured Convertible Notes
In 1996 Ixion issued $787,270 of unsecured convertible notes due
2001. $215,600 of the unsecured convertible notes pay interest at 10% and
$571,670 of the unsecured convertible notes do not pay cash interest but are
converted at declining conversion prices. The unsecured convertible notes were
issued under a note purchase agreement, dated as of September 13, 1996, between
Ixion and the initial purchasers of the unsecured convertible notes. The 10%
unsecured convertible notes accrue interest at the stated rate until maturity,
or conversion, and pay interest quarterly. The 10% unsecured convertible notes
are convertible into shares of our common stock at any time prior to maturity at
a conversion price of $4.20 per share. The variable unsecured convertible notes
are non-interest bearing and are convertible into shares of our 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 Unsecured convertible notes prior to conversion, as
shown in the table below:
<TABLE>
<CAPTION>
If converted
at end of 1999 2000 2001
-------------- ---- ---- ----
<S> <C> <C> <C>
February $3.20 $2.80 $2.40
May $3.10 $2.70 $2.30
August $3.00 $2.60 $2.10
November $2.90 $2.50
</TABLE>
Charitable Benefit Warrants
As of September 30, 1999, there were 21,513 charitable benefit
warrants outstanding. Each charitable benefit warrant entitles the holder to
purchase one share of common stock at a price of $8.00 per share. Approved
qualified charitable organizations may exercise charitable benefit warrants at
any time until the expiration date (December 9, 2007, unless extended); holders
other than approved qualified charitable organizations may not exercise except
between December 9, 2006, and the December 9, 2007
The charitable benefit warrant are issued pursuant to a warrant
agreement between Ixion and SunTrust Bank, Atlanta, as warrant agent, and are in
registered form. 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 us in our absolute discretion. A registered holder may transfer
charitable benefit warrants to an approved
50
<PAGE>
qualified charitable organization at any time from the time of issuance and
prior to the close of business on December 9, 2007.
An approved qualified charitable organization means a 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 us 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.
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, we will make an adjustment upon a reclassification
or in case of a consolidation or merger with or into another company or the sale
of all or substantially all of our assets, 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.
Charitable benefit warrants do not confer upon the holder any voting
or any other rights of a stockholder. Upon notice to the warrant holders, we
have the right to reduce the exercise price or extend the expiration date of the
charitable benefit warrants.
Other Outstanding Common Stock Purchase Warrants
As of September 30, 1999, in addition to the charitable benefit
warrants, 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 we
o issue, sell, or otherwise distribute common stock at a price which is
less than the then current market price of the common stock,
o issue 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,
o issue convertible securities whose conversion price is less than the
then current market price of the common stock, or
51
<PAGE>
o pay a dividend of cash or other property in any one year greater than
10% of the then current market price of the common stock.
Ixion 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. Upon notice to the holders of the warrants, we have 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.
52
<PAGE>
Limitation of Liability
As permitted by Delaware law, the Certificate of Incorporation
provides that no director of ours will be liable for monetary damages for breach
of fiduciary duty as a director, except
o for any breach of the director's duty of loyalty to us or its
stockholders,
o for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law,
o for approval of certain unlawful dividends or stock purchases or
redemptions, and
o 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.
We intend 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 and officers against any
liability arising out of their status as a director or officer of ours,
regardless of whether we have the power to indemnify the person against such
liability under applicable law.
We have been advised that it is the opinion of the SEC 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.
SHARES ELIGIBLE FOR FUTURE SALE
At the completion of this offering, there will be 2,876,994 shares
of common stock outstanding if all shares are sold. There will be 173,500 shares
of common stock issuable upon the exercise of outstanding options under the 1994
Stock Option Plan, 2,700,000 shares issuable upon exercise of the Q-Med option,
45,143 issuable upon the exercise of outstanding warrants, and up to 323,557
shares of common stock issuable upon conversion of our unsecured convertible
notes. There is no current market for our securities, and it is unlikely there
will be one at the conclusion of this offering.
Should we elect to register our securities in the future, we cannot
predict whether a market for our 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 our ability to raise capital through the sale of its equity
securities.
Sales of Restricted Securities
All 2,726,994 outstanding shares of common stock which are not
registered in this offering, all outstanding warrants (other than the charitable
benefit 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 us 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.
53
<PAGE>
Registration Rights
Pursuant to the agreement to purchase shares dated as of October 10,
1994, the holders of 140,000 shares of common stock are entitled to certain
contingent piggyback registration rights, subject to the terms and conditions of
the agreement to purchase shares. Under that agreement, if at any time during
the period ending October 9, 2004, Ixion registers any shares of common stock on
certain SEC forms, one or more holders of the October 10 purchasers may request
that all or a part of their securities be included in the registration
statement. We are required to bear all registration and selling expenses (other
than underwriter's fees, discounts, or commissions) in connection with the
registration of those shares.
Pursuant to the employment agreements, Messrs. D. Peck and Gaines,
holders of record of an aggregate of 905,994 shares of our common stock as of
September 30, 1999 are entitled to certain demand registration rights, subject
to the terms and conditions of their employment agreements. Subject to certain
exceptions, if we are 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 we register at least 100,000 shares 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 us under the
Act. We will bear all registration and selling expenses (other than
underwriter's fees, discounts, or commissions) in connection with the
registration of their registerable securities.
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 we register any sales of common
stock under the Securities Act, we must notify the warrant holders in order that
they may request inclusion in such registrations statement. We will pay the
expenses of the registration (other than transfer taxes, underwriting
commissions, and fees of warrant holders' counsel).
Under 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
contingent piggyback registration rights. We will pay the expenses of the
registration (other than transfer taxes, underwriting commissions, and fees of
the converting note holders' counsel).
PLAN OF DISTRIBUTION
We propose to sell up to 150,000 shares of common stock at a price
of $4.00 per share directly to members of the public residing in selected
states. 86,050 shares have already been sold in the offering. Announcements of
this offering, in the form prescribed by Rule 134 of the Securities Act, have
been communicated to selected persons. There is no required minimum number of
shares to be sold, and all funds received have gone and will go immediately to
us. The offering began on December 10, 1997 and will continue until March 31,
2000 (unless extended), or all of the shares offered are sold or such earlier
date as we may close or terminate the offering. All shares will be sold at the
public offering price of $4.00 per share and a minimum purchase of 100 shares
($400.00) is required. Since there is no minimum number of shares 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 shares offered are not sold.
We have been offering and plan to continue to offer and sell the
shares directly to investors. We have not retained any underwriters, brokers,
dealers, or placement agents in connection with the offering except in Florida,
as described below. However, we reserve the right to use brokers, dealers, or
placement agents. We could pay commissions equal to as much as 10 percent of the
gross proceeds although we do not currently intend to pay more than $14,664 in
aggregate commissions (of which we have paid $1,854 as of September 30, 1999).
We will effect offers and sales of shares through printed copies of this
prospectus delivered by mail and electronically, by contacting prospective
investors by publicizing the offering through a posting on our Internet site
(which was first established in July of 1996), by publicizing the offering
through newspaper advertisements, and by contacting additional potential
investors by direct email and regular mail solicitation. Any voice or other
communications will be conducted in certain states through our 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 ours will be deemed a "broker," as defined in the Exchange Act,
solely by reason of participation in this offering, because
o none is subject to any of the statutory disqualifications in Section
3(a)(39) of the Exchange Act,
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<PAGE>
o in connection with the sale of the shares offered, none will receive,
directly or indirectly, any commissions or other remuneration based
either directly or indirectly on transactions in securities,
o none is an associated person (partner, officer, director, or employee)
of a broker or dealer, and
o 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.
We have registered the shares, and where required, ourselves as a
broker/dealer under the securities laws of some, but not all states. At present,
we do not intend to offer shares 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.
We reserve the right to seek qualification in such states at any time prior to
the termination of the Offering. We plan to continue to qualify the shares for
sale in the District of Columbia, Florida, Georgia, Maryland, New Jersey, New
York, Virginia, and to seek qualification in other states, if qualification can,
in the opinion of management, be obtained for reasonable cost or on reasonable
terms. We will not make any sales to residents of any states where the offering
is not approved.
Residents of Florida must purchase shares through a broker/dealer
registered in Florida. We have agreed with Unified Management Corporation, whose
address is 429 N. Pennsylvania St., Indianapolis, IN 46204, phone 317-634-3300
or 800-862-7283 for them to sell shares to Florida residents. Unified Management
has no commitment to purchase shares from us for resell or to otherwise sell
shares, 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
shares to residents of Florida resulting from the offering, and will be
reimbursed by us for reasonable expenses. At September 30, 1999, we had paid
Unified Management a total of $1,854 in commissions and had reimbursed them $200
for expenses. We have agreed to indemnify Unified Management against certain
liabilities, including liabilities under the Securities Act. Mr. Gaines, our
Chairman is a member of the Board of Directors of Unified Financial Services,
Inc., the parent of Unified Management. Mr. Gaines will not benefit, directly,
or indirectly, from the commissions paid to Unified Management.
Residents of California, should we requalify there, must meet one
of the following suitability requirements. An investor must:
o be an "accredited investor" within the meaning of Regulation D under
the Securities Act of 1933; or
o 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
o 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
o (4) a person (other than a person formed for the sole purpose of
purchasing the shares offered hereby) who is purchasing at least
$1,000,000 in aggregate amount of the shares.
Residents of Virginia purchasing shares 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 shares, each prospective investor must complete,
date, execute and deliver to us a share purchase agreement and have paid the
purchase price of the shares subscribed for by check payable to Ixion
Biotechnology, Inc. A copy of the share purchase agreement is included with this
prospectus and is available on line at our web site.
We reserve the right to reject any share purchase agreement in its
entirety or to allocate shares among prospective investors. If any share
purchase agreement is rejected, funds received by us for such subscription will
be returned to the subscriber without interest or deduction.
Within five days of its receipt of a share purchase agreement
accompanied by a check for the purchase price, we 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 us. Not more than thirty days following
the mailing of its written confirmation, a
55
<PAGE>
subscriber's common stock certificates will be mailed by first class mail. We
shall not use the proceeds paid by any investor until the common stock
certificates 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. We do 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, we may apply for a listing on a United States regional exchange,
if we meet the listing requirements. However, there can be no assurance that we
will be listed or that a market will develop or be sustained. If it does not, we
have 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 us
and such a registered securities broker-dealer. We may in the future also seek
to provide a passive, bulletin board system on the Internet providing
information to buyers and sellers of our common stock to facilitate trading. The
system would not affect transactions and would be obliged to meet the
requirements of the SEC. We have 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
We have unilaterally and arbitrarily determined the offering price.
Among the factors we considered in determining such price were
o the consideration received upon the sale of shares to Q-Med AB (see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - The Q-Med Transaction")
o offering prices of other early stage biotech initial public offerings,
o the public market for biotech stocks,
o our capital requirements,
o our negative book value,
o the percentage of ownership to be held by investors following the
offering,
o the prospects for our business and the biotech industry,
o the early stage of our products,
o the lack of revenue and the prospects for future revenues, and
o the current state of the economy in the United States.
The offering price does not necessarily bear any relationship to our assets,
negative book value, or other investment criteria, and you should not be
consider it an indication of the actual value of our securities. If a public
market for our shares were to develop or if we were to merge with another
company, the public market price or the merger price for our shares could be
substantially less than the offering price.
LEGAL MATTERS
Certain legal matters in connection with validity of the shares
offered hereby will be passed upon for us by Brashear & Associates, P.L.,
Gainesville, Florida.
EXPERTS
The balance sheet as of December 31, 1998 and the statements of
operations, capital deficiency and cash flows for the years ended December 31,
1998 and 1997, and for the period March 25, 1993 (date of inception) to December
31, 1998 included in this prospectus have been so included in reliance on the
report, which includes an explanatory paragraph indicating substantial doubt as
to our ability to continue as a going concern, of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
56
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC
covering the shares offered by this prospectus. This prospectus does not contain
all of the information included in the registration statement. For further
information about Ixion and the shares we are offering in this prospectus, refer
to the registration statement and its exhibits and to our annual reports,
quarterly reports, and proxy statements also filed with the SEC. The statements
we make in this prospectus regarding the content of any contract or other
document are necessarily not complete, and you may examine the copy of the
contract or other document that we filed as an exhibit to the registration
statement or other reports to the SEC. All our statements about those contracts
or other documents are qualified in their entirety by referring you to the
exhibits to the registration statement or other reports.
At your request, we will provide you, without charge, a copy of any
exhibits incorporated by reference in this prospectus. If you want more
information, write, call, or email us at:
Ixion Biotechnology, Inc.
13709 Progress Blvd., Box 13
Alachua, FL 32615-9495
Telephone: 904-418-1428
Fax: 904-418-1583
Email: [email protected]
You may read and copy any reports, statements, or other information
we file at the public reference facilities of the SEC in Washington, D.C. You
can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public on the SEC Internet site at http://www.sec.gov.
57
<PAGE>
SHARE PURCHASE AGREEMENT
[To purchase any of the shares, you must be a resident of a state where the
sale of shares is permitted under the state's securities laws.]
Send to: Ixion Biotechnology, Inc., 13709 Progress Blvd., Box 13, Alachua,
FL 32615-9495
Phone: 904-418-1428 - - -Fax: 904-418-1583 - - - Email: [email protected]
Florida Subscribers Only:
Send to: Ixion Biotechnology, Inc., c/o Unified Management Corporation -
429 N. Pennsylvania 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
shares are offered.
Enclosed is payment for____________ shares (minimum 100), at $4.00 per share,
totaling $____________.
Make check payable to Ixion Biotechnology, Inc.
Signature(s)___________________________________ Date _____________________
Register the shares in the following name(s) and amount(s):
Name(s)________________________________________ Number of Shares _______
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 SHARE 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
58
<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 shares offered hereby) who is purchasing at least $1,000,000
in aggregate amount of the shares.
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.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Financial Statements:
Balance Sheet as of December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations for the years ended December 31, 1997 and 1998
and for the period March 25, 1993 (date of inception) through December 31, 1998 . . . . . . . . . . . . F-3
Statements of Capital Deficiency for the period March 25, 1993
(date of inception) through December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and for the period March 25, 1993 (date of inception) through December 31, 1998 . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Condensed Balance Sheet as of September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Condensed Statements of Operations for the interim period ended September 30, 1999
and 1998 and for the period March 25, 1993 (date of inception) through September 30, 1999 . . . . . F-18
Condensed Statements of Cash Flows for the interim period ended September 30, 1999
and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
and for the period March 25, 1993 (date of inception) through September 30, 1999 . .. . . . . . . . . F-20
Notes to Condensed Financial Statements
</TABLE>
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Report of Independent Accountants
The Board of Directors
Ixion Biotechnology, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of capital deficiency and of cash flows present fairly, in all
material respects, the financial position of Ixion Biotechnology, Inc. (A
Development Stage Company) at December 31, 1998 and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997 and
for the period March 25, 1993 (date of inception) through December 31, 1998, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 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 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Price Waterprice Coopers, L.L.P.
March 12, 1999
F-1
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1998
Assets
Current Assets:
Cash and cash equivalents $ 18,633
Accounts receivable 1,916
Prepaid expenses 1,076
Other current assets 500
------------
Total current assets 22,125
Property and Equipment, net 61,087
Patents and Patents Pending, net 289,913
Other 7,015
-----------
$ 380,140
===========
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 30,478
Current portion of notes payable 340,099
Accrued expenses 64,216
-----------
Total current liabilities 434,793
-----------
Long-Term Liabilities:
Notes payable 650,256
Liability under research agreement 42,317
Deferred rent 22,095
Deferred fees and salaries, including accrued interest,
payable to related parties 719,278
-----------
Total long-term liabilities 1,433,946
-----------
Total liabilities 1,868,739
-----------
Commitments (Notes 1 and 11)
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000, issued
and outstanding 2,513,914 shares 25,139
Additional paid-in capital 1,664,458
Deficit accumulated during the development stage (2,893,598)
Less unearned compensation (284,598)
-----------
Total capital deficiency (1,488,599)
-----------
Total Liabilities and Capital Deficiency $ 380,140
===========
See accompanying notes to financial statements.
F-2
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1998 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Revenues:
Income under research agreement $ - $ 135,922 $ 275,001
Income from SBIR grant - 71,650 91,650
Interest income 465 10,147 23,432
Other income 3,257 3,733 17,805
-------- ---------- ----------
Total revenues 3,722 221,452 407,888
-------- ---------- ----------
Expenses:
Operating, general and administrative 370,397 336,572 1,468,507
Research and development 424,606 554,751 1,510,737
Interest 122,958 112,083 322,242
-------- --------- ----------
Total expenses $917,961 1,003,406 3,301,486
-------- --------- ----------
Net Loss $(914,239) $(781,954) $(2,893,598)
========== ========= ============
Net Loss per Share (Basic) $ (0.37) $ (0.32)
========== =========
Weighted Average Common Shares 2,489,677 2,458,440
========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency
For the Period March 25, 1993 (Date of Inception) through December 31, 1998
<TABLE>
<CAPTION>
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 21,100 (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>
F-4
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency - Continued
For the Period March 25, 1993 (Date of Inception) through December 31, 1998
<TABLE>
<CAPTION>
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>
Balance, December 31, 1996 2,443,544 24,435 989,223 (1,197,405) 6,000 (112,706) (302,453)
Issuance of stock, $10.00 per share 14,000 140 139,860 - - (111,382) 28,618
Issuance of stock under Board Retainer
Plan, $10.00 per share 7,000 70 69,930 - - (43,000) 27,000
Payment received from shareholder for note
received for common stock and warrants - - - - 6,000 - 6,000
Amortization of unearned compensation
over service period - - - - - 64,000 64,400
Stock warrants issued for services - - 30,000 - - - 30,000
Sale of stock, $10.00 per share 1,000 10 9,990 - - - 10,000
Net loss - - - (781,954) - - (781,954)
------- -------- --------- ---------- --------- ------- --------
Balance, December 31, 1997 2,465,544 24,655 1,239,003 (1,979,359) - (202,688)(918,389)
Issuance of stock, $10.000 per share 6,450 65 64,435 - - (58,050 6,450
Issuance of stock under Board Retainer
Plan, $10.00 per share 17,000 170 169,830 - - (113,000) 57,000
Forfeiture of issued stock, $10.00 per share (8,400) (84) (25,116) - - 25,200 -
Amortization of unearned compensation
over service period - - - - - 63,940 63,940
Sale of stock, $10.00 per share 33,320 333 332,867 - - - 333,200
Offering costs - - (116,561) - - - (116.561)
Net Loss - - - (914,239) - - (914,239)
--------- -------- ------ ---------- -------- ------ --------
Balance, December 31, 1998 2,513,914 $ 25,139 $ 1,664,458 $(2,893,598) $ - $(284,598)(1,488,599)
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1998 1997 1998
----------------- ---------------- ---------------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net loss $ (914,239) $ (781,954) $ (2,893,598)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 13,455 11,471 37,855
Amortization 3,156 3,019 7,000
Stock warrants issued under license agreement - - 20,465
Amortization of debt discount 57,168 57,168 133,392
Stock warrants/options issued for consulting services - 30,000 30,000
Stock compensation 127,390 110,018 384,203
Decrease (increase) in prepaid expenses and
other current assets 326 6,376 (1,401)
Decrease (increase) in accounts receivable (146) 6,389 (1,916)
Increase (decrease) in deferred revenue - (100,000) -
Increase in liability under research agreement - 42,317 42,317
Increase in accounts payable and
accrued expenses 172 28,881 95,365
Increase in deferred fees and salaries 242,862 91,378 692,726
Increase in deferred rent 15,609 6,486 22,095
Increase in interest payable - - 33,198
---------------- ----------------- ---------------
Net cash used in operating activities (454,247) (488,451) (1,398,299)
---------------- ----------------- ---------------
Cash Flows from Investing Activities:
Purchase of property and equipment (12,397) (5,757) (44,294)
Organization costs - - (436)
Payments for patents and patents pending (74,345) (90,289) (284,115)
---------------- ------------------ ---------------
Net cash used in investing activities (86,742) (96,046) (328,845)
---------------- ------------------ ---------------
Cash Flows from Financing Activities:
Loans from officers 250,000 75,000 355,307
Proceeds from issuance of convertible notes payable - - 787,270
Proceeds from sale of common stock 333,200 10,000 755,900
Proceeds from collection of note receivable - 6,000 -
Payment of loan costs and other assets (1,114) - (12,194)
Payment of offering costs (53,932) (62,629) (116,561)
Principal reductions in note payable (12,975) (10,970) (23,945)
---------------- ------------------- ---------------
Net cash provided by financing activities 515,179 17,401 1,745,777
---------------- ------------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (25,810) (567,096) 18,633
Cash and Cash Equivalents at Beginning of Period 44,443 611,539 -
---------------- ------------------- ---------------
Cash and Cash Equivalents at End of Period $ 18,633 $ 44,443 $ 18,633
================ =================== ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1998 1997 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 27,590 $ 21,887 $ 55,746
============== ============= ===============
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Common stock issued for subordinated notes
payable $ - $ - $ 34,158
============== ============= ===============
Common stock, stock warrants and stock options
issued for services or technology $ - $ 30,000 $ 49,457
============== ============= ===============
Common stock issued for note receivable $ - $ - $ (6,000)
============== ============= ===============
Common stock issued for purchase of patent $ - $ 10,000 $ 10,000
============== ============= ===============
Equipment purchased under an installment
note arrangement or lease agreement $ 26,450 $ - $ 53,442
============== ============= ===============
Common stock issued under Board Retainer Plans $ 170,000 $ 70,000 $ 457,500
============== ============= ===============
Other common stock issued as compensation $ 65,000 $ 130,000 $ 237,000
============== ============= ===============
Offering costs included in accounts payable $ - $ 16,345 $ 16,345
============== ============= ===============
</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, 1998 and 1997 and the Period March 25, 1993 (Date of
Inception) through December 31, 1998
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. Obtaining regulatory authorization involves, among
other things, lengthy and detailed laboratory and clinical testing,
manufacturing validation, and other complex procedures. The approval
process is costly, time-consuming, and subject to unexpected delays.
The Company's financial statements for the year ended December 31,
1998 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 $914,239 for the year ended December 31, 1998 and, as of
December 31, 1998, had a total capital deficiency of $2,893,598. The
Company had deficit cash from operations of $454,247 and $488,451 for
1998 and 1997, respectively.
In December, 1997, the Company commenced the public offering of
400,000 units of newly issued securities for an aggregate of
$4,000,000. Each unit consists of one share of Common Stock, $.01 par
value, and a .25 Charitable Benefit Warrant. Each whole Charitable
Benefit Warrant entitles the holder to purchase one share of the
Common Stock at a price of $20.00 per share. There is no minimum
number of units to be sold in the offering. In December, 1998, the
Company extended the offering and reduced the size from 400,000 Units
to 150,000 Units. The Company had received proceeds of $343,200 as of
December 31, 1998. During 1998, the Company was funded primarily by
the proceeds from the offering and bridge loans from the
Chairman/Chief Executive Officer and the President. If the proceeds
from the offering prove to be insufficient, then the Company would be
required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners, or through other sources.
If adequate funds are not available, the Company will have to curtail
or defer research and development programs.
Basis of Presentation - Continued - 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.
F-8
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
1. Significant Accounting Policies - Continued:
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 and Patents Pending - Patents pending consist of direct costs
incurred in connection with the applications for patents. Amortization
of these costs over the estimated life will begin upon issuance or
they will be expensed immediately if rejected. At December 31, 1998,
the Company had been issued three U.S. patents and purchased another
through the issuance of 1,000 shares of common stock. Patents are
being amortized over 13-17 years. 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 trends and prospects as well as the effects of
obsolescence, demand, competition and other economic factors.
Research and Development - Research and development costs are charged
to expense as incurred.
Other Assets - Other assets consists of loan costs associated with the
issuance of convertible notes. Loan costs are being amortized on a
straight-line basis, which approximates the interest method, over the
term of the notes.
Deferred Rent - Deferred rent represents a portion of the rent payable
under the Company's former 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
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.
Net Loss Per Share - Basic net loss per share is computed using the
weighted average number of common shares outstanding for the period.
Diluted net loss per share is not presented, as the effects of
including common equivalent shares from stock options, warrants and
convertible notes payable in the computation is antidilutive.
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.
F-9
<PAGE>
2. Property and Equipment:
Property and equipment consists of the following as of December 31,
1998:
Computers and lab equipment $ 77,196
Computer software 515
Library 1,423
Leasehold improvements 17,652
------------------
96,786
Less accumulated depreciation (35,699)
------------------
$ 61,087
==================
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, 1998, $6,282 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 which is greater than the market value of the common
stock at the date of issuance. 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, 1998, there were
$215,600 of 10% Notes and $571,670 of the Variable Notes outstanding
($419,227 net of unamortized debt discount of $152,443 at December 31,
1998). Accrued interest on the 10% Notes totaled $1,796 as of December
31, 1998.
The Company entered into short-term loan agreements with officers of
the Company for working capital purposes. Amounts outstanding were
$325,000 and $75,000 at December 31, 1998 and 1997, respectively.
The loans accrue interest at 8% and are due on demand (Note 8).
In October, 1998, upon the expiration of its lease at the
Biotechnology Development Institute, the Company entered into a new
lease agreement at a new facility (see Note 11). As part of this new
agreement, the Company acquired $26,450 of leasehold improvements and
lab equipment from the lessor. Amounts due for these capital additions
are to be repaid over 36 months, the term of the lease, with interest
at 10%. The balance due under this agreement was $24,246 at December
31, 1998.
F-10
<PAGE>
3. Notes Payable - Continued:
Future principal maturities of notes payable for each of the five
years subsequent to December 31, 1998 are as follows:
Year Ending
1999 $ 340,099
2000 8,817
2001 793,882
---------------------
1,142,798
Less: Unamortized debt discount (152,443)
---------------------
Total $ 990,355
=====================
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, 1998:
Deferred compensation $ 284,000
Net operating loss carryforward 851,000
---------------------
Deferred tax asset 1,135,000
Valuation allowance (1,135,000)
---------------------
Net deferred tax asset $
-
=====================
Any tax benefits for the years ended December 31, 1998 and 1997 and
the period March 25, 1993 (date of inception) through December 31,
1998 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 1997, the Company issued warrants to purchase 6,000 shares of
common stock to a consulting firm as part of a consulting agreement
(Note 8). The warrants are accounted for under the provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation. The value assigned was $5.00 per warrant,
based on the difference between the exercise price of $5.00 and a
$10.00 market value at date of grant, for a total of $30,000 to
consulting expense. The value assigned approximates that derived from
a Black-Scholes valuation model assuming an average discount rate of
5.5%, a volatility factor of 30% and an expected term of one year.
There were no common stock warrants issued during 1998.
F-11
<PAGE>
Common stock warrants outstanding at December 31, 1998 are as follows:
Number Exercise Price Expiration Date
- ------------------ --------------------------- -----------------------
17,630 $2.00 August 31, 2000
6,000 $5.00 February, 2002 - October, 2002
5. Common Stock Warrants - Continued:
As discussed in Note 1, as part of the public offering commenced in
December, 1997, the Company has sold units which consist of one share
of common stock, $.01 par value, and a .25 Charitable Benefit Warrant.
Each whole Charitable Benefit Warrant entitles the holder to purchase
one share of common stock at a price of $20 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); holders other than approved qualified charitable
organizations may not exercise except between December 9, 2006 and
December 9, 2007. The Charitable Benefit Warrants, will be detached
from the common stock immediately on purchase. At December 31, 1998,
there were 8,580 Charitable Benefit Warrants outstanding.
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. Generally, options vest at the rate of 20%
per year and are exercisable 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
Granted 25,400 $6.00 - $10.00
Exercised -
--------------
Outstanding at December 31, 1997 43,900
Granted 62,500 $10.00
Exercised --------------
Forfeited (5,500) $3.00 - $10.00
Outstanding at December 31, 1998 100,900
==============
F-12
<PAGE>
6. Stock Option Plan - Continued:
The status of options outstanding at December 31, 1998 is as follows:
Weighted Weighted
Exercise Average Average Number
Price Shares Remaining Life Exercise Price Exercisable
---------- --------- ---------------- ----------------- ------------
$0.02 2,000 5.5 years $ 0.02 1,800
$0.08 3,500 6.5 years $ 0.08 2,450
$3.00 8,000 7.5 years $ 3.00 4,000
$6.00 3,000 8.33 years $ 6.00 1,000
$7.50 2,000 8.4 years $ 7.50 640
$10.00 19,900 8.5 years $ 7.50 14,700
$10.00 62,500 9.5 years $10.00 6,250
--------- ------------
100,900 30,840
========= ============
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 issued to employees were
granted at an exercise price equal to the market value at the date of
grant.
Given the limited time period that the Company's stock has been
publicly registered, as well as the lack of history to estimate
patterns of exercise and option term, fair value disclosures required
under FASB Statement No. 123 are provided as a range from low to high
for the expected term and volatility. Fair value is estimated using
the Black-Scholes option pricing model and the following assumptions:
1998 1997
----------------------- ---------------------
Low High Low High
-------- ---------- -------- ---------
Discount Rate 5.46% 5.52% 6.09% 6.38%
Volatility 30% 60% 30% 60%
Option Life (Years) 5 9 5 9
The weighted average fair value of options granted to other than
non-employee consultants during fiscal year 1998 and 1997 was in the
range of $3.67 to $7.16 and $3.82 to $7.31 per option, respectively.
Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for these
awards consistent with the method of FASB Statement No. 123, the
Company's reported net loss and loss per share for fiscal year 1998
and 1997 would have been as follows:
Low High
--------------------- ----------------
1998 Net Loss $ 968,169 $ 1,030,751
1998 Loss Per Share (0.39) (0.41)
1997 Net Loss 792,985 802,995
1997 Loss Per Share (0.32) (0.33)
F-13
<PAGE>
6. Stock Option Plan - Continued:
The Company applies Statement of Financial Accounting Standards No.
123 for stock options issued to non-employee consultants. In 1997, the
Company granted 5,000 options at exercise prices of $6.00 - $7.50 per
share and will record consulting expense as the options vest for the
difference between the exercise price and the market values at grant
date of $10.00.
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 1,000 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 against 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, 1998, a total of 74,000 shares had been granted to
members of the Scientific Advisory Board under this Plan. Compensation
expense recognized in connection with such awards for the years ending
December 31, 1998 and 1997 was $92,000 and $83,000, respectively.
Total unearned compensation related to Board Retainer Plan awards was
$141,166 at December 31, 1998 and will be recognized as expense over
future periods of service.
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 April, 1996, the Chairman/Chief Executive Officer and President
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 approximately $32,000, all of which was
repaid in June, 1996. In addition, in June, 1996, these officers
agreed to increase their loan commitments to operations. Interest on
bridge loans 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%. At December 31, 1998, there are total loans of $325,000
outstanding to these officers of the Company (Note 3). These officers
have no commitment to lend additional funds in the future.
In addition, the Company has agreed to defer the payment of the 1993,
1994 and part of the 1995, 1996, 1997 and 1998 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, 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, and is reset annually at
the rate on 30-year treasury bonds in effect on January 1 of any given
year plus 1%. The rate during 1998 was 6.54%. These obligations are
unfunded recorded liabilities of the Company.
F-14
<PAGE>
8. Related-Party Transactions - Continued:
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. The Company has a consulting agreement
with Dr. Peck for 48 days of service per year for $50,000 per year
which expires on December 31, 1999.
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.
In December, 1996, the Company entered into a consulting agreement
with a company whose president is an officer of the Company. The
company is to be paid $5,000 monthly and could receive warrants for up
to 20,000 shares of Common Stock upon the achievement of certain
milestones. Through December 31, 1998, the consultants had been paid
$70,000 and were issued warrants for 6,000 shares of Common Stock in
1997 (Note 5). This agreement was terminated in March, 1998.
In 1997, the Company engaged the services of a printer in connection
with the offering. The printer is partially owned by the Company's
Chief Executive Officer. Through December 31, 1998, the printer has
been paid a total of $11,533.
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 sponsored certain research by the
Company and provided funding of $275,000 over a 12-month period, plus
patent expenses of approximately $35,000. The agreement with GI was
not extended after the initial 12-month period. The revenue under this
contract was recognized on a pro rata basis consistent with the period
over which the research was conducted as well as upon delivery of
certain research reports. Under the agreement, the Company is required
to reimburse GI for certain patent costs if GI does not exercise its
option for an exclusive license for the technology. As of December 31,
1998, GI has not exercised their right for an exclusive license to
this technology and costs of $42,317 are recorded as a liability.
10. Risks and Uncertainties:
Approximately 61% of 1997 revenues consisted of revenues related to a
single sponsored research agreement which expired in 1997. There
were no such revenues in 1998.
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. 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 Producing 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.
F-15
<PAGE>
11. Commitments:
Lease - In October, 1998, the Company entered into a lease for
approximately 5,000 square feet of laboratory and office space. Rents
consist of a base rent plus an amount designated for the Company's
share of operating costs in excess of a certain base level. The lease
has a three-year term expiring in September, 2001, with two one-year
renewal options. Total rent expense under this lease was approximately
$16,900 during 1998. Future minimum rental payments under this lease,
including an estimate of excess operating costs, at December 31, 1998
are as follows:
Year Ending
1999 $ 70,395
2000 72,497
2001 55,588
Other - The Company issued 1,000 shares of restricted common stock in
exchange for a patent in February, 1997. In addition to the issuance
of stock, the Company will be required to pay royalties of 2% of net
sales, if any, generated from the patented technology.
The Company has licensed the exclusive rights to technology in two
areas from the University of Florida Research Foundation. The Company
is obligated to pay royalties on net sales of the Company or their
sublicensees on products in these areas. As there have been no product
sales to date, there have been no amounts owed under these license
agreements.
12. Subsequent Events:
From January 1, 1999 through March 12, 1999, the Company has
received proceeds of $1,000 by selling 100 units of Common Stock
and Charitable Benefit Warrants in their initial public offering.
From January 1, 1999 through March 12, 1999, the Company received
additional bridge loans from officers of the Company for $60,00
F-16
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Condensed Balance Sheet
September 30, 1999
Unaudited
Assets
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash and cash equivalents $ 36,737
Accounts receivable 7,066
Prepaid expenses 1,226
Other current assets 500
-----------------
Total current assets 45,529
-----------------
Property and Equipment, net 111,191
-----------------
Other Assets:
Patents and patents pending, net 380,228
Other 4,236
----------------
Total other assets 384,464
----------------
Total Assets $ 541,184
================
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 86,938
Bridge loans payable to officers 415,000
Current portion of notes payable 8,818
Accrued expenses 60,898
Interest payable 32,229
----------------
Total current liabilities 603,883
----------------
Long-Term Liabilities:
Notes payable 686,520
Liability under research agreement 42,317
Deferred rent, including accrued interest 22,082
Deferred fees and salaries, including accrued interest 893,409
----------------
Total long-term liabilities 1,644,328
----------------
Total liabilities 2,248,211
----------------
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000, issued and
outstanding 2,813,044 shares at September 30 28,130
Common stock warrants outstanding 35,494
Additional paid-in capital 2,161,703
Deficit accumulated during the development stage (3,663,019)
Less unearned compensation (269,335)
----------------
Total capital deficiency (1,707,027)
Total Liabilities and Capital Deficiency $ 541,184
================
</TABLE>
F-17
See accompanying notes to condensed financial statements
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
Condensed Statements of Operations
<TABLE>
<CAPTION>
For the Period
March 25,
1993 (Date
of inception)
Nine Months Ended through
September 30, September 30,
1999 1998 1999
Unaudited Unaudited
<S> <C> <C> <C>
Revenues:
Income under research agreement $ 0 $ 0 $ 275,001
Income from research grants 18,167 0 109,817
Interest income 1,721 367 25,153
Other income 945 3, 257 18,750
----------- ----------- ------------------
Total revenues 20,833 3,624 428,721
----------- ----------- ------------------
Expenses:
Operating, general and administrative 278,179 307,097 1,746,685
Research and development 394,392 269,474 1,905,129
Interest 117,684 97,317 439,926
----------- ----------- ------------------
Total expenses 790,254 673,888 4,091,740
----------- ----------- ------------------
Net Loss $ (769,421) $ (670,264) $ (3,663,019)
=========== ============ =================
Net Loss per Share (Basic) $ (0.30) $ (0.27)
=========== ============
Weighted Average Common Shares 2,561,053 2,482,687
=========== ============
</TABLE>
See accompanying notes to condensed financial statements
F-18
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
March 25, 1993
Nine Months (Date of inception)
Ended September 30, through
1999 1998 September 30, 1999
Unaudited Unaudited
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net loss $ (769,421) $ (670,264) $ (3,663,019)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 21,332 8,412 59,188
Amortization 4,036 2,367 11,036
Amortization of debt discount 42,876 42,876 176,268
Stock warrants issued under license agreement - - 20,465
Stock options/warrants issued for consulting services - - 30,000
Stock compensation 107,308 68,274 491,511
Decrease (increase) in prepaid expenses and
other current assets (150) 1,262 (1,551)
Decrease (increase) in accounts receivable (5,150) (41) (7,066)
Increase (decrease) in liability under
research agreement - - 42,317
Increase (decrease) in accounts payable and
accrued expenses 87,241 15,700 215,806
Increase in deferred fees and salaries 174,131 189,969 866,857
Increase in deferred rent (13) 10,445 22,082
-------------- -------------- -------------
Net cash used in operating activities (337,810) (331,000) (1,736,106)
-------------- -------------- -------------
Cash Flows from Investing Activities:
Purchase of property and equipment (71,328) (2,302) (115,625)
Organization Costs - - (436)
Payments for patents and patents pending (92,793) (62,154) (376,908)
-------------- -------------- -------------
Net cash used in investing activities (164,121) (64,456) (492,969)
-------------- -------------- -------------
Cash Flows from Financing Activities:
Loans from officers 90,000 175,000 445,307
Proceeds from issuance of convertible notes payable 300,000 - 1,087,270
Proceeds from issuance of common stock 151,000 275,500 906,900
Principal reductions in notes payable (12,895) (6,482) (36,840)
Payment of deferred offering costs (8,070) (53,932) (124,631)
Payment of loan costs - - (12,194)
-------------- -------------- -------------
Net cash provided by (used in)
financing activities 520,035 390,086 2,265,812
-------------- -------------- -------------
Net Increase (Decrease) In Cash and Cash Equivalents 18,104 (5,370) (36,737)
Cash and Cash Equivalents at Beginning of Period 18,633 44,443 -
-------------- -------------- -------------
Cash and Cash Equivalents at End of Period $ 36,737 $ 39,073 $ (36,737)
============== ============== =============
</TABLE>
See accompanying notes to condensed financial statements
F-19
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
Nine Month Period Ended September 30, 1999
1. Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited condensed financial
statements for the three and nine months ended September 30, 1998 and
1999, and for the period March 25, 1993 (date of inception) through
September 30, 1999, 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. These interim financial statements should be read in
conjunction with the December 31, 1998 financial statements and related
notes included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998. 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. There are no components of comprehensive income
other than net income for any of the periods presented. The results of
operations for the interim period ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
The Q-Med Transaction - On April 16, 1999, we reached an agreement in
principle with Q-Med AB, a biotechnology company based in Uppsala, Sweden,
which was amended on September 7, 1999. Under the amended agreement, we
agreed to the following:
o we issued an option to Q-Med to acquire shares of newly-issued
common stock under the following terms:
o exercise is at the sole discretion of Q-Med;
o the number of shares to be acquired shall be 2,700,000 or a
number of shares such that, following the exercise of the
option, Q-Med shall own at least 50% of our outstanding
shares (on a fully diluted basis);
o Q-Med must purchase all or none of the option shares;
o the option expires not later than July 1, 2000;
o the cash purchase price for the option shares is $2.00/share;
and
o the option price will be paid over a two-year period.
o Q-Med shall purchase 37,500 shares per month (at the $2.00 per
share price) through the expiration of the option or the agreement.
Q-Med will retain these shares without regard to whether they
exercise their option. Q-Med has purchased a total of 300,000
shares for $600,000 through November under this agreement;
o a royalty-free license to Q-Med's non-animal, stabilized hyaluronic
acid technology for use as an encapsulation material for our
transplantable islets, and
o if the option is exercised, the redemption of up to $787,000 of
our convertible unsecured notes which note holders elect not to
convert in August 2001; and
o the agreement is cancelable by Q-Med on not less than 90 days'
notice.
Through November 15, 1999, we have received $600,000 in payments from Q-Med,
A.B. and issued a total of 300,000 shares of common stock in accordance with the
amended agreement in principle, described below. Included in this amount is the
$300,000 we received on April 20, 1999 in the form of a convertible note from
Q-Med. On August 2, 1999, the note was converted into 150,000 shares of
restricted Ixion common stock. Also included in the $600,000 invested by Q-Med
is a $75,000 payment in each of the months of August, September, October and
November for which we issued 37,500 restricted shares of common stock each
month.
F-20
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements - Continued
1. Significant Accounting Policies - Continued:
If Q-Med were to exercise its option for 2,700,000 shares, it would own over 50%
of the outstanding stock. We cannot assure you that Q-Med will not terminate the
agreement, that it will exercise its option on or before July 1, 2000, or that
it will otherwise complete the contingent elements of the transaction on
satisfactory terms, or at all.
In the event our plans change or our assumptions change or prove to be
inaccurate or we fail to complete the Q-Med transaction, we will require
additional financing. We will be required to obtain additional funds in any
event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our drug and device products through
regulatory approval to commercialization. The terms and prices of any equity or
debt financings or corporate combination may be significantly more favorable to
new investors than purchasers of the shares sold in the offering, resulting in
significant dilution to current investors. We do not have any material committed
sources of additional financing. We can not assure you that additional funding,
consolidation, or alliance, if necessary, will be available on acceptable terms,
if at all. If adequate funds are not available, we may be required to further
delay, scale-back, or eliminate certain aspects of our operations or attempt to
obtain funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products, or potential markets. If adequate funds are not available,
our business, financial condition, and results of operations will be materially
and adversely affected.
2. 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, 1999:
Deferred compensation $ 353,000
Net operating loss carryforward 1,096,000
Deferred tax asset 1,449,000
Valuation allowance $ (1,449,000)
Net deferred tax asset $ 0
==============
3. Stock Options:
On July 12, 1999, the Company granted ten-year options under the 1994
Stock Option Plan to purchase 73,000 shares of Common Stock at an exercise
price of $4.00 per share. Stock options are exercisable only if vested.
15,000 of such options, granted to members of the Scientific Advisory
Board, vest over one year, the remainder vest over five years.
4. Stockholder's Equity:
In December, 1997, the Company commenced the public offering of up to
400,000 Units of newly-issued securities for an aggregate of $4,000,000.
Each Unit consisted of one share of common stock, $0.01 par value, and .25
Charitable Benefit Warrants. Each whole Charitable Benefit Warrant
entitled the holder to purchase one share of common stock at a price of
$20.00 per share. As a result of the transaction with Q-Med, A.B. , the
offering was temporarily suspended and the board of directors approved
changes in the offering including a withdrawal from registration of all
unsold Charitable Benefit Warrants, a reduction in the number of shares
offered from 400,000 to 150,000, a retroactive reduction in the offering
price to $4.00 per share of common
F-21
<PAGE>
Stockholder's Equity - Continued:
stock, a concomitant adjustment in the exercise price for outstanding
Charitable Benefit Warrants (from $20/share to $8/share), and an increase
in the number of shares purchasable upon exercise of those warrants from
8,605 shares to 21,513 shares. This action by the board resulted in an
additional issuance of 51,630 shares to purchasers in the public offering
for no additional consideration, and a reduction in the maximum potential
aggregate offering amount from $4,000,000 to $600,000.
The Company has received proceeds of $344,200 through September 30, 1999.
The offering will remain suspended until a post effective amendment is
filed and will be continued until all securities have been sold or until
March 31, 2000, unless sooner terminated or extended. Offering costs of
$124,631 have been offset against the proceeds of the offering through
September 30, 1999
Through September 30, 1999, Q-Med, A.B. has been issued a total of 225,000
shares of common stock for $450,000 as part of the transaction with Q-Med.
If the proceeds from the offering and other sources, prove to be
insufficient, then the Company would be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners, or through other sources.
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 either completing the Q-Med
transaction or obtaining additional funds through other sources.
5. Board Retainer Plan:
In 1994, the board of directors adopted the 1994 Board Retainer Plan
(amended March 1999) to grant shares of restricted common stock to
directors, members of the Scientific Advisory Board, employees, and
consultants. The Board Retainer Plan is administered by the Audit and
Benefits Committee of the Board.
Unvested shares granted are subject to reacquisition by the Company at no
cost if the grantee ceases to be a director, member of the Scientific
Advisory Board, employee, or consultant. With respect to directors,
employees, or consultants, the reacquisition option will typically lapse
as to 20% of the shares granted after the grantee's first full year of
continuous service 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 vest 25% per quarter.
New outside members of the board or the scientific advisory board receive
5,000 shares upon joining, and each receives 1,000 shares annually
thereafter. The Audit and Benefits Committee of the board determines the
amount granted each eligible person (except themselves) at any time in its
complete discretion. Under the March 1999 amendments to the Board Retainer
Plan, up to 250,000 shares may be issued and outstanding pursuant to the
Plan, of which 121,450 have been issued and are outstanding at September
30, 1999. The Audit and Benefits Committee determines the specific number
of shares to be granted to key employees and consultants.
Total stock awards granted in the first three quarters of 1999 were 22,400
at $4.00 per share.
F-22
<PAGE>
5. Board Retainer Plan - Continued:
Compensation expense recognized under the Board Retainer Plan for the nine
months ended September 30, 1999 was $107,308. Total unearned compensation
related to Board Retainer Plan awards was $263,335 at September 30,1999
and will be recognized as expense over future periods of service.
6. Related Party Transactions
The Chairman and Chief Executive Officer and the President of the Company
have extended the Company financing in the form of bridge loans. Interest
on the bridge loans from officers 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%. The Company has borrowed a total of $415,000,
which was still outstanding at September 30, 1999 and is due on demand.
These officers have no commitment to lend additional funds in the future.
7. Subsequent Events
Through November 15, 1999, the Company has received an additional $150,000
from Q-Med, A.B. for which it has issued 75,000 additional restricted
shares of common stock.
F-23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 150,000 Shares
having been authorized by us. This prospectus does not constitute an offer to $4.00 per Share
sell or the solicitation of any offer to buy any securities offered hereby in Minimum Purchase 100 Shares
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 Shares 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 our affairs since such date.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 6
Special Note Regarding
Forward-Looking Statements 12
Use of Proceeds 13 IXION
Dilution 14
Dividend Policy 14
Capitalization 15
Selected Financial Data 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17 PROSPECTUS
Business 23
Management 42
Certain Relationships and
Related Party Transactions 48
Principal Shareholders 48
Description of Securities 49
Shares Eligible for Future Sale 52
Plan of Distribution 53
Legal Matters 55
Experts 55
Where You Can Get
More Information 56
Share Purchase Agreement 57
Index to Financial Statements 59 December , 1999
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.
</TABLE>
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Set forth below is information as to securities sold by Ixion within
the three years ended September 30, 1999 which were not registered under the
Securities Act of 1933 (the "Act"). No underwriters were involved in any of the
sales, so there were no underwriting discounts or commissions. All outstanding
securities resulting from the following sales are deemed to be restricted
securities for the purposes of the Act. All certificates representing such
issued and outstanding restricted securities of the Company have been properly
legended and the Company has issued "stop transfer" instructions to its transfer
agent with respect to such securities, which legends and stop transfer
instructions are presently in effect unless such securities have been registered
under the Securities Act or have been transferred pursuant to an appropriate
exemption from the registration provisions of the Securities Act.
Restricted shares of Common Stock have been issued to Members of the
Board of Directors, Members of the Scientific Advisory Board, and key employees
under the Company's Board Retainer Plan as follows:
On October 10, 1996, 5,000 shares of Common Stock to a member of the
Scientific Advisory Board for services valued at $50,000 (a portion
of which is unearned compensation) or $10.00 per share.
On February 11, 1997, 10,000 shares to its Director of Research,
Oxalate Division, for services valued at $100,000 (a portion of
which is unearned compensation) or $10.00 per share.
On June 27, 1997, 7,000 shares of Common Stock (1,000 shares to each
of two directors, and 1,000 shares to each of five members of the
Scientific Advisory Board, for services) valued at $70,000 (a
portion of which is unearned compensation) or $10.00 per share.
On July 1, 1997, 3,000 shares to its Associate Director of Research,
Diabetes Division, for services (a portion of which is unearned
compensation) valued at $30,000 or $10.00 per share.
On July 1, 1998, 23,450 shares of Common Stock (1,000 shares to each
of two directors, 5,000 shares to a newly-elected director, 1,000
shares to each of five members of the Scientific Advisory Board,
5,000 shares to a newly-appointed member of the Scientific Advisory
Board, and 6,450 shares to employees for services, in aggregate,
valued at $234,500 (a portion of which is unearned compensation) or
$10.00 per share.
Only July 12, 1999, 22,400 shares of Common Stock (1,000 shares to
each of three directors, 5,000 shares to two newly-elected
directors, 1,000 shares to each of six members of the Scientific
Advisory Board, and 3,400 shares to employees for services, in
aggregate, valued at $89,600 (a portion of which is unearned
compensation) or $4.00 per share.
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement and the exemption provided by
Rule 701 promulgated under the Act.
Warrants have been issued to an institution in partial payment of
rent for the Company's facilities pursuant to the License Agreement between the
University of Florida Research Foundation, Inc., and the Company as follows:
In August, October, and November, 1996, the Company issued warrants
to purchase an aggregate of 8,022 shares of Common Stock at an
exercise price of $2.00 per share expiring in 2000, valued at $1.35
per warrant.
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as transactions to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement.
In October and November, 1996, the Company issued an aggregate of
$787,270 of Convertible Unsecured Notes due 2001 to 35 accredited and one
unaccredited investors. The Notes are convertible at any time prior to
<PAGE>
maturity into a maximum of 323,557 shares of Common Stock at conversion prices
ranging from $4.20 to $2.10. The conversion prices are based on the length of
time the investor holds the Notes prior to conversion. The Company issued the
above securities without registration in reliance upon the exemption provided
by Section 4(2) of the Act as a transaction to a limited number of sophisticated
investors which did not involve a public offering, general solicitation, or
general advertisement and in reliance upon the exemption provided by Rule 505 of
Regulation D of the Act as a sale of securities which, together with all sales
within 12 months, aggregated less than $5,000,000 and were made to fewer than 35
investors.
On February 11, 1997, the Company issued 1,000 shares of Common
Stock to two inventors in exchange for an exclusive license of a patent entitled
"Method for the Selective Control of Weeds, Pests and Microbes," valued at
$10,000 or $10.00 per share. The Company issued the above securities without
registration in reliance upon the exemption provided by Section 4(2) of the Act
as a transaction to a limited number of sophisticated investors which did not
involve a public offering, general solicitation, or general advertisement.
Warrants have been issued to Brandywine Consultants, Inc., pursuant
to the Consulting Agreement between the Company and Brandywine Consultants,
Inc., dated December 12, 1996, for certain milestones as follows:
On June 23, 1997, 3,000 warrants at an exercise price of $5.00 per
share of Common Stock, expiring June 2002.
On October 24, 1997, 3,000 warrants at an exercise price of $5.00
per share of Common Stock, expiring October 2002.
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement.
On April 16, 1999, the Company entered into an agreement in
principle with Q-Med, AB, a privately-held biotechnology company with
headquarters and operations in Uppsala, Sweden. This agreement was amended on
September 9, 1999. Pursuant to the agreement in principle as amended, the
Company issued a promissory note in the amount of $300,000, convertible into
shares of Common Stock at a price of $2.00 per share. The promissory note was
converted into 150,000 shares of restricted Common Stock on July 7, 1999. Also,
pursuant to the agreement in principle as amended, the Company has issued
150,000 additional shares of restricted common stock as follows:
September 7, 1999 37,500 shares at $2.00 per share
September 10, 1999 37,500 shares at $2.00 per share
October 18, 1999 37,500 shares at $2.00 per share
November 18, 1999 37,500 shares at $2.00 per share
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to a single
sophisticated corporate investor which did not involve a public offering,
general solicitation, or general advertisement and in reliance on the exemption
provided by the provisions of Regulation S.
Item 27. Exhibits
Exhibits marked by asterisk(s) are included with this Post Effective
Amendment; other exhibits have been incorporated by reference to other documents
filed by the Company with the SEC.
Exhibit Description
Number
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1.1 Agreement with Unified Management Corporation, dated March 18, 1998 (5)
3.1 Certificate of Incorporation of Registrant (1)
3.2 Certificate of Amendment to Certificate of Incorporation of Registrant (1)
3.3 Certificate of Amendment to Certificate of Incorporation of Registrant (1)
3.4 Bylaws of Registrant, as amended and restated (5)
3.5 Certificate of Amendment of Certificate of Incorporation, dated June 11, 1999 (8)
3.6 Certificate of Incorporation, as amended and restated (8)
4.1 Form of Registrant's Common Stock Certificate (2)
4.2 Form of Registrant's Charitable Benefit Warrant Certificate (5)
4.3 Charitable Benefit Warrant Agreement, dated as of December 10, 1997(5)
4.4 Warrant Agreement with Jeffrey W. Seel, dated November 7, 1995 (1)
4.5 Warrant Agreement with the University of Florida Research Foundation, Inc., dated November 7, 1995 (1)
4.6 Warrant Agreement with the University of Florida Research Foundation, Inc., dated August 1, 1996 (1)
4.7 Warrant Agreement with the University of Florida Research Foundation, Inc., dated October 1, 1996 (1)
4.8 Warrant Agreement with the University of Florida Research Foundation, Inc., dated November 7, 1996 (1)
4.9 Warrant Agreement with Brandywine Consultants, Inc., dated June 23, 1997 (2)
4.10 Warrant Agreement with Brandywine Consultants, Inc., dated October 24, 1997 (2)
4.11 Amendment to Charitable Benefit Warrant Agreement dated September 30, 1999 (9)
5.1 Opinion of Bruce Brashear, Esq. regarding legality (3)
8.1 Opinion of Thacher Proffitt & Wood regarding certain tax matters (6) (numbered Exhibit 5.2)
10.1 Chattel Mortgage Agreement with Carl Therapeutic, Inc., dated as of January 1, 1996 (1)
10.2 Consulting Agreement with Brandywine Consultants, Inc., dated December 12, 1996 (1)
10.3 Consulting Agreement with Ammon B. Peck, dated February 21, 1997 (1)
10.4 Consulting Agreement with David C. Peck, dated July 1, 1996 (1)
10.5 Convertible Promissory Note with Weaver H. Gaines, dated March 31, 1993 (1)
10.6 Convertible Promissory Note with David C. Peck, dated October 15, 1993 (1)
10.7 Demand Promissory Note, Bridge Loan with Weaver H. Gaines, dated April 15, 1996 (1)
10.8 Demand Promissory Note, Bridge Loan with David C. Peck, dated April 15, 1996 (1)
10.9 Deferred Compensation Plan Agreement with Weaver H. Gaines, dated January 1, 1994 (1)
10.10 Deferred Compensation Plan Agreement with Ammon B. Peck, dated June 1, 1994 (1)
10.11 Deferred Compensation Plan Agreement with David C. Peck, dated April 1, 1994(1)
10.12 Agreement to Purchase Shares, dated as of October 10, 1994 (1)
10.13 Note Purchase Agreement, dated as of September 13, 1996 (1)
10.14 Incubator License Agreement with the University of Florida Research Foundation, Inc., dated June 26, 1995 (1)
10.15 Amendment No. 1, dated July 31, 1996 to Incubator License Agreement with the University of Florida Research Foundation,
Inc. (1)
10.16 Amendment No. 2, dated October 1, 1996 to Incubator License Agreement with the University of Florida Research Foundation,
Inc. (1)
10.17 Amendment No. 3, dated November 7, 1996 to Incubator License Agreement with the University of Florida Research Foundation,
Inc. (1)
10.18 Amendment No. 4, dated January 21, 1997 to Incubator License Agreement with the University of Florida Research Foundation,
Inc. (1)
10.19 Patent License Agreement with Randy S. Fischer and Roy A. Jensen for U.S. Patent No. 5,187,071, "Method for the Selective
Control of Weeds, Pests, and Microbes," dated February 11, 1997 (1)
10.20 Patent License Agreement with Research Component with the University of Florida Research Foundation, Inc. relating to
Oxalobacter formigenes, dated January 11, 1995 (4) (a)
10.21 Amendment No. 1 to Patent License Agreement with Research Component with the University of Florida Research Foundation,Inc.
relating to Oxalobacter formigenes, dated December 20, 1995 (4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.22 Amendment No. 2 to Patent License Agreement with Research Component with the University of Florida Research Foundation,Inc.
relating to Oxalobacter formigenes, dated October 9, 1996 (4) (a)
10.23 Patent License Agreement with Research Component with the University of Florida Research Foundation, Inc. relating to
Pancreatic Stem Cells, dated February 17, 1995 (4) (a)
10.24 Amendment No. 1 to Patent License Agreement with Research Component with the University of Florida Research Foundation,Inc.
relating to Pancreatic Stem Cells, dated October 9, 1996 (4) (a)
10.25 Patent License Agreement with Milton J. Allison, dated June 23, 1997. (4) (a)
10.26 Sponsored Research Agreement with Genetics Institute, Inc., dated June 5, 1996 (4) (a)
10.27 Employment Agreement with Weaver H. Gaines, dated August 31, 1994 (1)
10.28 Employment Agreement with David C. Peck, dated August 31, 1994 (1)
10.29 1994 Stock Option Plan, as amended (1)
10.30 1994 Board Retainer Plan, as amended (7)
10.31 Consulting Agreement with Ammon Peck, dated October 6, 1994 (1)
10.32 Amendment No. 5 to Incubator License Agreement, dated July 19, 1997 (1)
10.33 Office Lease agreement with Echelon International Corporation dated as of September 18, 1998 (6)
10.34 Amendment No. 3 to Patent License Agreement with Research Component with the University of Florida Research Foundation,Inc.
relating to Oxalobacter formigenes, dated December 17, 1998 (6) (a)
10.35 BDI Graduate Membership Agreement with the Biotechnology Development Institute dated November 5, 1998. (6)
10.36 Consulting Agreement with Amersham Pharmacia Biotech, Inc., dated January 3, 1999 (6)
10.37 Interinstitutional Agreement with The University of Florida Research Foundation, dated February 4, 1999 (7) (a)
10.38 Finders' Agreement with East Coast Angels, LLC, dated March 15, 1999. (7)
10.39 Agreement in Principle dated April 16, 1999, with Q-Med AB (8)
10.40 1994 Board Retainer Plan, as amended. (8)
10.41 Consulting Agreement with Thomas P. Stagnaro, dated September 21, 1998 (9)
10.42 Amended and Restated Agreement in Principle dated September 7, 1999 with Q-Med, AB (9)
*11.1 Statement regarding computation of earnings per share (included as Note 1 in financial statements)
*23.1 Consent of Independent Accountants.
*23.2 Consent of Brashear & Associates, P.L. -filed as Exhibit 5.1
24 Power of Attorney (included with the signature page to the registration statement (6)
27 Financial Data Schedule
(a) Confidential information has been omitted from these document and filed
separately with the Commission pursuant to a request for Confidential Treatment.
* Filed herewith.
(1) Incorporated by reference to Form SB-2, File No. 333-334765, dated August 29, 1997.
(2) Incorporated by reference to Amendment 1 to Form SB-2, File No. 333-334765, dated November 7, 1997.
(3) Incorporated by reference to Amendment 2 to Form SB-2, File No. 333-334765, dated December 2, 1997.
(4) Incorporated by reference to Amendment 3 to Form SB-2, File No. 333-334765, dated December 9, 1997.
(5) Incorporated by reference to Post Effective Amendment No. 1 to Form SB-2, File No. 333-34765, dated January 23, 1998.
(6) Incorporated by reference to Post Effective Amendment No. 2 to Form SB-2, File No. 333-33475, dated February 17, 1999.
(7) Incorporated by reference to Form 10-KSB for the year ended December 31, 1999, dated March 31, 1999.
(8) Incorporated by reference to Form 10-QSB for the quarter ended June 30, 1999, dated August 15, 1999.
(9) Incorporated by reference to Form 10-QSB for the quarter ended September 30, 1999, dated November 15, 1999.
</TABLE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of Alachua,
state of Florida, on the 10th day of December , 1999.
IXION BIOTECHNOLOGY, INC.
By: /s/ Weaver H. Gaines
Weaver H. Gaines,
Chairman of the Board and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities indicated on December 10, 1999.
SIGNATURE TITLE
/s/ Weaver H. Gaines Chairman of the Board, Chief
Weaver H. Gaines Executive Officer, and Director
/s/ David C. Peck President, Chief Financial Officer
David C. Peck and Director
/s/ Kimberly A. Ramsey Vice President and Controller
Kimberly A. Ramsey
*
David M. Margulies Director
*
Vincent P. Mihalik Director
*
Karl-E. Arfors Director
/s/ Bengt Agerup Director
Bengt Agerup
/s/ Thomas P. Stagnaro Director
Thomas P. Stagnaro
<PAGE>
/s/ Weaver H. Gaines* (attorney in fact) Weaver H. Gaines
Weaver H. Gaines
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Weaver H. Gaines and David C. Peck, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of IXION
BIOTECHNOLOGY, INC.) to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ Bengt Agerup Director
Bengt Agerup
/s/ Thomas P. Stagnaro Director
Thomas P. Stagnaro
[BRUCE BRASHEAR, ESQ. LETTERHEAD]
December 13, 1999
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Registration Statement on Form SB-2
Ixion Biotechnology, Inc.
Ladies and Gentlemen:
I have acted as special counsel to Ixion Biotechnology, Inc., a
Delaware corporation (the "Company"), in connection with the public offering
of up to 150,000 shares (the "Shares") at $4.00 per share.
This opinion is being furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-B under the Securities Act of 1933, as
amended (the "1933 Act").
In connection with this opinion, I have examined and am familiar
with originals or copies, certified or otherwise identified to my
satisfaction, of such documents as I have deemed necessary or appropriate as
a basis for the opinions set forth herein, including (i) Post Effective
Amendment No. 1 to the Registration Statement of the Company on Form SB-2
relating to the Shares, filed with the Securities and Exchange Commission (the
"Commission") on January 23, 1998 (the "Registration Statement"); (ii) the
Articles of Incorporation and the Bylaws of the Company, as amended to date;
(iii) the form of voting Common Stock Certificate; (iv) copies of certain
resolutions (the "Resolutions") adopted by the Board of Directors of the
Company relating to the issuance of the Units, the filing of the Registration
Statement and any amendments or supplements thereto and related matters; and
(v) such other documents as I have deemed necessary or appropriate as a basis
for the opinions set forth below.
In my examination, I have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making my
examination of documents executed by parties other than the Company, I have
assumed that such parties had the power, corporate or other, to enter into
and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding
effect thereof. As to any facts material to the opinions expressed herein
which were not independently established or verified, I have relied upon oral
or written statements and representations of officers and other
representatives of the Company and others.
I am admitted to the bar in the State of Florida, and I do not
express any opinion as to the laws of any other jurisdiction, other than the
laws of the United States of America to the extent referred to specifically
herein.
Based on such examination, I am of the opinion that:
1. The Common Shares have been duly and validly authorized and, when
certificates therefor have been duly authenticated, delivered and paid for in
accordance with all applicable laws and agreements, will be duly and validly
issued, fully paid and nonassessable.
I consent to the use of my name under the caption "Legal Matters" in
the Registration Statement, and to the filing of this opinion as an exhibit
to the Registration Statement. By giving you this opinion and consent, I do
not admit that I am expert with respect to any part of the Registration
Statement within the meaning of the term "expert" as used in Section 11 of
the 1933 Act, or the rules and regulations promulgated thereunder, nor do I
admit that I am in the category of persons whose consent is required under
Section 7 of the 1933 Act.
Sincerely,
/S/ Bruce Brashear
Bruce Brashear, Esq.
Consent of Independent Certified Public Accountants
We hereby consent to the use in this Registration Statement on Form SB-2 (File
No.333-334765) of our report, which includes an explanatory paragraph indicating
substantial doubt as to the Company's ability to continue as a going concern,
dated March 12, 1999, relating to the financial statements of Ixion
Biotechnology, Inc. (A Development Stage Company), which appears in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PriceWaterHouseCoopers, LLP
Orlando, Florida
December 9, 1999
