<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-7483
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VION PHARMACEUTICALS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 13-3671221
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
------------------------
4 SCIENCE PARK
NEW HAVEN, CONNECTICUT 06511
(203) 498-4210
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN A. SPEARS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VION PHARMACEUTICALS, INC.
4 SCIENCE PARK
NEW HAVEN, CONNECTICUT 06511
(203) 498-4210
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies of all communications, including all communications
sent to the agent for service, should be sent to:
TERRENCE JONES, ESQ.
WIGGIN & DANA
ONE CENTURY TOWER
NEW HAVEN, CONNECTICUT 06508
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
/ / __________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
PROPOSED
TITLE OF EACH CLASS MAXIMUM OFFERING
OF SECURITIES TO BE AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED UNIT(1) OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock.............. 81,190(2) $4.125 $334,908.75 $115.49
========================================================================================================
</TABLE>
(1) The price is estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) and Rule 457(g). The offering price
and fee are computed based on the average of the bid and asked prices of the
Common Stock, as reported on the NASDAQ SmallCap Market on September 3,
1996.
(2) A registration fee of $15,282.76 relating to all other securities included
in this Registration Statement has previously been paid.
------------------------
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are
also being registered such additional Securities as may be issuable to the
Selling Securityholders pursuant to applicable anti-dilution provisions.
------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
VION PHARMACEUTICALS, INC.
17,737,545 SHARES OF COMMON STOCK
1,084,183 REDEEMABLE CLASS A WARRANTS
4,812,383 REDEEMABLE CLASS B WARRANTS
------------------------
This Prospectus relates to 17,737,545 shares of Common Stock, $.01 par value
('Common Stock') of Vion Pharmaceuticals, Inc., a Delaware corporation (the
'Company'). This Prospectus also relates to 1,084,183 Redeemable Class A
Warrants (the 'Class A Warrants') of the Company, and 4,812,383 Redeemable Class
B Warrants ('Class B Warrants'). The Common Stock, the Class A Warrants, the
Class B Warrants and the underlying securities are being offered by the Selling
Securityholders set forth herein. See 'Selling Securityholders.' Of the
17,737,545 shares of Common Stock being sold by the Selling Securityholders,
10,069,005 of such shares represent shares issuable upon exercise of
publicly-traded Warrants and 1,618,366 shares represent shares issuable upon
exercise of Warrants being registered for resale hereby. In addition, 3,453,200
of the Class B Warrants being sold by the Selling Securityholders represent
Class B Warrants issuable upon exercise of the Company's publicly-traded Class A
Warrants. The Company will not receive any proceeds from the sale of such
securities. The Class A Warrants and the Class B Warrants are referred to herein
collectively as the 'Warrants' and the Common Stock, the securities issuable
upon exercise of the Class A Warrants, together with the Class A Warrants, are
sometimes collectively referred to herein as the 'Securities.' Each Class A
Warrant entitles the holder to purchase, at an exercise price of $4.73, subject
to adjustment, one share of Common Stock and one Class B Warrant, and each Class
B Warrant entitles the holder to purchase, at an exercise price of $6.37,
subject to adjustment, one share of Common Stock. The Warrants are exercisable
at any time after issuance through August 13, 2000. The Warrants are subject to
redemption by the company for $.05 per Warrant, upon 30 days' written notice, if
the average closing bid price of the Common Stock exceeds $7.30 per share with
respect to the Class A Warrants and $9.80 share with respect to the Class B
Warrants for 30 consecutive business days ending within 15 days of the date of
the notice of redemption. See 'Description of Securities.'
The securities offered by the Selling Securityholders pursuant to this
Prospectus may be sold from time to time by the Selling Securityholders. The
distribution of the Common Stock, Class A Warrants, and the Class B Warrants
offered hereby by the Selling Securityholders may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary brokers' transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders.
The Selling Securityholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act of
1933, as amended (the 'Securities Act'), with respect to the securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event the Class A Warrants and Class B
Warrants registered hereby are exercised, the Company will receive gross
proceeds of approximately $5,125,000 and $30,650,000 respectively. See 'Selling
Securityholders' and 'Plan of Distribution.'
------------------------
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE 'RISK FACTORS' BEGINNING ON PAGE 3 OF THIS
PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 6, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information filed with the Commission may be inspected and
copied at the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 500 West Madison Street, Chicago, Illinois 60661, and Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at prescribed rates by
writing to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, reports, proxy materials and other information concerning the Company
may be inspected at the offices of NASDAQ, 1735 K Street N.W., Washington, D.C.
20006.
This Prospectus constitutes a part of a Registration Statement on Form SB-2
(herein, together with all amendments and exhibits, referred to as the
'Registration Statement') filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, Class A Warrants
and Class B Warrants, reference is hereby made to the Registration Statement.
Statements contained herein concerning the provisions of any document are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.
2
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the Securities offered hereby.
Limited Operating History; Accumulated Deficit and Anticipated Future
Losses. The Company is a development-stage enterprise and to date has not
generated any revenues. At June 30, 1996, the Company had an accumulated deficit
of $13,820,281, and since then significant losses and decreases in working
capital have occurred and are expected to continue for the foreseeable future. A
substantial portion of the Company's losses have been incurred in connection
with research sponsored by it pursuant to an agreement with Yale University (the
'Yale/MelaRX Agreement') on several product candidates, most of which are not
currently being pursued. The Company continues to have substantial financial
commitments to Yale pursuant to such agreement. The Company will be required to
conduct significant research, development, testing and regulatory compliance
activities which, together with projected general and administrative expenses,
are expected to result in operating losses for at least the next several years,
particularly due to the extended time period before the Company expects to
commercialize its principal products, if ever. There can be no assurance that
the Company's research and development activities will result in any
commercially viable products or that the Company will ever realize revenues from
the sale of any of its products. The Company plans to in-license or otherwise
acquire the right to sell oncology-related products with the goal of generating
some revenues prior to the time revenues could be expected to be received from
products resulting from the Company's research and development programs.
However, any such in-licensed products will not result in revenues, if any, for
at least two years and are not expected to produce sufficient revenues, if any,
to fund a significant portion of the Company's anticipated expenditures on
research and development or offset losses from research and development. See
'Business.'
Early Stage of Product Development. The Company plans to engage in
research and development on a variety of technologies, pharmaceutical compounds
and other chemical or biological compositions or processes for therapeutic uses,
primarily in connection with the treatment of cancer. There has been only
limited research on many of the Company's technologies and results obtained in
research and testing conducted to date are not conclusive as to whether
compounds being investigated by the Company will be safe and effective for their
proposed use. Most of the Company's proposed products are in the early
developmental stage, require significant further research and development and in
many cases lead compounds have not yet been selected. Most of these proposed
products were licensed pursuant to an agreement with Yale University (the
'Yale/OncoRX Agreement'), which agreement did not provide for ongoing sponsored
research. The Company will need to develop further its own internal research and
development capability to conduct additional research and development activities
with respect to these product candidates. All of the Company's product
candidates require testing and regulatory clearances or approvals, including but
not limited to the Food and Drug Administration (the 'FDA'), prior to their
commercial distribution. Accordingly, the Company expects that most of its
products will not be commercially available for a number of years, if ever. The
successful development of any product is subject to the risks of failure
inherent in the development of products or therapeutic procedures based on
innovative technologies. These risks include the possibilities that any or all
of these proposed products or procedures are found to be ineffective or unsafe,
or otherwise fail to receive necessary regulatory clearances or approvals; that
the proposed products or procedures are uneconomical to market or do not achieve
broad market acceptance; that third parties hold proprietary rights that
preclude the Company from marketing them; or that third parties market a
superior or equivalent product. The Company is unable to predict whether its
research and development activities will result in any commercially viable
products or procedures. Further, due to the extended testing and regulatory
review process required before marketing clearance can be obtained, the time
frames for commercialization of any products or procedures are long and
uncertain.
Uncertainty and Risks of TAPET Technology. Gene therapy is a new
technology, and existing preclinical and clinical data on the safety and
efficacy of gene therapy are very limited. There are currently no gene therapy
products approved for commercial use in humans. Data relating to the Company's
specific gene therapy approach are even more limited. No products utilizing the
TAPET technology are in human clinical trials, and the results of preclinical
studies do not predict safety or efficacy in humans. TAPET uses bacteria for
delivery of genes or enzymes to tumors. Possible serious side effects of the
Company's TAPET gene therapy program include bacterial infections, particularly
the risk of sepsis, a serious and often fatal bacterial infection of the blood.
The Company is bioengineering the bacterial vectors used in TAPET in an effort
to eliminate virulence factors and to
3
<PAGE>
minimize the risk of such side effects. However, there can be no assurance that
unacceptable side effects will not be discovered during preclinical and clinical
testing of the Company's potential products.
Need for Significant Additional Funds and Collaborative Arrangements;
Potential Default Under License Agreements. The Company believes that its
current cash plus the interest income thereon should be sufficient to enable the
Company to continue funding its operations at currently budgeted spending levels
until approximately January 1998. However, the Company's cash requirements may
vary materially from those now planned because of results of research and
development, results of product testing, relationships with strategic partners,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the regulatory process in the
United States and abroad and other factors. The Company received an opinion from
its auditors, filed as part of its Annual Report for the fiscal year ended
December 31, 1995, expressing substantial doubt as to its ability to continue as
a going concern. The Company addressed the immediate need for additional capital
by raising funds through a private placement of Class A Preferred Stock in May
1996. However, the Company expects to require additional financing to fund its
activities beyond 1997 and may require additional capital for acquisitions and
new development projects.
The Company's working capital is not sufficient to fund the Company's
operations through the commercialization of the first therapeutic products
resulting from its research and development projects. Additionally, the Company
does not expect that the revenues, if any, from its in-licensing activities will
be sufficient to finance a significant portion of its proposed research and
development activities. The Company will require substantial additional funds
for its research and product development programs, for operating expenses and to
pursue regulatory clearances. The Company has also incurred significant
financial commitments to academic collaborators in connection with license and
sponsored research agreements and will incur significant additional financial
obligations. Adequate funds for these purposes, whether through financial
markets or collaborative or other arrangements with corporate partners or from
other sources, may not be available when needed. The Company has no commitments
to obtain any additional funds and there can be no assurance that additional
funds can be obtained on terms acceptable to the Company, if at all.
Insufficient funds may require the Company to delay, scale back or eliminate
certain of its research and product development programs or license third
parties to commercialize products or technologies that the Company would
otherwise seek to develop itself. Additionally, if funds are insufficient, the
Company may be unable to meet its obligations under its license agreements or
research agreements, make research payments or commercialize the technologies
licensed under such agreements. See 'Business--Sponsored Research and License
Agreements.'
In the event that any payments required to be made to academic
collaborators or licensors are not made in a timely fashion, or if the Company
is otherwise in default under agreements with such parties, such parties will
have the right to terminate their research and license arrangements with the
Company. Termination of any such arrangements would have a material adverse
effect on the Company by rendering it unable to continue development of or to
commercialize all or a portion of its product candidates licensed under that
agreement. See '--Risks Relating to Sponsored Research and License Agreements.'
Dependence on Patents and Trade Secrets; Uncertainty of Patent Position and
Trade Secrets. The Company's success will depend to a significant extent on its
ability, or the ability of its licensors, to obtain and maintain patent
protection on technologies and products and preserve trade secrets and to
operate without infringing the proprietary rights of others. The patent
situation in the field of biopharmaceutical products generally is highly
uncertain and involves complex legal, scientific and factual questions. To date
there has emerged no consistent policy regarding the breadth of claims allowed
in biopharmaceutical patents. Accordingly, there can be no assurance that patent
applications filed by or on behalf of the Company will result in patents being
issued or that, if issued, the patents will afford protection against
competitors with similar technology. Furthermore, there can be no assurance that
others will not independently develop similar technologies or duplicate any
technology developed by the Company. Because of the extensive time required for
development, testing and regulatory review of a potential product, it is
possible that before any of the Company's potential products can be
commercialized, any related patent may expire, or remain in existence for only a
short period following commercialization, thus reducing any advantage of the
patent. Moreover, composition of matter patent protection may not be available
for certain of the Company's product candidates. Specifically, composition of
matter patent protection is not likely to be available for 3TC, a novel
nucleoside analog licensed pursuant to the Yale/OncoRXAgreement, and is not
available for porfiromycin. While the Company may seek alternative
4
<PAGE>
protection, there can be no assurance that the Company will be able to secure
meaningful proprietary protection for any of its proposed products. See
'Business--Patents, Licenses and Trade Secrets.'
The Company's processes and potential products may conflict with patents
which have been or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's processes and potential products may give rise to
claims that they infringe the patents of others. Such other persons could bring
legal actions against the Company claiming damages and seeking to enjoin
clinical testing, manufacturing and marketing of the affected product or
process. If any such actions are successful, in addition to any potential
liability for damages, the Company could be required to obtain a license in
order to continue to conduct clinical tests, manufacture or market the affected
product or use the affected process. There can be no assurance that the Company
would prevail in any such action or that any license required under any such
patent would be made available on acceptable terms, if at all. If the Company
becomes involved in litigation, litigation could consume a substantial portion
of the Company's resources.
The Company is aware that patent applications have been filed by and/or
United States patents have been issued to, IAF BioChem International, Inc.,
Emory University, Glaxo Group Limited, University of Georgia Research
Foundation, Inc., and The Wellcome Foundation Limited of Unicorn House that
relate to the subject matter of patent applications licensed to the Company,
namely, 3TC and/or its use as an anti-hepatitis B virus ('HBV') agent. The
Company is also aware that patent applications have been filed by Biochem Pharma
that relate to subject matter licensed to the Company, namely b-L-FddC and its
use as an anti-HBV agent.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of the patents or proprietary rights of others. The Company may
participate in interference proceedings which may in the future be declared by
the United States Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company. See
'Business--Patents, Licenses and Trade Secrets.'
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's proposed projects, third parties may own all or part of the
proprietary rights to such information, and disputes may arise as to the
ownership of the proprietary rights to such information which may not be
resolved in favor of the Company. To the extent that the Company requires rights
to any resulting technologies, it may be necessary to negotiate additional
license agreements or the Company may be unable to utilize such technologies.
See '-- Risks Relating to Sponsored Research and License Agreements.'
The Company may also rely on trade secrets that it may seek to protect, in
part, through confidentiality agreements with employees and other parties. There
can be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known to or independently developed by competitors.
See 'Business--Patents, Licenses and Trade Secrets.'
Risks Relating to Sponsored Research and License Agreements. The Company
has incurred significant financial commitments to academic collaborators in
connection with licenses and sponsored research agreements. In particular,
through December 31, 1995, the Company has paid to Yale approximately $3,200,000
pursuant to the Yale/MelaRX Agreement. The Company continues to have substantial
funding commitments under the Yale/MelaRX Agreement and other sponsored research
agreements, whether or not such research results in suitable product candidates.
Moreover, the Company generally does not have the right to control the research
being conducted pursuant to sponsored research agreements and there can be no
assurance that such research will result in products which the Company will
pursue. In particular, the Company is currently making unrestricted grants to
Yale to support certain research, including research in Dr. Yung-Chi Cheng's
laboratory. There can be no assurance that these funds will be used to conduct
research relating to products which the Company desires to pursue. Additionally,
to the extent that such research results in technologies not licensed to the
Company pursuant to the Yale/OncoRX Agreement, it may be necessary to negotiate
additional license agreements or the Company may be unable to utilize such
technologies.
5
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Certain rights of the Company arise under the Yale/OncoRX Agreement
pursuant to which the Company obtained a license for certain technology
developed in the laboratories of Dr. Alan C. Sartorelli, the Chairman of the
Company's Scientific Advisory Board, and Dr. Yung-Chi Cheng and Dr. James J.
Fischer, members of the Scientific Advisory Board. The Company does not have the
rights to the results of current or future research being performed by Dr.
Sartorelli, Dr. Cheng or Dr. Fischer. There can be no assurance that the Company
will be successful in obtaining the rights to future research performed by Dr.
Sartorelli, Dr. Cheng or Dr. Fischer. See 'Business--Research and Development.'
Risks Relating to In-Licensing Arrangements. The Company commenced an
in-licensing program directed towards securing rights to certain
oncology-related products. There can be no assurance that the Company will be
able to enter into favorable arrangements or, if necessary, complete the
development of any products in-licensed. There can be no assurance that
definitive agreements will result from ongoing negotiations or that any
successfully completed agreements will not be terminated. There can also be no
assurance that the Company will be able to market any of the products
in-licensed or realize anticipated revenues under those arrangements.
Dependence Upon Key Personnel. Because of the specialized scientific
nature of the Company's business, it is dependent upon its ability to attract
and retain qualified management, scientific and technical personnel. The Company
is also dependent upon other key employees, collaborators at other research
institutions and the Company's scientific advisors. John Spears, the Company's
President and Chief Executive Officer, may be considered a key employee. The
Company has entered into an employment agreement with Mr. Spears and maintains a
key man life insurance policy for the benefit of the Company in the amount of
$2,000,000 on his life. The loss of any individuals upon which the Company is
dependent could have a material adverse effect on the Company. See
'Business--Human Resources.'
Competition among biopharmaceutical and biotechnology companies for
qualified employees is intense. The loss of qualified employees, or an inability
to attract, retain and motivate any additional highly skilled employees required
for the expansion of the Company's activities, could adversely affect its
business and prospects. There can be no assurance that the Company will be able
to retain and continue to attract qualified employees.
Dependence on Others; No Manufacturing and Marketing Capability. The
Company's strategy for the research, development and commercialization of
certain of its products entails entering into various arrangements with
corporate partners, licensors, licensees and others, and is dependent upon the
subsequent success of these outside parties in performing their
responsibilities. The Company may also rely on its collaborative partners to
conduct research efforts and clinical trials, to obtain regulatory approvals and
to manufacture and to market certain of the Company's products. In particular,
the Company has engaged a contract research organization to conduct the Phase
III clinical studies of porfiromycin. Although the Company believes that parties
to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources to be devoted to these activities may not be within the control of the
Company. There can be no assurance that such parties will perform their
obligations as expected or that any revenue will be derived from such
arrangements. There can also be no assurance that the Company will be successful
in establishing any additional collaborative arrangements or that, if
established, the parties to such arrangements will be successful in
commercializing products.
The Company has no experience in manufacturing or marketing any therapeutic
products. The Company currently does not have the resources to manufacture or
market by itself on a commercial scale any products that it may develop. The
Company currently intends to outsource some or all manufacturing requirements it
may have. While the Company believes that it will be able to enter into contract
manufacturing arrangements and intends to in-license products which it will have
manufactured on a contract basis, there can be no assurance that it will be able
to enter into suitable arrangements. In the event that the Company decides to
establish a manufacturing facility, the Company will require substantial
additional funds and will be required to hire and retain significant additional
personnel and comply with the extensive FDA-mandated good manufacturing
practices ('GMP') applicable to such a facility.
The success of the Company's in-licensing strategy is dependent, in part,
on the Company's ability to develop a quality sales force. The Company has not
yet begun hiring marketing personnel and there can be no
6
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assurance that the Company will be successful in developing an adequate sales
force. See 'Business-- Manufacturing and Marketing.'
Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process. The FDA and comparable agencies in foreign countries impose
substantial requirements upon the development, manufacturing and marketing of
drugs, biologics and medical devices through the regulation of laboratory and
clinical testing procedures, manufacturing, labeling, registration,
notification, clearance or approval, marketing, distribution, recordkeeping,
reporting and promotion, and other costly and time-consuming procedures.
Satisfaction of clearance or approval requirements typically takes several years
or more and varies substantially based upon the type, complexity and novelty of
the product. The Company has obtained Orphan Drug status for porfiromycin and
intends to seek Orphan Drug designation for products where appropriate, where no
patent protection is feasible. There can be no assurance that Orphan Drug status
will be obtained for any of the Company's other proposed products.
The effect of government regulation may be to delay marketing of new
products for a considerable or indefinite period of time, to impose costly
procedures upon the Company's activities and to furnish a competitive advantage
to larger companies that compete with the Company. There can be no assurance
that FDA or other regulatory clearance or approval for any products developed by
the Company will be granted on a timely basis, if at all, or, once granted, that
clearances or approvals will not be withdrawn or other regulatory action taken
which might limit the Company's ability to market its proposed products. Any
such delay in obtaining or failure to obtain or maintain such clearances or
approvals would adversely affect the manufacturing and marketing of the
Company's products and the ability to generate product revenue. See
'Business--Government Regulation.'
Uncertainty Related to Health Care Reimbursement and Reform Measures. The
Company's success in generating revenue from sales of therapeutic products and
medical devices may depend, in part, on the extent to which reimbursement for
the costs of such products and medical devices and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of newly-approved health care products. There can be no
assurance that adequate third-party insurance coverage will be available for the
Company to establish and maintain price levels sufficient for realization of an
appropriate return on its investment in developing new therapies or products.
Government and other third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement of
new therapeutic products and medical devices approved for marketing by the FDA
and by refusing, in some cases, to provide any coverage of uses of approved
products for disease indications other than those for which the FDA has granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for uses of the Company's
therapeutic products and medical devices, the market acceptance of these
products could be adversely affected.
In addition, Congress regularly considers numerous proposals relating to
healthcare reform which, if adopted, could affect the amount paid for
pharmaceutical products and medical procedures. The Company is unable to predict
which proposals, if any, will be adopted, or the effect such proposals may have
on the Company's operations. Future changes in federal, state or local
regulation (or in the interpretation of current regulations) could have a
material adverse effect on the Company.
Competition. The Company is engaged in a rapidly evolving field.
Competition from other pharmaceutical companies, biotechnology companies and
research and academic institutions is intense and expected to increase. The
market for cancer products is large and growing rapidly, and will attract new
entrants. Many companies engaged in the biotechnology and biopharmaceutical
sectors have focused on cancer and most of these companies have substantially
greater financial and other resources and development capabilities than the
Company and have substantially greater experience in undertaking pre-clinical
and clinical testing of products, obtaining regulatory approvals and
manufacturing and marketing pharmaceutical products. Accordingly, certain of the
Company's competitors may succeed in obtaining approval for products more
rapidly than the Company. Other companies may succeed in developing and
commercializing products earlier than the Company that are safer and more
effective than those proposed to be developed by the Company. In addition to
competing with universities and other research institutions in the development
of products, technologies and processes, the Company may compete with other
companies in acquiring rights to products or technologies from universities.
There can be no
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assurance that the Company will develop products that are more effective or
achieve greater market acceptance than competitive products, or that the
Company's competitors will not succeed in developing products and technologies
that are more effective than those being developed by the Company or that would
render the Company's products and technologies less competitive or obsolete. See
'Business--Competition.'
Risks of Technological Obsolescence. The areas in which the Company is
developing, distributing, and/or licensing products involve rapidly developing
technology. Others may develop products which may render products being
developed, distributed or licensed by the Company obsolete or uneconomical or
result in products superior to the Company's products.
No Product Liability Insurance. The use or misuse of Company products in
clinical trials and the marketing of any pharmaceutical products it may develop
may expose the Company to product liability claims. The Company does not
currently have any product liability insurance. Although in the future the
Company may seek to obtain product liability insurance, there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms, that such insurance will provide adequate coverage against
potential liabilities or that a product liability claim will not have a material
adverse effect on the Company.
Significant Influence of Insiders; Potential Anti-takeover Provisions. The
Company's directors and executive officers beneficially own approximately 25% of
the outstanding Common Stock of the Company. See 'Principal Stockholders.' As a
result, such directors and officers will be able to significantly influence the
election of all of the Company's directors and otherwise influence control of
the Company's operations. The Company's Board of Directors is also authorized to
issue from time to time, without stockholder authorization, shares of preferred
stock, in one or more designated series or classes. The Company is also subject
to a Delaware statute regulating business combinations. Any of these provisions
could discourage, hinder or preclude an unsolicited acquisition of the Company
and could make it less likely that stockholders receive a premium for their
shares as a result of any such attempt.
Outstanding Warrants, Options and Convertible Preferred Stock. The Company
has outstanding (i) 4,262,383 Class A Warrants to purchase an aggregate of
4,262,383 shares of Common Stock and 4,262,383 Class B Warrants; (ii) 3,162,605
Class B Warrants to purchase 3,162,605 shares of Common Stock; (iii) Purchase
Options granted to the underwriter of the Company's initial public offering (the
'Underwriter') to purchase an aggregate of 1,075,000 shares of Common Stock,
assuming exercise of the underlying warrants; (iv) warrants to purchase 202,486
shares of Common Stock held by the Underwriter and distributees of the
Underwriter which were granted to the Underwriter in connection with prior
private financings; (v) warrants to purchase 546,875 shares of Common Stock held
by employees of Paramount Capital, Inc. which were granted to Paramount Capital,
Inc. in connection with a private financing; and (vi) options to purchase
1,186,812 shares of Common Stock, including 782,750 shares granted under its
Amended and Restated 1993 Stock Option Plan (the 'Plan'). In addition, the
Company has 217,250 shares of Common Stock reserved for issuance upon exercise
of options which are available to be granted under the Plan. Holders of such
warrants and options are likely to exercise them when, in all likelihood, the
Company could obtain additional capital on terms more favorable than those
provided by warrants and options. Further, while these warrants and options are
outstanding, the Company's ability to obtain additional financing on favorable
terms may be adversely affected. In addition, the Company has outstanding
1,250,000 shares of Class A Convertible Preferred Stock which is convertible
into 3,472,242 shares of Common Stock. The holders of the Class A Preferred
Stock are Selling Securityholders hereunder. See 'Selling Securityholders.'
Possible Delisting of Securities from the Nasdaq Stock Market. While the
Company's Common Stock meets the current Nasdaq listing requirements, there can
be no assurance that the Company will meet the criteria for continued listing.
Continued inclusion on Nasdaq generally requires that (i) the Company maintain
at least $2,000,000 in total assets and $1,000,000 in capital and surplus, (ii)
the minimum bid price of the Common Stock be $1.00 per share, (iii) there be at
least 100,000 shares in the public float valued at $1,000,000 or more, (iv) the
Common Stock have at least two active market makers, and (v) the Common Stock be
held by at least 300 holders. If the Company is unable to satisfy Nasdaq's
maintenance requirements, its securities may be delisted from Nasdaq. In such
event, trading, if any, in the Common Stock would thereafter be conducted in the
over-the-counter market in the so-called 'pink sheets' or the NASD's 'Electronic
Bulletin Board.' Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be
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bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and the news media's coverage of the Company and
lower prices for the Company's securities than might otherwise be attained.
Potential Adverse Effect of Redemption of Warrants. The Warrants may be
redeemed by the Company at a redemption price of $.05 per Warrant upon not less
than 30 days' prior written notice if the closing bid price of the Common Stock
shall have averaged in excess of $7.30 per share for the Class A Warrants and
$9.80 per share with respect to the Class B Warrants, for 30 consecutive trading
days ending within 15 days of the notice. Redemption of the Warrants could force
the holders to exercise the Warrants and pay the exercise price therefor at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to hold
the Warrants, or to accept the redemption price which, at the time the Warrants
are called for redemption, is likely to be substantially less than the market
value of the Warrants. See 'Description of Securities--Warrants.'
Current Prospectus and State Registration to Exercise Warrants. Holders of
Warrants will only be able to exercise the Warrants if (i) a current prospectus
under the Securities Act relating to the securities underlying the Warrants is
then in effect and (ii) such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company has undertaken and
intends to use its best efforts to maintain a current prospectus covering the
securities underlying the Warrants, there can be no assurance that the Company
will be able to do so. The value of the Warrants may be greatly reduced if a
prospectus covering the securities issuable upon the exercise of the Warrants is
not kept current or if the securities are not qualified, or exempt from
qualification, in the states in which the holders of Warrants reside. If and
when the Warrants become redeemable by the terms thereof, the Company may
exercise its redemption right even if it is unable to qualify the underlying
securities for sale under all applicable state securities laws. Holders of
Warrants called for redemption residing in states where the underlying
securities have not been qualified for sale would generally still be able to
sell their Warrants at the then market price thereof. See 'Description of
Capital Stock--Warrants.'
Risks of Low-Priced Stock. If the Company's securities were delisted from
Nasdaq (See '-- Possible Delisting of Securities from the Nasdaq Stock Market'),
they could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers that sell such
securities except in transactions exempted by such Rule, including transactions
meeting the requirements of Rule 505 or 506 of Regulation D under the Securities
Act and transactions in which the purchaser is an institutional accredited
investor (as defined) or an established customer (as defined) of the broker or
dealer. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely affect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in this offering
to sell any of the securities acquired hereby in the secondary market.
Commission regulations define a 'penny stock' to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction by a broker-dealer involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities continue to be listed on Nasdaq and have
certain price and volume information provided on a current and continuing basis
or meet certain minimum net tangible assets or average revenue criteria. There
can be no assurance that the Company's securities will continue to qualify for
exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be
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in the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
Effects of Current Offering on Market Price. Future sales of Common Stock,
Class A Warrants and Class B Warrants in the public market by existing
stockholders pursuant to Rule 144 under the Securities Act, pursuant to this
shelf registration statement or otherwise, could have an adverse effect on the
price of the Company's securities. 17,737,545 shares of Common Stock, 1,084,183
Class A Warrants and 4,812,383 Class B Warrants will have been registered hereby
under the Securities Act of 1933, as amended, for resale to the public, which
constitute on a fully diluted basis approximately 68.4%, 23.9% and 67.2% of the
Company's Common Stock, Class A Warrants and Class B Warrants, respectively. As
of June 30, 1996, 290,412 shares of Common Stock underlying vested options are
eligible for resale and an additional 829,900 shares may be sold from time to
time as additional outstanding options vest. In addition, under Rule 144,
1,999,992 of the outstanding shares of Common Stock will be eligible for sale in
mid-September 1996 and an additional 2,654,005 shares of Common Stock will be
eligible for sale commencing in April 1997. Holders of the outstanding shares of
Common Stock and options prior to the Company's initial public offering have
agreed not to sell any shares of Common Stock until September 14, 1996 without
the prior written consent of the Underwriter. Sales of Common Stock, or the
possibility of such sales, in the public market may adversely affect the market
price of the Common Stock or the other securities offered hereby. Historically,
the Company's securities have been thinly traded. This low trading volume may
have had a significant effect on the market price of the Company's securities,
which may not be indicative of the market price in a more liquid market.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sales of
Securities by the Selling Securityholders. In the event the outstanding Class A
Warrants and Class B Warrants being registered for resale hereby are exercised,
the Company will receive gross proceeds of approximately $5,125,000 and
$30,650,000 respectively. See 'Selling Securityholders' for a list of those
persons and entities receiving the proceeds from the sales of the Securities
offered hereby.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET INFORMATION FOR COMMON STOCK
The Common Stock of the Company has traded on The Nasdaq SmallCap Market
under the symbol VION since April 29, 1996. From August 14, 1995 to April 26,
1996 the Common Stock traded on The Nasdaq SmallCap Market under the symbol
OCRX. The following table reflects the range of high and low bid prices of the
Company's Common Stock for each of the calendar quarters since the Company's
initial public offering in August 1995. This information is based on closing bid
prices as reported by The Nasdaq Stock Market and such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
<TABLE>
<CAPTION>
1995 HIGH LOW
----- -----
<S> <C> <C>
Third Quarter........................... $5.00 $3.25
Fourth Quarter.......................... $4.75 $2.25
1996 HIGH LOW
----- -----
First Quarter........................... $4.75 $3.00
Second Quarter.......................... $7.75 $3.50
Third Quarter (through September 3,
1996)................................. $4.88 $3.63
</TABLE>
At September 3, 1996 there were approximately 230 holders of record of
the Common Stock.
DIVIDENDS
The Company has paid no dividends and does not expect to pay cash dividends
in the foreseeable future. The certificate of designations for the Company's
Class A Convertible Preferred Stock ('Class A Preferred Stock') precludes the
Company from paying cash dividends on the Common Stock so long as shares of
Class A Preferred Stock are outstanding, without the consent of holders of a
majority of the Class A Preferred Stock. The Company currently intends to retain
any future earnings to finance the growth and development of its business.
BACKGROUND OF THE COMPANY
OncoRx Inc. ('Old OncoRx') was founded in May 1993 to engage in the
discovery, development and marketing of products for the treatment of cancer and
cancer-related disorders. Prior to the Merger described below, Old OncoRx's
business consisted principally of entering into a license agreement with Yale
University (the 'Yale/OncoRx Agreement') in August 1994. MelaRx Pharmaceuticals,
Inc. ('MelaRx') was formed in March 1992 to engage in the research and
development, pursuant to an agreement with Yale University (the 'Yale/MelaRx
Agreement') of therapeutic, cosmetic and other products which are derived from
technology relating to melanin and the control of the effect of ultraviolet
radiation upon the skin and the related systems. In April 1995, Old OncoRx was
merged (the 'Merger') into OncoRx Research Corp., a wholly-owned subsidiary of
MelaRx, and stockholders of Old OncoRx were issued 2,654,038 shares of Common
Stock and 23,859 shares of Preferred Stock of the Company, and an option to
acquire 750,000 shares of the Common Stock of Old OncoRx was converted into an
option to acquire 286,312 shares of Common Stock. Pursuant to the Merger, the
name of MelaRx was changed to OncoRx, Inc. Simultaneously therewith, each share
of Common Stock of MelaRx was converted into approximately 0.16 shares of Series
A Common Stock (resulting in 2,000,000 shares of outstanding Series A Common
Stock) and each option and warrant to acquire Common Stock was converted into
the right to receive approximately 0.16 shares of Series A Common Stock (the
'Recapitalization').
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Additionally, prior to the Merger, certain founders of MelaRx deposited
710,994 of their shares of Series A Common Stock of the Company (after giving
effect to the Recapitalization) in escrow. The shares deposited in escrow were
canceled upon the closing of the Company's initial public offering in August
1995. Upon such cancellation, each of the remaining 1,289,006 shares of the
Series A Common Stock of the Company previously held by MelaRx stockholders were
adjusted to equal approximately 1.55 shares of Common Stock of the Company (a
total of 2,000,000 shares) and, as a result, the number of shares of outstanding
Common Stock remained unchanged after such cancellation. The number of shares
subject to options and warrants granted by MelaRx prior to the Merger were also
adjusted into the right to acquire approximately 1.55 shares of Common Stock for
each share of Series A Common Stock subject to such options or warrants.
In April 1996 the name of the Company was changed from OncoRx, Inc. to Vion
Pharmaceuticals, Inc.
The Company's executive offices are located at 4 Science Park, New Haven,
CT 06511 and its telephone number is (203) 498-4210.
PLAN OF OPERATIONS
GENERAL
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company has not generated any revenues and has incurred
substantial operating losses from its activities.
The Company intends to use a substantial portion of the net proceeds of its
May 1996 private financing and its initial public offering, which was
consummated in August 1995, to fund its plan of operations, which includes the
following elements through January 1998:
o Continue to support research and development being performed at Yale
University and by other collaborators and seek additional collaborative
agreements.
o Develop internal research and development capabilities and conduct
research and development with respect to the Company's core technologies
and other product candidates which may be identified by the Company. The
Company expects to incur substantial expenditures for expansion of its
scientific staff and related research and development expenses. In
addition, the Company expects to expend approximately $358,000 for
laboratory and office equipment purchases. During the next six months,
the Company plans to hire approximately eight additional employees,
including six scientists.
o Seek to acquire, generally through in-licensing, oncology-related
products that can be marketed without significant additional development
activities.
o Conduct Phase III clinical studies of porfiromycin for treatment of
cancer of the head and neck.
The Company currently estimates that the net proceeds of its private
placement in May 1996 and its existing cash and equivalents will be sufficient
to fund its planned operations for approximately 20 months thereafter. In the
event of delays or unexpected problems in product development, cost overruns, or
other unanticipated expenses commonly associated with a company in an early
stage of development, the Company will require additional funds. In addition,
the Company will need substantial additional financing, beyond this period to
fund further research and development and the Company's working capital
requirements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $11,991,949. The
Company's principal sources of funds through June 30, 1996 have been $11,590,662
net proceeds from private financing through issuance of 1,250,000 shares of
Class A Preferred Stock; $9,696,210 from its initial public offering, $5,478,280
in net proceeds from private placements of common stock in 1992 and 1993 by its
predecessor, MelaRx Pharmaceuticals Inc. ('MelaRx'), the receipt by its
predecessor, OncoRx Inc. ('Old OncoRx'), of $350,000 in May 1994 and a bridge
financing in April 1995 of $2,000,000 of Notes (the 'Notes'). In addition, Old
OncoRx received net proceeds of $206,000 in a private placement of its common
stock in April 1995 which were used to pay certain accrued expenses, including
salaries of officers. The net proceeds to the Company of the April 1995 bridge
financing were approximately $1,704,000, after deducting related expenses and
the repayment of certain
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advances. Such proceeds have been used to make payments due under collaboration
agreements and repay certain loans to the Company and for working capital
purposes. The Notes were fully paid after the closing of the Company's initial
public offering.
The Company used the proceeds of its initial public offering to repay its
bridge financing and used the remaining funds to implement its business plan,
which includes hiring of additional personnel; capital expenditures for the
purchase of equipment, principally for laboratory facilities; costs of research
and development; payment of license fees due under sponsored research
agreements; and grants to Yale University to fund certain research, including
research in Dr. Yung-Chi Cheng's laboratory. During the twelve months ending
December 31, 1996, the Company will be required to make payments of an aggregate
of $1,440,000 to Yale University and the University of California, Berkeley,
under sponsored research and license agreements.
The Company requires substantial new revenues and other sources of capital
in order to meet such budgeted expenditures and to continue its operations
beyond January 1998. The Company is seeking to enter into one or more
significant strategic partnerships with pharmaceutical companies for the
development of its core technologies, through which it would anticipate
receiving some of the substantial revenues and financing. The Company has
entered into preliminary discussions with several major pharmaceutical companies
concerning such a strategic alliance, but there can be no assurance that the
Company will be successful in achieving such an alliance, nor can the Company
predict what funds might be available to it if it can achieve such an alliance.
The Company is also seeking to raise funds through additional means, including
(1) spin-off, refinancing, or partial sale or disposition of its rights to
certain of its non-core technologies; (2) equipment lease financing; and (3)
private placements and recapitalization of its securities. No assurance can be
given that the Company will be successful in arranging financing through any of
these alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
The Company is planning to adopt the disclosure provisions of Statement of
Financial and Accounting Standards No. 123 'Accounting and Disclosure of
Stock-Based Compensation' in 1996. Accordingly, operating results will not be
impacted by the adoption.
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<PAGE>
BUSINESS
GENERAL
Vion Pharmaceuticals, Inc. (the 'Company') is an early stage
biopharmaceutical company which has sponsored research projects and intends to
engage primarily in research and development of therapeutic products for the
treatment of cancer. Pursuant to a license agreement entered into with Yale
University ('Yale') in August 1994 (the 'Yale/OncoRx Agreement'), the Company
has acquired the rights to certain oncology and antiviral related patents and
technology. The Company believes that the licensed rights include several novel
technologies which provide a broad technology base for the future development of
therapeutic products.
Research and Development. The Company's strategy is two-fold. First, the
Company intends to engage principally in research and development with respect
to anticancer and antiviral technologies through in-house research and through
collaborative and sponsored research agreements. The Company's initial research
and development will focus on the following core technologies: (i) porfiromycin,
a hypoxic cancer cell therapeutic which targets oxygen-depleted cells that are
otherwise resistant to radiation therapy, (ii) alkylating agent prodrugs, which
are designed to be activated in cancer cells or the surrounding area and destroy
cancer cells, (iii) novel nucleoside analogs which inhibit the Hepatitis B
virus, (iv) ribonucleotide reductase inhibitors, which may block the formation
of the precursors of DNA and thereby inhibit the replication of cancer cells and
(v) Tumor Amplified Prodrug Enzyme Therapy, or TAPET(Trademark), a novel gene
therapy vector for the treatment of cancer. In addition to its core
technologies, the Company has rights to several additional product candidates,
including (i) Melasyn(Trademark), a synthetic form of melanin, and (ii) a
microfiltration and drug delivery technology being developed at the University
of California, Berkeley ('Berkeley'). To date, most of the Company's research
and development efforts have been performed by academic collaborators. Since its
initial public offering in August, 1995, the Company has begun to develop a
scientific staff in order to engage directly in research and development and
also expects to continue to sponsor academic collaborators.
Initially, the Company's focus will be the development of small molecular
weight, pharmaceutical agents with known mechanisms of activity. The Company
initially intends to target projects from its existing portfolio of rights based
upon (i) the likelihood that commercially-viable products can successfully be
developed using technology currently available to the Company with no additional
acquisition or licensing costs, (ii) the potential commercial market for the
product and (iii) the projected time to market of the product.
In-licensing. Second, the Company intends to seek, generally through
in-licensing, therapeutic products and medical devices which are
oncology-related and can be marketed without significant additional development
activities to selected segments of the oncology market. The Company intends to
seek products which can be marketed within 24-36 months in order to provide the
Company with a source of revenues prior to the time when revenues can be
expected to be realized from pharmaceutical products which may result from the
Company's research and development efforts, if successful. The objective of this
strategy is to generate near-term revenues which can help support the Company's
infrastructure and reduce the risks associated with early-stage research and
development. The Company believes that there should be product candidates
available for its in-licensing program, including medical devices aimed at the
oncology market and prescription and non-prescription oncology products
currently producing or expected to produce relatively small sales volume and
which do not have the market potential to be actively promoted by large
pharmaceutical companies.
In connection with its in-licensing program, the Company intends to
establish a sales force targeting the oncology market. The Company believes that
this sales force will facilitate the marketing of oncology-related products
obtained through in-licensing, and may also enable the Company to seek
co-marketing arrangements with other pharmaceutical companies.
OVERVIEW OF CANCER
Cancer is characterized by uncontrolled cell division resulting in the
development of a mass of cells, commonly known as a tumor, and invasion and
spread (metastasis) of the cells. Cancerous tumors can arise in almost any
tissue or organ within the human body. Cancer is believed to occur as a result
of a number of factors, such as genetic predisposition, chemical agents, viruses
and irradiation. These factors may result in genetic changes affecting the
ability of cells to normally regulate their growth and differentiation. When a
normal cell becomes cancerous it can spread (metastasize) to various sites in
the body. Cancer is a devastating disease with
14
<PAGE>
tremendous unmet medical needs. It has been estimated by the American Cancer
Society that there were 1.2 million new cases of cancer in 1993 in the United
States, 60% of which are expected to result in death within five years. The
market for cancer therapeutics was approximately $6 billion in 1992 and is
projected to total approximately $14 billion by the year 2000.
Although several types of tumors can now be effectively treated with drugs,
survival rates for the most common tumors have not significantly improved. The
Company believes that recent developments in the understanding of the processes
that regulate the proliferation and metastasis of malignant cells provides
opportunities to discover and develop innovative products and approaches to
treat cancer.
The three most common methods of treating patients with cancer are surgery,
radiation therapy and chemotherapy. A cancer patient often receives a
combination of two or all three of these modalities. Surgery and radiation
therapy are particularly effective in patients in which the disease is localized
and has not yet spread to other tissues or organs. Surgery involves the removal
of the tumor and adjacent tissue. In many cases where metastases have not yet
occurred, however, surgery still cannot be performed because of the inaccessible
location of the tumor or the danger of removing too much normal tissue along
with the cancerous tissue.
Radiation therapy involves the exposure of the tumor and surrounding tissue
to ionizing radiation. The objective of radiation therapy is to kill the cancer
cells with certain ionized molecules (free radicals) that are created in the
parts of the body exposed to the ionizing radiation. Radiation, however, also
kills or damages normal cells. Radiation therapy can result in varying levels of
effectiveness, as well as in patient weakness, loss of appetite, nausea and
vomiting, and loss of normal body functions, which may include bone marrow
depression, gastrointestinal complications, kidney damage and damage to the
peripheral nervous system. In some cases, radiation-induced mutations in bone
marrow cells can lead to new secondary cancers, such as leukemia, years after
treatment for other forms of cancer.
Chemotherapy is the principal approach used for tumors that have
metastasized. Chemotherapy seeks to interfere with the molecular and cellular
processes that control the development, growth and survival of malignant tumor
cells. Chemotherapy involves the administration of cytotoxic drugs designed to
kill cancer cells or the administration of hormone analogs to either reduce the
production of, or block the action of, certain hormones such as estrogens and
androgens which affect the growth of certain tumors. In many cases, chemotherapy
consists of the administration of several different drugs in combination.
In recent years, there have been significant advances in molecular biology,
immunology and other related fields of biotechnology which have led to a better
understanding of how malfunctioning genes can result in the formation of tumors.
It is anticipated that these advances in biotechnology will lead to better ways
to diagnose cancer and to prevent tumors from forming or becoming malignant.
Ultimately, these emerging technologies may lead to genetic-based therapies
aimed specifically at the genes which have malfunctioned and caused the cancer
to form or spread.
The Company believes, however, that a considerable amount of additional
research and development will be necessary before such biotechnology-based
pharmaceutical products to prevent cancer will have a significant impact on
methods of treating cancer. Additionally, the Company believes that these
emerging technologies will be initially incorporated into protocols using
chemotherapy and radiation therapy until it has been shown that
biotechnology-based products are effective as single agents. The Company
believes that, for the foreseeable future, the principal means of combating
cancer will continue to be through the surgical removal of tumors and the
destruction of malignant cells through radiation therapy and chemotherapy, and
that new chemically defined small molecules may be developed based upon unique
cellular targets discovered through biotechnology. Therefore, the Company
intends to initially focus its research and development efforts on the
identification and development of small molecule chemotherapeutics with known
molecular mechanisms of action.
RESEARCH AND DEVELOPMENT
The Company is currently focusing on the following principal areas of
research: (i) hypoxic cancer cell therapeutics, (ii) alkylating agent prodrugs,
(iii) novel nucleoside analogs, (iv) ribonucleotide reductase inhibitors and (v)
Tumor Amplified Prodrug Enzyme Therapy, or TAPET. All of these technologies were
licensed by the Company pursuant to the Yale/OncoRx Agreement and are in the
early development stage and require significant further research, development,
testing and regulatory clearances. A portion of the technology licensed to the
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<PAGE>
Company pursuant to the Yale/OncoRx Agreement was subject to a right of first
refusal in favor of the Bristol-Myers Squibb Company, which was not exercised.
Substantially all of the Company's current research and development efforts have
been conducted by academic collaborators. The Company has begun to hire a
scientific staff in order to conduct directly research and development
activities with respect to these technologies.
Hypoxic Cancer Cell Therapeutics. Solid tumors have been shown to contain
cells with severe oxygen depletion known as hypoxic cells. The Company believes
that one possible explanation for the failure of radiation therapy is the
existence within tumors of hypoxic cells, although there is no direct proof in
humans. The hypoxic tumor cells can often constitute 1--15% of the malignant
cells contained in a tumor. Because radiation therapy requires oxygenation of
the tissue in order to be effective, hypoxic cells are less susceptible to
radiation therapy and tend to form a therapeutically resistant group within
solid tumors. Even small quantities of hypoxic cells within a tumor provide the
basis for tumor cells to survive and proliferate after most of the non-hypoxic
malignant cells in the tumor have been eradicated by radiation treatment.
Hypoxic cells also exhibit resistance to most standard chemotherapeutic agents.
Investigators in Dr. Alan C. Sartorelli's laboratory at Yale have sought to
develop chemotherapeutic agents which by virtue of their chemical and metabolic
properties could be selectively toxic to hypoxic cells. One such agent
identified by Dr. Sartorelli was porfiromycin, a bioreductive alkylating agent.
Laboratory studies indicated that porfiromycin destroyed a greater percentage of
hypoxic cells relative to oxygenated cells than other agents being tested. A
Phase I/II trial was conducted at Yale on a limited number of people. In this
initial study, of the 21 patients treated with radiation (and, in some cases,
surgery) in conjunction with porfiromycin for certain types of cancer of the
head and neck, seven remain alive with no evidence of the disease or the cancer
after a median follow-up of 30 months. The Company believes that these results
are better than would have been expected without the use of porfiromycin,
although there can be no assurance that porfiromycin will prove to be
efficacious in a more extensive study. Based on these findings, a Phase III
trial has been initiated of porfiromycin in patients with head and neck cancer,
which is designed to determine the efficacy of porfiromycin as an adjunct to
radiation therapy for these conditions. The Phase III trial is initially being
conducted at Yale and the Company is in the process of designing an expanded
Phase III trial which will include additional sites.
The Company has obtained an exclusive license from Yale for the data
regarding Yale's research on porfiromycin and the clinical studies of
porfiromycin conducted by Yale. Because composition of matter patent protection
is unavailable for porfiromycin, the Company has received Orphan Drug status
with respect to porfiromycin.
Alkylating Agent Prodrugs. Alkylating agents are used to treat a variety
of cancers, with different alkylating agents being used to treat different
malignancies. These drugs are highly reactive (i.e., react with a number of
different types of cells) and, as a consequence, cause undesirable side effects.
This reactivity may be controlled by converting alkylating agents to prodrug
forms. This conversion is accomplished by the attachment of a prodrug component
to the alkylating agent so as to block the reactivity of the compound. The
prodrug component can be designed to be released by a variety of enzymes found
predominantly in tumors or in the area surrounding the tumor cells. Cleavage of
the prodrug component from the alkylating agent, so as to restore the reactivity
of the alkylating agent, occurs within the target tumor or in the area
surrounding the tumor, thus permitting greater tumor selectivity and activity
and lowering the potential for toxicity.
The Company has licensed several classes of alkylating agent prodrugs from
Yale, including certain prodrugs which are the subject of three issued patents.
Each of these alkylating agent prodrugs may target a unique property of a cancer
cell, thereby destroying it. The Company intends to select from this portfolio
of alkylating agent prodrugs one or more candidates for clinical development.
Two of the prodrugs, OCX-0177 and OCX-0247, have shown activity in preclinical
efficacy studies. The Company intends to extend these preclinical studies, which
will include analytical studies, formulation and toxicological evaluation, and,
if successful, intends to file an Investigational New Drug Application (IND).
Novel Nucleoside Analogs. Antimetabolites are anticancer and antiviral
agents which resemble natural cellular metabolites and therefore interfere with
natural metabolic processes. Certain of the more significant antimetabolites
inhibit the function of enzymes which are necessary for the synthesis of
nucleotides (which are the building blocks of DNA and RNA) and therefore inhibit
cell growth. Pursuant to the Yale/OncoRx Agreement, the Company has licensed
from Yale a patent application relating to the nucleoside analog 3-TC and its
use as an anti-hepatitis B virus ('HBV') agent, and several patent applications
relating to the nucleoside
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analogs (beta)-L-FddC and (beta)-L-Fd4C and their use as anti-HBV agents.
These nucleoside analogs are antimetabolites and have shown, in early
preclinical studies, the ability to inhibit the replication of HBV. HBV is a
causative agent of both acute and chronic forms of hepatitis which affects about
300 million people worldwide. HBV also predisposes its victims to the
development of liver cancer. At present, no clinically useful drug is on the
market for the treatment of HBV infections.
The Company is aware of numerous patent applications and/or patents owned
by third parties that also relate to 3-TC, (beta)-L-FddC, and/or their uses as
anti-HBV agents. The Company cannot predict whether its or its competitors'
patent applications will result in valid patents being issued. See '--Patents,
Licenses and Trade Secrets.' In July 1996 the Company received a notice of
allowance from the U.S. Patent and Trademark Office regarding its patent
application covering the composition of matter and method of use of
(beta)-L-Fd4C for treating HBV. Due to the resources required, the Company
intends to seek a strategic partner to further develop these anti-HBV agents.
Ribonucleotide Reductase Inhibitors. The conversion of ribonucleotides to
deoxyribonucleotides, which is effectuated by ribonucleotide reductase, is a
critical step in the synthesis of DNA in cells. If DNA is not synthesized, cells
cannot be replicated. The Company believes that a strong inhibitor of
ribonucleotide reductase which targets cancer cells could act as a therapeutic
agent. The Company plans to initiate a program to develop inhibitors of
ribonucleotide reductase based on technology developed by Dr. Sartorelli and
licensed under the Yale/OncoRx Agreement. The Company has licensed from Yale
patented technology related to ribonucleotide reductase inhibitors. Early
experiments on such inhibitors have indicated preliminary anticancer activity in
animal tumor models. The Company has not yet undertaken toxicity tests and
additional research is necessary to determine if the inhibitors tested have
sufficient specificity in cancer cells. This research is in the very early
stages and the Company has identified one product candidate, 3AP. The Company
believes it will need to engage in significant additional research before it can
determine whether any of the licensed technology includes suitable additional
product candidates.
TAPET. TAPET signifies Tumor Amplified Prodrug Enzyme Therapy, which the
Company believes to be an enabling platform technology that will result in a
novel gene therapy for cancer. The salient features of TAPET include the use of
microorganisms as vectors for the delivery of prodrug converting enzymes and
genes that are capable of cell growth regulation, into tumor tissue. The
microorganisms have been designed to be highly selective for tumor tissue,
relative to normal tissue, and, as an additional safeguard, their infectivity
for normal tissue has been attenuated by bioengineering the organisms. As a
result, the microorganisms have been demonstrated to multiply selectively in
tumor tissue. In developing this vector, the expression of multiple genes that
are capable of regulating prodrug converting enzymes has been demonstrated,
resulting in regression of tumors in animal models. The Companys TAPET program
potentially addresses many of the major problems that have been experienced with
attempts to use viral vectors in gene therapy. These benefits potentially
include vector specificity for tumor tissue, clonal expansion of the vectors
within the tumor, multiple gene expression in a single vector, and introduction
of multiple serotypes of the bacteria to minimize unwanted immune reactions. The
Company is pursuing several approaches to optimize TAPET for the treatment of
tumors.
Other Programs. The Company also intends to pursue other research and
development projects leading to the development of anticancer therapeutics. The
Company intends to seek collaborations with academic institutions, including
additional arrangements with Yale, to obtain additional rights. The Company
believes that its relationship with Dr. Sartorelli and Dr. Yung-Chi Cheng of
Yale, both of whom are on the Company's Scientific Advisory Board, may provide
the Company with the ability to obtain rights in connection with work being done
in their laboratories. However, the Yale/OncoRx Agreement only granted to the
Company rights to specific technologies and the Company does not have any right
to obtain a license to any of the work being conducted in their laboratories and
any such rights would be subject to reaching an agreement with Yale as to the
terms of such license.
IN-LICENSING PROGRAM
As part of the Company's strategy, the Company also intends to in-license
or acquire rights to niche oncology-related products which the Company believes
can be commercialized in the near-term (24-36 months). The Company believes that
there should be products available for in-licensing because larger
pharmaceutical companies generally pursue products only if they believe that
such products will provide a source of substantial revenues and therefore will
discontinue developing or promoting products which have smaller potential
markets. In many cases, the Company believes that these products may be ready
for marketing without significant
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additional expense or development activities and can provide a source of
revenues for the Company in the near term. The objective of this strategy is to
generate some revenues to help support the Company's infrastructure while the
Company pursues research and development projects which, if successful, are not
expected to produce any material revenues for a significant number of years.
Through its in-licensing program, the Company intends to target products which
can be distributed through a sales and marketing team which the Company plans to
establish to target the oncology market. In connection with this strategy, the
Company has identified certain products and technologies which it intends to
develop and market. However, there can be no assurance that any required FDA
marketing clearances or approvals can be obtained on a timely basis, if at all.
Hydrogel Polymer. The Company has entered into an agreement with PMP, Inc.
pursuant to which the Company has exercised an option for an exclusive license
to purchase from PMP the raw material, and to market, distribute and sell in
North America, a proprietary polymer-based hydrogel wetting agent. The $10,000
option exercise fee was paid to PMP on November 2, 1995 and represents fully
paid up license fees and royalties, with no further payments due from OncoRx.
The product has been formulated as an oral spray, gel and lozenge with
mucoadhesive properties for the treatment of mucositis (an inflammation of the
oral mucosa) and xerostomia (dryness of the mouth and lips), which commonly
occur in individuals receiving cancer chemotherapy and certain radiation
therapies. Mucositis and xerostomia are both conditions which can cause pain and
discomfort and can be sufficiently severe so as to require a limitation on the
chemotherapy dose. A number of other products are currently being marketed to
treat these conditions. The proposed product, which is expected to be marketed
over-the-counter with a distribution approach aimed at oncology doctors and
clinics, has not yet received FDA clearance or approval and there can be no
assurance that it ever will. However, there is a possibility that, if the
product is substantially equivalent to other products on the market, it could
obtain 510(k) marketing clearance as a medical device.
Termination of Response GM Agreement. On August 30, 1996, Response
Biomedical Corp. and the Company mutually agreed to terminate a Sales and
Distribution Agreement pursuant to which the Company was to have been the sole
and exclusive distributor in the United States and Canada of Response's
WhiteCounts (formerly the Response GM) point-of-care white blood cell monitor in
the oncology marketplace. WhiteCounts, designed as a hand-held granulocyte
(white blood cell) monitoring device, is not patented in the United States and
has not received FDA 510(k) clearance or premarket approval to be marketed as a
professional use device in the United States. Under the terms of the former
agreement, the Company would have been required to conduct, at its expense,
clinical testing in order to receive such FDA approval. The Company would have
also been required to pay up to an aggregate of $725,000 to Response Biomedical
Corp. based on the achievement of certain milestones, with most of the payments
due after FDA approval.
OTHER POTENTIAL PRODUCT CANDIDATES
In addition, the Company is developing two additional product candidates,
described below. The Company intends to explore outlicensing or other corporate
partner strategies for these technologies.
Melasyn(Trademark). Pursuant to a license agreement between MelaRx
Pharmaceuticals, Inc. and Yale dated September 23, 1988, as amended and restated
as of August 1, 1992 (the Yale/MelaRx Agreement), the Company has obtained
rights to a synthetic form of melanin which the Company has named Melasyn.
Melanin is a pigment formed by cells in the skin which gives skin its color and
protects it from sun damage by absorbing ultraviolet rays. The Company is
seeking opportunities to market Melasyn to cosmetics and other companies for
possible use in self tanning and sunscreen products. The Company has entered
into an agreement with Creative Polymers pursuant to which Creative Polymers has
agreed to be the exclusive selling agent for Melasyn and will be entitled to 20%
of the net sales of Melasyn.
The Company has also funded research projects relating to synthetic melanin
for use in cosmetics, as well as compounds to control pigmentation and
chemotherapeutic products for treating melanoma. To date, such research has not
provided any other products or product candidates which the Company presently
plans to pursue, although the Company still has substantial financial
commitments to Yale pursuant to such agreement. See '--Sponsored Research and
License Agreements.'
Drug Delivery Technology. In July 1994, the Company entered into a
sponsored research and an option agreement with Berkeley, pursuant to which the
Company is sponsoring research at Berkeley being conducted in
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the laboratory of Dr. Mauro Ferrari regarding microfiltration and drug delivery
technology. The Company has an exclusive option to negotiate an exclusive
license for any resulting product. Dr. Ferrari and his research associates at
Berkeley have been working on techniques for micromanufacturing silicon filters
with controlled pore sizes and geometries. At present, there is no source of
inorganic membrane filters having geometrically defined submicron-sized pores.
If Dr. Ferrari's technology functions in accordance with his theories, the
Company believes that this microfabrication technology will produce such
membrane filters. The Company is currently evaluating promising applications for
this microfabrication technology. Potential applications include bioseparation
filters and use as a drug delivery device. The Company's current strategy for
commercializing this microfabrication technology will be to continue to evaluate
opportunities for its applications and actively pursue collaboration
alternatives. See '--Sponsored Research and License Agreements.'
COLLABORATIVE ARRANGEMENTS
The Company intends to seek collaborative agreements with pharmaceutical or
biotechnology companies to develop certain of its product candidates. The
Company believes that these arrangements will permit the Company to develop
certain of its product candidates without incurring the substantial costs
associated with development and may also provide an additional source of
financing.
SPONSORED RESEARCH AND LICENSE AGREEMENTS
Yale/OncoRx Agreement. Pursuant to a License Agreement dated August 31,
1994, as amended November 15, 1995, Yale granted to Old OncoRx an exclusive,
non-transferable, worldwide license to make, have made, use, sell and practice
certain inventions and research for therapeutic and diagnostic purposes. The
licensed technology includes the five core technologies on which the Company
initially intends to focus. See '--Research and Development.' The term of the
license is the expiration of any patents relating to any inventions or, with
respect to non-patented inventions or research, 17 years. Yale has retained the
right to make, use and practice the inventions and research for non-commercial
purposes. The Yale/OncoRx Agreement also provides that if Yale, pursuant to its
own research, identifies potential commercial opportunities for the inventions
and research, Yale will give the Company a first option to negotiate a
commercial license for such commercial opportunities. Pursuant to the
Yale/OncoRx Agreement, the Company issued to Yale 159,304 shares of common
stock, granted certain registration rights to Yale with respect to these shares
of Common Stock and made a payment of $50,000. In addition, Yale is entitled to
royalties on sales, if any, of resulting products and sub-licensing revenues
and, with regard to one patent, milestone payments based on the status of
clinical trials and regulatory approvals. The Company has agreed with Yale that
the Company will plan and implement appropriate research and development with
respect to commercialization of products based on the licensed inventions and
research and will expend at least $250,000 in the aggregate on research and
development directed to the development of products based on the inventions. In
the event that the agreement is terminated for breach, all rights under licenses
previously granted terminate. Accordingly, a default as to one product could
affect the Company's rights in other products.
Subsequent to entering into the Yale/OncoRx Agreement, the Company paid
$345,000 as unrestricted grants to fund certain research at Yale, including
research in Dr. Cheng's laboratory. The Company made an additional unrestricted
grant to Yale of $345,000 in November 1995 and intends to make another
unrestricted grant in November 1996 for continued support of this research.
There can be no assurance that these funds will be used to conduct research
relating to products which the Company desires to pursue. Additionally, to the
extent that such research results in technologies not covered by the Yale/OncoRx
Agreement, the Company may be unable to utilize such technologies unless it
negotiates additional license agreements.
Yale/MelaRx Agreement. Pursuant to a Research Agreement dated September
23, 1988, as amended and restated as of August 1, 1992, Yale has agreed to
perform a research program under the supervision of Dr. John Pawalek, while he
is employed by Yale. The research program has primarily involved synthetic
melanin and products designed to control the effects of ultraviolet radiation.
In addition, under the Companys TAPET program, Dr. Pawelek is conducting certain
research regarding the use of a bacterial vector in connection with genetic
therapy for melanoma. The Company has agreed to reimburse Yale for its direct
and indirect costs in connection with the research program in an amount
currently equal to $765,000 per year (subject to increase by up to 5% per year).
Except to the extent of inventions made solely by the Company's employees, Yale
will be the
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owner of any inventions resulting from the research and the Company will have an
option to obtain an exclusive license (to the extent Yale has the right to grant
such a license) with respect to the inventions. The Company and Yale entered
into a License Agreement dated December 15, 1995 pursuant to which the Company
received a non-transferable worldwide exclusive license to three inventions
relating to gene therapy for melanoma. Pursuant to this agreement the Company
has agreed to pay Yale a $100,000 fee not later than June 15, 1997, plus
milestone payments based on the status of clinical trials and regulatory
approvals. In addition, Yale is entitled to royalties on sales, if any, of
resulting products and sub-licensing revenues. The Yale/MelaRx Agreement is for
a term ending June 30, 1998, subject to earlier termination by the Company if
Dr. John W. Pawalek is no longer the principal investigator and subject to the
Company's right to terminate its participation on one year's notice if its
economic circumstances make it impracticable and unfeasible to provide funding
for the research.
Pursuant to the Yale/MelaRx Agreement, Yale and the Company have entered
into five license agreements which grant the Company exclusive licenses to make,
use, sell and practice the inventions covered by certain patents. Each such
license agreement requires the Company to pay to Yale royalties based on a
percentage of net sales of the products covered and sublicensing income. In
addition, the licenses provide that they are terminable in the event the Company
does not exercise due diligence in commercializing the licensed technology.
University of California, Berkeley. In July 1994, MicroFab BioSystems,
Inc. ('MicroFab'), a subsidiary of the Company, entered into a Sponsored
Research Agreement with Berkeley pursuant to which MicroFab agreed to sponsor
research conducted by Dr. Ferrari at Berkeley through June 30, 1996. In November
1995, the Company amended the sponsored research agreement with Berkeley,
increasing the amount of sponsorship to $1,208,236 through August 31, 1996. The
payments due under the agreement are approximately $250,000 for each remaining
quarter, subject to increase by notice from Berkeley under certain circumstances
if the cost of the research would exceed the amount of payments. To the extent
Berkeley has a legal right to do so, and to the extent MicroFab has paid all
direct and indirect costs of the research, including a proportionate share of
the principal investigator's salary, Berkeley has agreed to negotiate in good
faith with respect to one or more licenses with MicroFab in accordance with the
Option Agreement (as is described below).
Under the Option Agreement which was entered into simultaneously with the
Sponsored Research Agreement, Berkeley granted to the Company an option to
negotiate in good faith an exclusive license to Berkeley's patent rights to
three inventions relating to microfabricated particle filters and
microfabricated capsules for immunological isolation of cell transplants.
MicroFab paid Berkeley a non-refundable option payment of $30,000 for the three
inventions covered by the Option Agreement, which option expired in July 1995.
MicroFab exercised a right to elect to renew the Option Agreement for one
additional one-year period and paid Berkeley an additional $30,000 for the
exercise of this option. The Option Agreement provides that a license agreement
entered into pursuant to the Option Agreement would be an exclusive license,
with right to grant sublicenses, to make, have made, use and sell licensed
products for medical and human pharmaceutical applications in all countries
where Berkeley has patent rights. The Option Agreement provides that each
license agreement would provide for a non-refundable license fee as well as a
royalty based on net sales. There can be no assurance that the parties will be
able to agree on terms of a license agreement which are satisfactory to the
Company. Pursuant to a separate agreement, Dr. Ferrari has been retained as a
consultant by the Company for a two-year term commencing June 1, 1996 at an
annual rate of $48,000 per year subject to certain adjustments. In connection
therewith, Dr. Ferrari was issued 10% of the common stock of MicroFab.
COMPETITION
Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors, the availability of
patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. Moreover, the
biopharmaceutical industry is characterized by rapidly evolving technology that
could result in the technological obsolescence of any products developed by the
Company. The Company competes with specialized biopharmaceutical firms in the
United States, Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Most of the Company's competitors have substantially greater financial,
technical and human resources than the Company and may be better equipped to
develop, manufacture and market products. In addition, many of these companies
have extensive experience in preclinical testing and human clinical trials and
in obtaining regulatory
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approvals. These companies, as well as academic institutions, governmental
agencies and private research organizations, also compete with the Company in
recruiting and retaining highly qualified scientific personnel and consultants.
Existing therapies to treat cancer have varying degrees of success. Many
products are under development by competitors for the treatment of cancer, some
of which may compete directly with the Company's proposed products. Some of
these product candidates may be in advanced stages of clinical trials. The
existence of these products, or other products or treatments of which the
Company is not aware, or products or treatments that may be developed in the
future, may adversely affect the marketability of products developed by the
Company. There can be no assurance that research and development by others will
not render the Company's potential products obsolete or uneconomical or result
in treatments or cures superior to any therapy developed by the Company, or that
any therapy developed by the Company will be preferred to any existing or newly
developed technologies.
The timing of market introduction of some of the Company's potential
products or of competitor's products may be an important competitive factor.
Accordingly, the relative speed with which the Company can develop products,
complete preclinical testing, clinical trials and regulatory approval processes
and supply commercial quantities to market are expected to be important
competitive factors. In addition, the Company may apply for Orphan Drug
designation by the FDA for its proposed products. To the extent that a
competitor of the Company develops and receives Orphan Drug designation and
marketing approval for a drug to treat the same indication prior to the Company,
the Company may be precluded from marketing its product for a period of seven
years. See '--Government Regulation.'
PATENTS, LICENSES AND TRADE SECRETS
The Company's policy is to protect its technology by, among other things,
filing patent applications for technology which it considers important to the
development of its business. The Company intends to file additional patent
applications, when appropriate, relating to new developments or improvements in
its technology and other specific products that it develops. The Company also
relies on trade secrets and improvements, unpatented know-how and continuing
technological innovation to develop and maintain its competitive position.
In connection with the Yale/OncoRx Agreement, the Company is the exclusive
licensee of three issued United States patents relating to its alkylating agent
prodrug technology, including patents relating to novel sulfonylhydrazine
methylating agents and their use for treatment of trypanosomiasis and cancer and
to novel 1-alkyl-2-acyl-1,2-disulfonylhydrazines and their use for controlling
neoplastic cell growth. The Company is also the exclusive licensee of a pending
United States patent application relating to 3-TC and its use for the treatment
of hepatitis B virus (HBV) infection, and of a number of pending United States
and foreign patent applications relating to (beta)-L-FddC and (beta)-L-Fd4C and
their use for the treatment of HBV infection, as well as technology related to
ribonucleotide reductase inhibitors.
Competitors or potential competitors have filed applications for, or have
been issued, patents and may obtain additional patents and proprietary rights
relating to compounds or processes competitive with those of the Company.
Accordingly, there can be no assurance that the patent applications licensed to
the Company will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology; nor can
there be any assurance that others will not obtain patents that the Company
would need to license or circumvent.
The Company is aware that patent applications, some of which have issued as
patents, have been filed by IAF Biochem International, Inc., Emory University,
Glaxo Group Limited and the University of Georgia Research Foundation, that
relate to 3-TC, enantiomerically enriched racemic mixtures containing 3-TC,
methods of preparation, and use of 3-TC or racemic mixtures containing 3-TC as
an antiviral agent. Some of these patent applications have earlier filing dates
than the patent applications licensed to the Company, and thus may prevent the
Company from obtaining patent protection in the applications it has licensed.
The Company is also aware that patent applications, some of which have
issued as patents, have been filed by IAF Biochem International, Inc., and The
Wellcome Foundation Limited of Unicorn House that relate to the use of 3-TC for
the treatment of HBV infection. Some of these patent applications have earlier
filing dates than the patent applications licensed to the Company, and thus may
prevent the Company from obtaining patent
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protection in the applications it has licensed. The Company believes that it may
be able to prove that it is entitled in its licensed applications to priority of
invention for claims directed to the use of 3-TC as an anti-HBV agent. However,
there is a substantial risk that the Company will not prevail in proving that it
is so entitled, and that others will be awarded patent protection for such
claims.
The patent applications filed by third parties that relate to 3-TC will
likely prevent the Company from obtaining product claims to 3-TC in the patent
applications it has licensed. Furthermore, a third party is likely to obtain
claims relating to 3-TC that may dominate the use of 3-TC as an anti-HBV agent
(to treat HBV infection). The holder of such dominating patent claims would have
the right to exclude the Company from making, using or selling 3-TC for any use,
including as an anti-HBV agent. If the Company were able to obtain a patent with
claims directed to the use of 3-TC as an anti-HBV agent, it would have the right
to exclude others, including the holder of a dominating patent, only from using
3-TC as an anti-HBV agent. There can be no assurance that a license to such
dominating patent will be available to the Company, or, if available, that such
license can be obtained on reasonable terms.
With respect to (beta)-L-FddC, the Company is aware that patent
applications have been filed by Biochem Pharma, Inc. that relate to
(beta)-L-FddC and its use as an anti-HBV agent. These patent application(s)
claim priority to a United Kingdom patent application having a filing date
earlier than the filing dates of all the applications relating to (beta)-L-FddC
that have been licensed to the Company. In July 1996 the Company received a
notice of allowance from the U.S. Patent and Trademark Office regarding its
patent application covering the composition of matter and method of use of
(beta)-L-Fd4C for treating HBV.
Other third parties, in addition to those described above, may also have
filed patent applications relating to 3-TC, (beta)-L-FddC and (beta)-L-Fd4C
and/or their uses as anti-HBV agents.
In connection with the Yale/MelaRx Agreement, the Company is the exclusive
licensee of a number of issued United States and foreign utility patents and
pending patent applications relating to synthetic melanins and methods for using
synthetic melanins, including, such as, for sunscreening or self-tanning agents.
Of the United States patents and patent applications, however, only two pending
patent applications are relevant to the Company's Melasyn(Trademark) product(s).
The Company has filed or plans to file corresponding applications relevant to
the Melasyn(Trademark) products for patent protection in foreign countries. In
addition, the Company is in the process of preparing and plans to file a patent
application relating to new products and methods for diagnosing and/or treating
various solid tumor cancers, including but not limited to melanoma.
The Company or its licensors is prosecuting the patent applications
licensed to the Company with the United States Patent and Trademark Office but
the Company does not know whether any of its applications will result in the
issuance of any patents or, if any patents are issued, whether any issued patent
will provide significant proprietary protection or will be circumvented or
invalidated. During the course of patent prosecution, patent applications are
evaluated, inter alia, for utility, novelty, nonobviousness and enablement. The
United States Patent and Trademark Office may require that the claims of an
initially filed patent application be amended if it is determined that the scope
of the claims include subject matter that is not useful, novel, nonobvious or
enabled. Furthermore, in certain instances, the practice of a patentable
invention may require a license from the holder of dominant patent rights. In
cases where one party believes that it has a claim to an invention covered by a
patent application or patent of a second party, the first party may provoke an
interference proceeding in the United States Patent and Trademark Office or such
a proceeding may otherwise be declared by the Patent & Trademark Office. In
general, in an interference proceeding, the Patent and Trademark Office would
review the competing patents and/or patent applications to determine the
validity of the competing claims, including but not limited to determining
priority of invention. Any such determination would be subject to appeal in the
appropriate United States federal courts.
There can be no assurance that additional patents for the Company's
products will be obtained, or that issued patents will provide substantial
protection or be of commercial benefit to the Company. The issuance of a patent
is not conclusive as to its validity or enforceability, nor does it provide the
patent holder with freedom to operate without infringing the patent rights of
others. A patent could be challenged by litigation and, if the outcome of such
litigation were adverse to the patent holder, competitors could be free to use
the subject matter covered by the patent, or the patent holder may license the
technology to others in settlement of such litigation. The invalidation of key
patents owned by or licensed to the Company or non-approval of pending patent
applications could create increased competition, with potential adverse effects
on the Company and its business prospects. In addition, there can be no
assurance that any application of the Company's technology will not
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infringe patents or proprietary rights of others so that, as a result of such
infringement, licenses that might be required for the Company's processes or
products would be available on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Companys patent and proprietary rights and/or to determine the scope and
validity of others proprietary rights. The Company may participate in
interference proceedings that may in the future be declared by the United States
Patent and Trademark Office to determine priority of invention, which could
result in substantial cost to the Company. There can be no assurance that the
outcome of any such litigation or interference proceedings will be favorable to
the Company or that the Company will be able to obtain licenses to technology
that it may require or that, if obtainable, such technology can be licensed at a
reasonable cost.
The patent position of biotechnology and biopharmaceutical firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology and biopharmaceutical patents. Accordingly, there can be no
assurance that patent applications owned or licensed by the Company will result
in patents being issued or that, if issued, the patents will afford protection
against competitors with similar technology.
The Company also expects to rely on unpatented technology, trade secrets
and information and no assurance can be given that others will not independently
develop substantially equivalent information and techniques or otherwise gain
access to the Company's technology or disclose such technology, or that the
Company can meaningfully protect its rights in such unpatented technology, trade
secrets and information. The Company requires each of its employees, consultants
and advisors to execute a confidentiality agreement at the commencement of an
employment or consulting relationship with the Company. The agreements generally
provide that all inventions conceived by the individual in the course of
employment or in the providing of services to the Company and all confidential
information developed by, or made known to, the individual during the term of
the relationship shall be the exclusive property of the Company and shall be
kept confidential and not disclosed to third parties except in limited specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's information in the event of
unauthorized use or disclosure of such confidential information.
GOVERNMENT REGULATION
Overview. Regulation by state and federal governmental authorities in the
United States and foreign countries is a significant factor in the manufacture
and marketing of the Company's products and in its ongoing research and product
development activities. All the Company's products will require regulatory
clearances or approvals prior to commercialization. In particular, drugs,
biologicals and medical devices are subject to rigorous preclinical testing and
other approval requirements by the FDA pursuant to the Federal Food, Drug and
Cosmetic Act (the 'FDC Act') and the Public Health Service (PHS) Act and
regulations promulgated thereunder, as well as by similar health authorities in
foreign countries. Various federal statutes and regulations also govern or
influence the testing, manufacturing, safety, labeling, packaging, advertising,
storage, registration, listing and recordkeeping related to marketing of such
products. The process of obtaining these clearances or approvals and the
subsequent compliance with appropriate federal statutes and regulations require
the expenditure of substantial resources. Any failure by the Company or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approval could adversely affect the manufacturing and marketing of products
being developed by the Company and its ability to receive product or royalty
revenues. There can be no assurance that any required FDA or other regulatory
approval will be granted or, if granted, will not be withdrawn.
Drugs and Biologicals. Preclinical development of diagnostic and
therapeutic drugs and biological products is generally conducted in the
laboratory to evaluate the safety and the potential efficacy of a compound by
relevant in vitro (e.g., cell culture) and in vivo (e.g., animal model) testing.
When a product is tested prospectively to determine its safety for purposes of
obtaining FDA approvals or clearances, such testing must be performed in
accordance with good laboratory practices for nonclinical studies. The results
of preclinical testing are submitted to the FDA as part of an investigational
new drug application (IND). The IND must become effective, informed consent must
be obtained from clinical subjects, and the study must be approved by an
institutional review board (IRB) before human clinical trials can begin.
23
<PAGE>
Regulatory approval often takes a number of years and involves the
expenditure of substantial resources. Approval time also depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Typically, clinical evaluation involves a three-phase process. In Phase
I, clinical trials are conducted with a small number of subjects to determine
the tolerated drug dose, early safety profile, proper scheduling, the pattern of
drug distribution, absorption and metabolism. In Phase II, clinical trials are
conducted with groups of patients afflicted with a specific disease in order to
determine efficacy, dose-response relationships and expanded evidence of safety.
In Phase III, large-scale, multi-center, controlled clinical trials are
conducted in order to (1) provide enough data for statistical proof of safety
and efficacy, (2) compare the experimental therapy to existing therapies, (3)
uncover any unexpected safety problems, such as side-effects, and (4) generate
product labeling. In the case of drugs for cancer and other life-threatening
diseases, the initial human testing is generally conducted in patients rather
than in healthy volunteers. Because these patients are already afflicted with
the target disease, it is possible that such studies will provide results
traditionally obtained in Phase II trials. These trials are referred to as
'Phase I/II' trials.
The results of the preclinical and clinical testing are submitted to the
FDA either as part of a New Drug Application ('NDA') (for drugs) or a Product
License Application ('PLA') (for biologics) for approval to commence commercial
distribution. For a biological, the manufacturer generally must also obtain
approval of an establishment license application (ELA). In responding to an NDA
or PLA, the FDA may grant marketing approval, request additional information or
deny the application if it determines that the application does not satisfy its
regulatory approval criteria. A minimum of several years is generally required
to obtain approval after submission of an NDA or PLA. There can be no assurance
that approvals will be granted on a timely basis, if at all. The FDA also
normally conducts a pre-approval inspection and other occasional inspections of
an applicant's facilities to assure compliance with current good manufacturing
practices. Further, stringent FDA regulatory requirements continue after a
product is approved for marketing, and changes to products or labeling can
require additional approvals. If products are approved for marketing, the
Company will be subject to stringent post-marketing requirements, and there can
be no assurance that regulatory or enforcement action will not occur, which
would potentially limit the Company's ability to market its products.
The Company also will be subject to widely varying foreign regulations
governing clinical trials and pharmaceutical sales. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for
FDA approval. The Company intends, to the extent possible, to rely on foreign
licensees to obtain regulatory approval for marketing its products in foreign
countries.
Orphan Drug Designation. Under the Orphan Drug Act, a developer may obtain
designation by the FDA of a drug or biologic as an 'orphan' drug for a
particular indication. Orphan Drug designation is granted to drugs for rare
diseases or conditions, including many cancers, with a prevalence of less than
200,000 cases in the U.S. The sponsor of a drug that has obtained Orphan Drug
designation and which is the first to obtain approval of a marketing application
for such drug is entitled to marketing exclusivity for a period of seven years
for the designated indication. This means that no other company can market the
same Orphan Drug for the same indication approved by the FDA for seven years
after approval unless such company proves its drug is clinically superior or the
approved Orphan Drug marketer cannot supply demand for the drug. Legislation is
periodically considered which could significantly affect the Orphan Drug law. In
particular, hearings have been held which would establish a 'sales trigger'
under which, if cumulative net sales of an Orphan Drug exceed $200 million,
marketing exclusivity will be withdrawn from the sponsor of the drug and other
manufacturers will be permitted to enter the market. The Company has received
Orphan Drug designation for porfiromycin and intends to seek this designation
for other products where appropriate. There can be no assurance that future
changes to the Orphan Drug Act would not diminish the value of any orphan drug
designation obtained by the Company.
Drugs for Life Threatening Illnesses. FDA regulatory procedures
established in 1988 are intended to speed further the availability of new drugs
intended to treat life-threatening and severely debilitating illnesses. These
procedures provide for early and continuous consultation with the FDA regarding
preclinical and clinical studies necessary to gain marketing approval. This
regulatory framework also provides that if Phase I results are promising, Phase
II clinical trials may be designed that obviate the need for lengthy, expensive
Phase III testing.
24
<PAGE>
The Company believes that its proposed anticancer products might qualify for
this regulatory procedure. Notwithstanding the foregoing, approval may be denied
by the FDA or traditional Phase III studies may be required. The FDA may also
seek the Company's agreement to perform post-approval Phase IV studies.
The FDA has announced that the accelerated approval concept is being
expanded for cancer drugs. The proposed changes are designed to speed drug
approvals by requiring less extensive preapproval testing in some circumstances.
Specifically, the FDA has stated that it may approve these drugs based on the
basis of surrogate markers. 'Partial responses,' such as a drug's effectiveness
at short-term tumor shrinkage, that the FDA believes are clear indicators of
therapeutic effect, would be sufficient to demonstrate efficacy for these drugs.
This is in contrast to requiring the traditional 'full-endpoint' measures of
improved survival or quality of life. Other provisions of the new initiatives
include proactive soliciation by the FDA of expanded access filings for foreign-
approved cancer agents and greater patient representation on the FDA's Oncology
Drugs Advisory Committee. Although agency officials have estimated that the
changes will reduce by as much as a year the normal development time for most
cancer drugs, it is uncertain whether and how these initiatives will actually be
implemented by FDA and whether they will have a significant impact on the
approval process for cancer drugs.
Medical Devices. Pursuant to the 1976 and 1990 Amendments to the FDC Act
and the regulations promulgated thereunder, the FDA regulates the testing,
manufacture, distribution and promotion of medical devices in the United States.
Various states and foreign countries in which the Company's products may be sold
in the future may impose additional regulatory requirements. Following the
enactment of the Medical Device Amendments to the FDC Act in May 1976, the FDA
classified medical devices in commercial distribution into three classes, Class
I, II and III. Class I devices are those devices whose safety and effectiveness
can be reasonably assured through general controls, such as adequate labeling,
premarket notification, and adherence to the FDA's Good Manufacturing Practice
('GMP') regulations. Some Class I devices are further exempted from some of the
general controls. Class II devices are those devices whose safety and
effectiveness can be reasonably assured through the use of special controls,
such as performance standards, post-market surveillance, patient registries, and
other FDA guidelines, in addition to the general controls. If determined to be a
Class II medical device under the Safe Medical Services Act of 1990, certain of
the Company's proposed products are potentially subject to performance standards
and other special controls that the FDA has the authority to establish.
Currently, no such performance standards or special controls have been
established. If any such performance standards are established, obtaining
initial marketing clearance for its products or maintaining continued clearance
will be dependent upon the Company's ability to satisfactorily comply with such
standards or controls. Class III devices are devices which generally are
invasive or life sustaining, but Class III also includes devices which are not
similar enough to previously marketed devices to be marketed without a higher
level of regulation. Class III devices generally must receive premarket approval
by the FDA to ensure their safety and effectiveness.
If a manufacturer or distributor of medical devices can establish that a
new device is 'substantially equivalent' to a legally marketed Class I or Class
II medical device, or another device the FDA has determined to be substantially
equivalent to a pre-1976 device, or to a Class III medical device for which the
FDA has not required premarket approval, the manufacturer or distributor may
seek FDA marketing clearance for the device by filing a 510(k) notification. The
510(k) notification and the claim of substantial equivalence will almost
certainly have to be supported by various types of data indicating that the
device is as safe and effective for its intended use as a legally marketed
predicate device. Clinical data is not always required for a 510(k), but can be
requested by the FDA, and is becoming a more common request. If human clinical
trials of a proposed device are required, and the device presents 'significant
risk,' the manufacturer or distributor of the device will have to file an
investigational device exemption ('IDE') application with the FDA prior to
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and mechanical testing. If the IDE
application is approved, human clinical trials may begin at the specific number
of investigational sites including the number of patients approved by the FDA.
Sponsors of clinical trials may be permitted to sell the devices distributed in
the course of the study provided such compensation does not exceed recovery of
the costs of manufacture, research, development and handling. No promotion or
test marketing is permitted for an investigational device.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until the FDA
determines that the device is 'substantially equivalent' to another legally
marketed device, and allows the proposed device to be marketed in the United
States. The FDA may,
25
<PAGE>
however, determine that the proposed device is not substantially equivalent, or
may require further information, such as additional test data, before the FDA is
able to make a determination regarding substantial equivalence.
If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent, the manufacturer or distributor
may seek premarket approval ('PMA') or reclassification of the device. A PMA
application would have to be submitted and be supported by extensive data,
including preclinical and clinical trial data, to demonstrate the safety and
efficacy of the device, as well as manufacturing and quality control data,
proposed labeling, advertising, operating directions and other information.
There can be no assurance that a PMA, if submitted, would be approved by the FDA
in a timely manner, or at all. Further, after a device is permitted to be
marketed via a 510(k) or PMA approval, changes to the device, to components or
accessories, the manufacturing process, or its labeling may require additional
clearances or approvals by the FDA. Additionally, the Company will be subject to
stringent post-marketing requirements and there can be no assurance that
regulatory or other enforcement action would not occur, having a potential
adverse impact on its ability to market its products.
MANUFACTURING AND MARKETING
The Company has no experience in manufacturing or marketing products and
has not yet commercially introduced any products. The Company does not now have
resources to manufacture or market on a commercial scale any products that it
may develop. To be successful, the Company's products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. Initially, the Company intends to manufacture products through
contracts with manufacturers and believes that contract manufacturing will be
readily available. In the event that the Company decides to establish a
manufacturing facility, the Company will require substantial additional funds
and will be required to hire and retain significant additional personnel and
comply with the extensive GMP regulations mandated by FDA which are applicable
to such a facility.
The Company intends to develop a sales force targeting oncology doctors and
clinics to market its products. Development of a sales force is an important
component of the Company's in-licensing strategy. The Company currently has no
marketing or sales staff and there can be no assurance that the Company will be
able to establish such a sales force or be successful in gaining market
acceptance for its products.
HUMAN RESOURCES
As of August 1, 1996, the Company had 21 full-time employees, including 17
scientists and technicians. During the next 12 months, the Company plans to hire
approximately ten additional employees, including eight scientists and
technicians. The Company's employees are not covered by any collective
bargaining agreement.
PROPERTIES
The Company is currently leasing approximately 15,000 square feet of office
and laboratory space on two floors of a building at 4 Science Park, New Haven,
Connecticut. The lease is for a three-year term ending in 1999 at a rental of
$150,000 per year, with a right to renew for an additional three years. The
Company believes that its current space will meet the Company's requirements for
the foreseeable future.
LEGAL PROCEEDINGS
On August 31, 1995 Oncor, Inc. filed an action in the United States
District Court for the District of Delaware entitled Oncor, Inc. v. OncoRx, Inc.
The action sought injunctive relief and an undetermined amount of damages for
federal trademark infringement, deceptive trade practices and unfair competition
arising from the similarity between the names of the plaintiff and OncoRx, Inc.
OncoRx, Inc. filed an answer to the complaint. In February 1996, the parties
agreed to settle the litigation and in July 1996 the case was dismissed.
Pursuant to the settlement, the Company agreed to discontinue the use of the
OncoRx name and further agreed to take actions to change its name to Vion
Pharmaceuticals, Inc. The Company changed its name after receiving stockholder
approval at its annual stockholders' meeting in April 1996.
26
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------ ---------------------------------------------------
<S> <C>
William R. Miller............. Chairman of the Board
John A. Spears................ President, Chief Executive Officer and Director
Terrence W. Doyle, Ph.D....... Vice President--Research & Development
Thomas E. Klein............... Vice President--Finance and Chief Financial Officer
Thomas Mizelle................ Vice President--Operations
Alan C. Sartorelli, Ph.D...... Director, Chairman of the Scientific Advisory Board
Michel C. Bergerac............ Director
Frank T. Cary................. Director
A.E. Cohen.................... Director
James L. Ferguson............. Director
Michael Kent.................. Director
E. Donald Shapiro............. Director
Walter Wriston................ Director
</TABLE>
William R. Miller, age 68, has been the Chairman of the Board of the
Company since the Merger and was Chairman of the Board of Old OncoRX from
February 2, 1995 until the Merger. From 1964 until his retirement in 1991, Mr.
Miller held various positions with the Bristol-Myers Squibb Company, including
Vice Chairman of the Board commencing in 1985. Mr. Miller also served on the
Board of Directors of the Pharmaceutical Manufacturers Association from 1982
until 1990 and was the Chairman of the Board from 1986 to 1987. Mr. Miller is
currently a director of Imclone Systems Incorporated, Isis Pharmaceuticals,
Inc., St. Jude Medical, Inc. and Westvaco Corporation. He is also a director of
various private companies.
John A. Spears, age 46, has been the Company's President and Chief
Executive Officer and a director since the Merger and from April 1993 until
January 1995 and served in the same capacities for Old OncoRX from January 1,
1995 until the Merger in April 1995. From March 1989 to April 1993, Mr. Spears
was a Senior Vice President and a Vice President at Immunex Corporation.
Terrence W. Doyle, Ph.D., age 53, has been the Company's Vice President of
Research and Development since the Merger and served in the same capacity for
Old OncoRX from January 1994 until the Merger. Mr. Doyle was an employee of the
Bristol Myers Squibb Company ('Bristol Myers') from 1967 to 1993. From 1990 to
1993, Mr. Doyle was an Executive Director with Bristol Myers. Mr. Doyle is the
original holder of 41 U.S. patents for anti-infective, anti-inflammatory and
antitumor agents and the author of over 100 published research articles and
abstracts on cancer chemotherapy.
Thomas E. Klein, age 47 has been the Company's Vice President--Finance and
Chief Financial Officer since October 1995. From 1988 to 1994, Mr. Klein was
Director of Finance and Treasurer of Novo Nordisk of North America, Inc.
Thomas Mizelle, age 45, has been the Company's Vice President of Operations
since the Merger and has been the Company's Secretary since October 1995. Prior
to the Merger, Mr. Mizelle was Vice President of Business Development since
August 1994. From May 1990 to June 1994, Mr. Mizelle served as Senior Vice
President, Director of Sales and Vice President of Sales and Marketing of
Immunex Corporation.
Michel C. Bergerac, age 64, has been a director of the Company since August
1992. Since November 1985 he has been the Chairman of M.C. Bergerac & Co., Inc.,
an investment advisory firm. From 1974 through November 1985, he was the
Chairman of the Board, President and Chief Executive Officer of Revlon, Inc. He
is currently a director of CBS Inc. and Chemical Bank.
27
<PAGE>
Frank T. Cary, age 75, has been a director of the Company since the Merger.
Mr. Cary also serves as a director of Capital Cities/ABC, Inc., Celgene
Corporation, Cygnus Therapeutic Systems, ICOS Corporation, Lincare, Inc. and SPS
Transaction Services, Inc. In 1973 he was elected Chairman of the Board of IBM
and served as Chief Executive Officer of IBM from 1973 to 1981. Mr. Cary is an
Honorary Trustee of the Brookings Institution, a Graduate Member of the Business
Council, and a Trustee Emeritus at the Massachusetts Institute of Technology.
A.E. Cohen, age 60, has been a director of the Company since August 1992
and is presently a private consultant for the pharmaceutical industry. He was
Senior Vice President of Merck & Company, Inc. from 1982 through 1991 after
serving as President of Merck Sharpe Dohme International for approximately five
years and in other capacities at Merck and its affiliates for more than 20
years. Mr. Cohen is a director of Akzo Chemicals, Inc., Agouron Pharmaceuticals,
Inc., Immunomedics, Inc., Teva Pharmaceutical Industries, Ltd., Neurobiological
Technologies Inc., MacroChem Corporation and Vasomedical, Inc.
James L. Ferguson, age 70, has been a director of the Company since
November 1995. Mr. Ferguson also serves as a director of ICOS Corporation and
was Chairman of the Board of General Foods Corporation from 1974 until 1989 and
President from 1973 to 1977.
Michael Kent, age 56, has been a director of the Company since the Merger
and founded Old OncoRX in May 1993. Mr. Kent is the President of Kent, Reynolds
and Stuart, a consulting firm, and has been involved in the creation of a number
of biotechnology companies, including Nova Pharmaceutical Corporation, Celgene
Corporation, Neurogen Corporation, Biopure Corporation, Pathogenesis
Corporation, Texas Biotechnology Corporation and ICOS Corporation.
Dr. Alan C. Sartorelli, age 64, is a director of the Company and Chairman
of its Scientific Advisory Board and served as Chairman of the Old OncoRX
Scientific Advisory Board from May 1993 until the Merger. Dr. Sartorelli was the
Chairman of the Department of Pharmacology of the Yale University School of
Medicine from 1977 to 1984 and Director of the Yale Comprehensive Cancer Center
from 1984 to 1993. Dr. Sartorelli holds or has held the following positions:
President of the Association of the American Cancer Institutes; President of the
American Association for Cancer Research; Chairman of the Special Review
Committee of the National Cancer Institute Outstanding Investigator Grant
Applications; Chairman of the Selection Committee for the Bristol-Myers Squibb
Award for Distinguished Achievement in Cancer Research; Executive Editor of
Biochemical Pharmacology; Executive Editor of Pharmacology and Therapeutics;
Editor-in-Chief of Oncology Research; and 23 additional editorial positions on
cancer related publications. Dr. Sartorelli has authored over 400 scientific
publications and holds over 10 U.S. and international patents.
E. Donald Shapiro, age 64, has been a director of the Company since August
1992. Since 1983, he has been the Joseph Solomon Distinguished Professor of Law
at New York Law School, and, prior thereto, was the Dean and Professor of Law at
New York Law School. He has published numerous articles and book chapters
covering a broad range of topics in the area of legal medicine. Mr. Shapiro is
currently a director of Loral Corporation, Bank Leumi Trust Co. Future Medical
Products, Inc., Vasomedical, Inc., Kranzco Realty Trust, Eyecare Products PLC,
Premier Laser Systems and Cafe USA.
Walter Wriston, age 76, is a director of the Company. Mr. Wriston also
serves as a director of Tandem Computers Inc., United Meridian Corporation, ICOS
Corporation, York International Corporation, Bio-Research Laboratories Ltd. and
Cygnus Therapeutic Systems. Mr. Wriston retired as Chairman and Chief Executive
Officer of Citicorp and its principal subsidiary, Citibank, N.A. in 1984 after
having served as Chief Executive Officer for 17 years and in various other
positions with the company for 38 years. Mr. Wriston has also served as Chairman
of President Reagan's Economic Policy Advisory Board, was a member and former
Chairman of the Business Council and was a former Co-Chairman and Policy
Committee Member of the Business Roundtable.
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment.
The General Corporation Law of Delaware permits a corporation through its
Certificate of Incorporation to eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director, with certain exceptions.
The exceptions include a breach of fiduciary duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, improper declarations of dividends, and transactions from which the
directors derived
28
<PAGE>
an improper personal benefit. The Company's Certificate of Incorporation
exonerates its directors from monetary liability to the fullest extent permitted
by this statutory provision but does not restrict the availability of non-
monetary and other equitable relief.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Company's chief executive
officer and each of the other executive officers who earned over $100,000 and
were serving at the end of 1995, for services in all capacities to the Company,
its subsidiaries and predecessors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
AWARDS
OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) SARS(#) COMPENSATION($)
- ------------------------------------------ ---- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
John A. Spears--President 1995 $180,000 286,312 $ --
and Chief Executive Officer(1) ......... 1994 175,000 -- --
Terrence W. Doyle--Vice President- 1995 144,227 -- 5,773(2)
Research and Development ............... 1994 150,000(3) -- --
Thomas Mizelle--Vice President- 1995 158,000 50,000 --
Operations and Secretary ............... 1994 37,500 37,500 --
</TABLE>
- ------------------
(1) The Company is a party to an employment agreement with Mr. Spears. See
'--Employment Agreements.'
(2) Represents 1994 taxes paid in 1995 on the amount accrued in note 3, below.
(3) Includes $93,467 accrued during fiscal 1994 and paid in April 1995.
The following table sets forth the grant of stock options made during the
year ended December 31, 1995 to the persons named in the Summary Compensation
Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO MARKET PRICE
UNDERLYING EMPLOYEES IN EXERCISE ON DATE OF EXPIRATION
NAME OPTIONS GRANTED FISCAL PERIOD(1) PRICE GRANT DATE
- --------------------- -------------------- ------------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
John A. Spears....... 286,312 41.5% $ 0.131 $ 0.77 8/17/2000
Terrence W. Doyle.... 0 0 -- -- --
Thomas Mizelle....... 50,000 7.2 4.00 4.00 10/18/2005
</TABLE>
- ------------------
(1) Computed based on an aggregate of 690,312 shares issuable upon exercise of
options granted during the year ended December 31, 1995.
The following table sets forth information with respect to unexercised
stock options held by the persons named in the Summary Compensation Table at
December 31, 1995. No stock options were exercised in 1995 by such persons.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Spears....... 346,312 30,000 $ 643,695 $18,500
Terrence W. Doyle.... 0 0 -- --
Thomas M. Mizelle.... 12,500 75,000 7,709 15,416
</TABLE>
- ------------------
(1) Computed based upon the difference between the closing price of the
Company's Common Stock on December 29, 1995 ($2.25) and the exercise price.
29
<PAGE>
EMPLOYMENT AGREEMENTS
In January 1995, Old OncoRX entered into an Employment Agreement with John
A. Spears, then its President and Chief Executive Officer. The employment
agreement was assumed by the Company after the merger of Old OncoRX into a
subsidiary of the Company. The agreement is for a term of three years. Prior to
his employment with Old OncoRX, Mr. Spears was employed under a similar
agreement with MelaRX, which agreement has been terminated. Mr. Spears receives
an annual base salary of $180,000 increased annually by an amount no less than
an annual cost of living adjustment. Pursuant to the Employment Agreement, Old
OncoRX granted to Mr. Spears an option, which was assumed by the Company
pursuant to the merger with Old OncoRX, to purchase 286,312 shares of Common
Stock of the Company at a purchase price equal to $0.131 per share. The shares
issuable upon exercise of the options are subject to a right in favor of the
Company to repurchase such shares at their cost (i.e., the exercise price) in
the event Mr. Spears' employment with the Company is terminated. Such right will
expire as to 25% of such shares on each of the first four annual anniversaries
of the date of the option grant. The Company also has the right, at any time
after January 1996, to terminate the employment agreement without cause upon 10
days notice to Mr. Spears and upon payment by the Company to Mr. Spears, in a
single lump sum on the termination date, of an amount equal to one year's base
salary.
COMPENSATION OF DIRECTORS
Directors are reimbursed for expenses actually incurred in connection with
each meeting of the Board of Directors or any Committee thereof attended. The
Company also pays the Chairman of the Board $2,000 per meeting of the Board
attended and each other non-employee director $1,000 for each such meeting
attended. Certain directors are also entitled to automatic grants of options
under the Company's Amended and Restated 1993 Stock Option Plan (the 'Plan').
See '--Directors' Options.'
On August 16, 1995, the Company entered into a consulting agreement with
Kent, Reynolds and Stuart ('KR&S'), pursuant to which KR&S was to assist the
Company in hiring a Chief Financial Officer and filling another senior
management position. In addition, KR&S is obligated to assist the Company in
joint ventures and other business relationships. In consideration for these
services, the Company paid KR&S a retainer fee of $60,000 and KR&S is entitled
to a fee of 20% of the starting annual compensation of a management hiree
referred to the Company by KR&S, minus the $60,000 retainer fee. Michael Kent, a
director of the Company, is a principal of KR&S. In 1995, the Company paid KR&S
an aggregate of $80,000 under its consulting agreement.
On September 29, 1995, the Company entered into a consulting agreement with
Dr. Alan Sartorelli, who is also a director of the Company. The agreement has an
initial term of five years and will be renewed for an additional year unless one
the parties notifies the other in writing to the contrary. Dr. Sartorelli is
obligated to provide advisory services in the areas of oncology and pharmacology
relating to evaluation, development and commercialization of technologies, the
acquisition of proprietary rights and obtaining government approvals. The
agreement provides for an annual fee of $48,000 to be paid to Dr. Sartorelli and
contains certain confidentiality restrictions. In 1995, Dr. Sartorelli received
an aggregate of $12,000 under his consulting agreement.
DIRECTORS' OPTIONS
The provisions of the Company's Amended and Restated 1993 Stock Option Plan
(the 'Plan') provide for the automatic grant of non-qualified stock options to
purchase shares of Common Stock ('Director Options') to directors of the Company
who are not employees or principal stockholders of the Company ('Eligible
Directors'). Eligible Directors of the Company elected after August 1995 will be
granted a Director Option to purchase 20,000 shares of Common Stock on the date
such person is first elected or appointed a director (an 'Initial Director
Option'). Further, commencing on the day immediately following the date of the
annual meeting of stockholders during the Company's fiscal year ending December
31, 1996, each Eligible Director, other than directors who received an Initial
Director Option since the last annual meeting, will be granted a Director Option
to purchase 5,000 shares of Common Stock ('Automatic Grant') on the day
immediately following the date of each annual meeting of stockholders, as long
as such director is a member of the Board of Directors. The exercise price for
each share subject to a Director Option shall be equal to the fair market value
of the Common Stock on the date of grant. Director Options will expire the
earlier of 10 years after the date of grant or 90 days after the termination of
the director's service on the Board of Directors.
During the fiscal year ended December 31, 1995, Messrs. Miller, Ferguson,
Bergerac, Cohen and Shapiro were each granted ten year options under the Plan to
purchase 25,000, 20,000, 5,000, 5,000 and 5,000 shares of
30
<PAGE>
Common Stock, respectively, each at an exercise price of $4.00 per share. John
A. Spears, a director who also serves as the Company's President and Chief
Executive Officer was granted an option in February 1995, to purchase 286,312
shares of Common Stock of the Company at a purchase price equal to $0.131 per
share. The shares issuable upon exercise of Mr. Spears' options are subject to a
right in favor of the Company to repurchase such shares at their cost (i.e., the
exercise price) in the event Mr. Spears' employment with the Company is
terminated. Such right will expire as to 25% of such shares on each of the first
four annual anniversaries of the date of the option grant.
CERTAIN TRANSACTIONS
In January 1995, Old OncoRX entered into an Employment Agreement with John
A. Spears, then its President and Chief Executive Officer. The employment
agreement was assumed by the Company after the merger of Old OncoRX into a
subsidiary of the Company. The agreement is for a term of three years. Prior to
his employment with Old OncoRX, Mr. Spears was employed under a similar
agreement with MelaRX, which agreement has been terminated. Mr. Spears receives
an annual base salary of $180,000, increased annually by an amount no less than
an annual cost-of-living adjustment. Pursuant to the Employment Agreement, Old
OncoRX granted to Mr. Spears an option, which was assumed by the Company
pursuant to the Merger, to purchase 286,312 shares of Common Stock of the
Company at a purchase price equal to $0.131 per share. The shares issuable upon
exercise of the options are subject to a right in favor of the Company to
repurchase such shares at their cost (i.e., the exercise price) in the event Mr.
Spears' employment with the Company is terminated. Such right will expire as to
25% of such shares on each of the first four annual anniversaries of the date of
the option grant. The Company also has the right, at any time after January
1996, to terminate the employment agreement without cause upon 10 days notice to
Mr. Spears and upon payment by the Company to Mr. Spears, in a single lump sum
on the termination date, of an amount equal to one year's base salary.
The Company is a party to consulting agreements with KR&S, an entity of
which Mr. Kent is a principal, and with Dr. Sartorelli, each of whom are members
of its Board of Directors. During the fiscal year ended December 31, 1995, KR&S
and Dr. Sartorelli received payments of $80,000 and $12,000, respectively, under
their consulting agreements. For a description of the terms of these agreements,
see 'Executive Compensation-- Compensation of Directors.'
D.H. Blair Investment Banking Corp. (the 'Underwriter') and certain
officers and entities associated with the Underwriter and Blair & Co.
beneficially own an aggregate of approximately 8.4% of the Common Stock of the
Company, including (i) 337,618 shares of Common Stock originally issued to
Britshire, Ltd. in June 1992 and subsequently distributed to its stockholders;
(ii) 112,500 shares of Common Stock issued to the Underwriter in August 1992 in
partial satisfaction of a promissory note evidencing indebtedness of
approximately $462,000 of the Company to the Underwriter and (iii) 202,486
shares of Common Stock issuable upon exercise of warrants held by the
Underwriter and designees of the Underwriter which were issued to the
Underwriter in partial consideration for serving as placement agent in
connection with private placements of Common Stock of the Company. Martin Bell,
Senior Vice President and General Counsel of the Underwriter, was a director of
the Company until April 1995. Britshire Ltd. was owned principally by the
sons-in-law of J. Morton Davis, including Kalman Renov, formerly Chairman of the
Board of the Company, and officers of Blair & Co. Blair & Co. is substantially
owned by family members of J. Morton Davis. Mr. Davis is the sole stockholder of
an entity which is the parent and sole stockholder of the Underwriter. The
Underwriter acted as placement agent for (i) the bridge financing in April 1995
for which it received a placement agent fee of $200,000 and a non-accountable
expense allowance of $60,000; and (ii) a private offering of 76,349 shares of
Common Stock of Old OncoRX shortly before the closing of the merger of Old
OncoRX into a subsidiary of the Company, for which it received a placement fee
of $13,750. The Underwriter also acted as placement agent for two private
financings of Common Stock and warrants of the Company in August through
November 1992 and July 1993, respectively, and received placement fees of
$272,500 and $283,625, respectively, and nonaccountable expense allowances of
$81,750 and $85,087, respectively. In addition, the Underwriter was issued
warrants to purchase 68,433 and 134,053 shares, respectively, of Common Stock of
the Company in connection therewith. An entity affiliated with a relative of Mr.
Davis loaned approximately $80,000 to the Company prior to the closing of a
bridge financing to enable it to make certain research payments to Yale
University, which loan was repaid, together with interest thereon at a rate of
10% per annum, out of the proceeds of the April 1995 bridge financing. In
addition, the Company has entered into an agreement with the Underwriter whereby
the Underwriter will be compensated if it originates certain transactions
involving the Company.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of July 15, 1996 (except as
otherwise noted in the footnotes) regarding the beneficial ownership (as defined
by the Securities and Exchange Commission (the 'SEC')) of the Company's Common
Stock and Class A Preferred Stock of: (i) each person known by the Company to
own beneficially more than five percent of the Company's outstanding Common
Stock or Class A Preferred Stock; (ii) each director of the Company; (iii) the
Company's Chief Executive Officer and each other officer who received over
$100,000 in compensation from the Company during the 1995 fiscal year; and (iv)
all directors and executive officers of the Company as a group. Except as
otherwise specified, the named beneficial owner has the sole voting and
investment power over the shares listed and the address of each beneficial owner
is c/o Vion Pharmaceuticals, Inc., 4 Science Park, New Haven, Connecticut 06511.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL NUMBER PERCENTAGE CLASS A
OF SHARES OF OF PREFERRED
CLASS A COMMON STOCK COMMON STOCK STOCK
PREFERRED BENEFICIALLY BENEFICIALLY BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS COMMON STOCK STOCK OWNED(1) OWNED OWNED
- ---------------------------------------- ------------ --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Michael C. Kent......................... 515,769(2) 0 515,769 6.8% --
Alan C. Sartorelli, Ph.D................ 439,008(3) 0 439,008 5.8% --
John A. Spears.......................... 406,412(4) 0 406,412 5.1% --
Michel C. Bergerac...................... 26,250(5) 0 26,250 * --
Frank T. Cary........................... 47,718 0 47,718 * --
A. E. Cohen............................. 26,250(5) 0 26,250 * --
James L. Ferguson....................... 5,000(5) 0 5,000 * --
William R. Miller....................... 149,406(6) 0 149,406 2.0% --
E. Donald Shapiro....................... 70,950(7) 0 70,950 * --
Walter Wriston.......................... 47,718 0 47,718 * --
Terrence W. Doyle, Ph.D................. 267,224(8) 0 267,224 3.5% --
Thomas Mizelle.......................... 55,630(9) 0 55,630 * --
All directors and executive officers as 2,110,885(10) 0 2,110,885 25.7% --
a group (13 persons)..................
<CAPTION>
OTHER BENEFICIAL OWNERS
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Partners L.P. .................. 0 275,000(11) 763,890 9.2% 22.0%
Morgens Waterfall Vintiadis Investments
N.V.
Betje Partners
c/o Morgens Waterfall Vintiadis
Investments & Co., Inc.
10 East 50th Street
New York, NY 10022
Kingdon Capital Management Corp. ....... 0 200,000(12) 555,558 6.9% 16.0%
152 West 57th Street, 50th Floor
New York, NY 10019
Ardsley Partners Fund I, L.P. .......... 0 187,500(13) 520,834 6.5% 15.0%
Ardsley Partners Fund II, L.P.
646 Steamboat Road
Greenwich, CT 06830
Distributees of Britshire Ltd........... 431,047(14) 0 431,047 5.6% --
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL NUMBER PERCENTAGE CLASS A
OF SHARES OF OF PREFERRED
CLASS A COMMON STOCK COMMON STOCK STOCK
PREFERRED BENEFICIALLY BENEFICIALLY BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS COMMON STOCK STOCK OWNED(1) OWNED OWNED
- ---------------------------------------- ------------ --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
GFL Performance Fund Ltd. .............. 0 150,000 416,667 5.2% 12.0%
c/o CITCO
Kaya Flamboyan 9
Curacao
Netherlands Antilles
Strome Partners, L.P. .................. 0 100,000 277,778 3.5% 8.0%
100 Wilshire Blvd.
Santa Monica, CA 90401
</TABLE>
- ------------------
* Less than one percent
(1) The Class A Preferred Stock is convertible into Common Stock by dividing
(i) the sum of the $10.00 per share stated value by (ii) $3.60 per share
(as adjusted from time to time for certain events of dilution). As of July
1, 1996, each share of Class A Preferred Stock was convertible into
2.777777 shares of Common Stock.
(2) Includes 8,550 shares of Common Stock and warrants to purchase 28,215
shares of Common Stock exercisable within 60 days beneficially owned by Mr.
Kent's wife, as to which Mr. Kent disclaims beneficial ownership.
(3) Includes (i) 190,874 shares beneficially owned by Dr. Sartorelli's wife and
(ii) 57,260 shares held in trust for Dr. Sartorelli's grandchildren, for
which Dr. Sartorelli's wife serves as trustee, as to which Dr. Sartorelli
disclaims beneficial ownership. Does not include 57,260 shares beneficially
owned by other family members of Dr. Sartorelli, which were received as
gifts from Dr. Sartorelli.
(4) Includes 23,100 shares issuable upon exercise of warrants and 376,312
shares issuable upon exercise of options exercisable within 60 days.
Pursuant to an agreement, a portion of the shares issuable upon exercise of
such options are subject to repurchase by the Company at the exercise
price.
(5) Represents shares issuable upon exercise of options exercisable within 60
days.
(6) Includes 6,250 shares issuable upon exercise of options exercisable within
60 days.
(7) Includes 26,250 shares issuable upon exercise of options exercisable within
60 days and includes 40,700 shares issuable upon exercise of warrants.
(8) Includes 80,000 shares held by Dr. Doyle's wife and children, as to which
Dr. Doyle disclaims beneficial ownership. Pursuant to a four-year vesting
schedule, one-half of these shares are subject to repurchase by the
Company.
(9) Includes 40,000 shares issuable upon exercise of options and 13,146 shares
issuable upon exercise of warrants, exercisable within 60 days.
(10) Includes 525,062 shares issuable upon exercise of options and 131,261
shares issuable upon exercise of warrants, which are exercisable within 60
days.
(11) Consists of 137,500 shares held by Phoenix Partners L.P., 91,667 shares
held by Morgens Waterfall Vintiadis Investments N.V. and 45,833 shares held
by Betje Partners. Edwin Morgens is the Managing Member of the general
partner of Phoenix Partners L.P. and is the Chairman of the investment
advisors to Morgens Waterfall Vintiadis Investments N.V. and Betje
Partners. Mr. Morgens disclaims beneficial ownership of all indicated
shares.
(Footnotes continued on next page)
33
<PAGE>
(Footnotes continued from previous page)
(12) Consists of 120,000 shares held by M. Kingdon Offshore NV, 40,000 shares
held by Kingdon Partners, L.P. and 40,000 shares held by Kingdon
Associates, L.P. Kingdon Capital Management Corp. ("KCMC") is a general
partner of Kingdon Partners, L.P. and Kingdon Associates, L.P. and is the
investment advisor to M. Kingdon Offshore NV. KCMC disclaims beneficial
ownership of all indicated shares.
(13) Consists of 95,000 shares held by Ardsley Partners Fund I, L.P. and 92,500
shares held by Ardsley Partners Fund II, L.P. Kevin M. McCormack is the
general partner of both limited partnerships and disclaims beneficial
ownership of the indicated shares.
(14) Consists of (i) 337,618 shares formerly owned by Britshire, Ltd., a
corporation the common stock of which was owned principally by certain
relatives of J. Morton Davis and officers of Blair & Co., which is
substantially owned by family members of Mr. Davis, shares of which were
distributed on a pro-rata basis and (ii) 93,429 currently exercisable
warrants issued to D.H. Blair Investment Banking Corp. in connection with
private placements of Common Stock of the Company and distributed to
certain relatives of Mr. Davis who are also officers of Blair & Co. Kalman
Renov, a son-in-law of Mr. Davis and an officer of Blair & Co., may be
deemed to have been a controlling person of Britshire, Ltd. Does not
include 112,500 shares owned by D.H. Blair Investment Banking Corp. and an
aggregate of 114,753 shares subject to currently exercisable warrants
issued to D.H. Blair Investment Banking Corp. in connection with private
placements of Common Stock of the Company which are owned by D.H. Blair
Investment Banking Corp., Mr. Davis, an officer of D.H. Blair Investment
Banking Corp. and officers and employees of Blair & Co. D.H. Blair
Investment Banking Corp. and Mr.Davis disclaim beneficial ownership of any
of the shares held by Britshire, Ltd. and Britshire, Ltd. disclaimed
beneficial ownership of any of the shares beneficially owned by D.H. Blair
Investment Banking Corp., Mr. Davis and the officers of D.H. Blair
Investment Banking Corp.
SELLING SECURITYHOLDERS
The following table sets forth certain information as of July 15, 1996
(except as otherwise indicated), as to the security ownership of the Selling
Securityholders. Except as set forth below, none of the Selling Securityholders
has had a material relationship with the Company or any of its predecessors or
affiliates for within the past three years. Unless otherwise indicated, each
Selling Stockholder will hold less than one percent of the applicable class of
securities being sold after the offering and is selling all of its securities of
the Company pursuant to this offering.
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON
WARRANTS WARRANTS STOCK
NAME BEING SOLD BEING SOLD BEING SOLD
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
CLASS A WARRANTHOLDERS (RESTRICTED)
Magid M. Abraham..................... 3,437 3,437 6,874
William T. Anderson.................. 13,750 13,750 27,500
Aries Domestic Fund L.P.............. 17,875 17,875 35,750
The Aries Trust...................... 9,625 9,625 19,250
George T. Barton & Nancy L. Barton
JTWROS............................. 13,750 13,750 27,500
Mark Berger.......................... 1,705 1,705 3,410
David James Brown.................... 27,500 27,500 55,000
Jay Cholost.......................... 1,732 1,732 3,464
Norman Ciment & Robert Grover &
Warren Tepper JTWROS............... 13,750 13,750 27,500
Howard Commander..................... 13,750 13,750 27,500
J. Douglas Cox....................... 6,875 6,875 13,750
Nathan Eisen & Rose Eisen JTWROS..... 27,500 27,500 55,000
Edward J. Farrell Jr................. 3,437 3,437 6,874
Stuart E. Feick TTEE FBO The
Gulfstream Asset Mgmt. Corp.
Retirement Trust DTD 2/1/81........ 6,875 6,875 13,750
Jeffrey Gilbert...................... 13,750 13,750 27,500
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON
WARRANTS WARRANTS STOCK
NAME BEING SOLD BEING SOLD BEING SOLD
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Irving L. Goldman.................... 13,750 13,750 27,500
Goldstein Family Loving Trust........ 27,500 27,500 55,000
Barbara Grae......................... 41,250 41,250 82,500
Charles D. Greenstein................ 13,750 13,750 27,500
Daniel Gutkin........................ 3,437 3,437 6,874
Tatiana Hirsu........................ 13,750 13,750 27,500
Richard S. Incandela & Sharon Sue
Incandela Co-TTES of the Richard S.
Incandela Trust DTD 9/15/91........ 14,300 14,300 28,600
Gary W. Jenkins & Janice A. Jenkins
JTWROS............................. 7,150 7,150 14,300
Bruce Kashkin & Marjorie Kashkin
JTWROS............................. 1,705 1,705 3,410
Robert Katz(1)....................... 27,500 27,500 55,000
Robert Klein & Myriam Gluck JTWROS... 20,625 20,625 41,250
William S. Knapp & Jane Knapp
JTWROS............................. 13,750 13,750 27,500
Ray Kralovic......................... 3,437 3,437 6,874
Joseph S. Kulpa...................... 5,637 5,637 11,274
Gary R. Lamberg(2)................... 13,750 13,750 27,500
Ezra P. Mager........................ 3,437 3,437 6,874
Robert A. Malkin..................... 3,437 3,437 6,874
Matset Inc........................... 1,732 1,732 3,464
Frank K. Mayers(3)................... 13,750 13,750 27,500
Albert Milstein(4)................... 13,750 13,750 27,500
George Y. Montonaga & Irene M.
Montonaga JTTEN.................... 22,000 22,000 44,000
James S. Mulholland Jr.(5)........... 27,500 27,500 55,000
James H. Murphy...................... 6,875 6,875 13,750
Allen Notowitz....................... 13,750 13,750 27,500
Melvin Paradise...................... 13,750 13,750 27,500
James R. Ratliff..................... 27,500 27,500 55,000
Rodney L. Rich & Co., Inc............ 13,750 13,750 27,500
Jesse D. Roggen...................... 5,500 5,500 11,000
Edward H. Rosen & Evelyn B. Rosen
JTWROS............................. 13,750 13,750 27,500
Alan J. Rubin........................ 6,875 6,875 13,750
Wayne Saker.......................... 8,250 8,250 16,500
Roy Schaeffer & Marlena Schaeffer
JTWROS(6).......................... 41,250 41,250 82,500
A. Robert Schell..................... 13,750 13,750 27,500
Louis Schell......................... 27,500 27,500 55,000
Abraham Schreiber.................... 13,750 13,750 27,500
E. Donald Shapiro(7)................. 13,750 13,750 27,500
Steven Sklow......................... 5,225 5,225 10,450
Eugene Sukonick(8)................... 41,250 41,250 82,500
Donald J. Vernine.................... 5,500 5,500 11,000
Frederick Winston.................... 13,750 13,750 27,500
J. Michael Wolfe(9).................. 27,500 27,500 55,000
Martin Zelman(10).................... 13,750 13,750 27,500
CLASS A PREFERRED STOCKHOLDERS
GFL Performance Fund Ltd.(11)........ 0 0 416,667
Phoenix Partners L.P.(11)............ 0 0 381,945
M. Kingdon Offshore NV(29)........... 0 0 333,334
Strome Partners, L.P.(11)............ 0 0 277,778
Ardsley Partners Fund I, L.P.(11).... 0 0 263,889
Ardsley Partners Fund II, L.P.(11)... 0 0 256,945
Morgens Waterfall Vintiadis
Investments N.V.(11)............... 0 0 254,631
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON
WARRANTS WARRANTS STOCK
NAME BEING SOLD BEING SOLD BEING SOLD
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Betje Partners(11)................... 0 0 127,314
Kingdon Associates, L.P.(29)......... 0 0 111,112
Kingdon Partners, L.P.(29)........... 0 0 111,112
The Gifford Fund..................... 0 0 83,334
Banque Unigestion.................... 0 0 69,445
Mirza Mehdi.......................... 0 0 69,445
M.D. Sabbah.......................... 0 0 55,556
Olympus Securities, Ltd.............. 0 0 55,556
Faisal Finance....................... 0 0 55,556
C.S.L. Associates, L.P............... 0 0 44,445
The Hope Investment Company, Inc..... 0 0 41,667
Roy and Marlena Schaeffer JTWROS
(12)............................... 0 0 34,723
Robert Klein and Myriam Gluck
JTWROS............................. 0 0 34,723
Schottenfeld Associates L.P.......... 0 0 33,334
Frederick J. Jaindl.................. 0 0 27,778
W&P Bank & Trust Company Ltd......... 0 0 27,778
Greenwood Partners Limited
Partnership........................ 0 0 27,778
Leeor Sabbah......................... 0 0 27,778
Banque Franck S.A.................... 0 0 27,778
Bridgewater Partners L.P............. 0 0 23,612
Irvine Capital Partners L.P.......... 0 0 19,445
Firebird Overseas, Ltd............... 0 0 13,889
Susan Tauber Lemor................... 0 0 13,889
Aaron Speisman....................... 0 0 13,889
169193 Canada Inc.................... 0 0 13,889
Roger S. Lash........................ 0 0 13,889
Uzi Zucker........................... 0 0 13,889
Amram Kass Defined Benefit Pension
Plan............................... 0 0 13,889
Lori Shapero......................... 0 0 13,889
Scott G. Sandler..................... 0 0 8,334
Stuart Gruber........................ 0 0 6,945
Amnon & Caren Barness, JTWROS........ 0 0 6,945
Peter Grossman(13)................... 0 0 6,945
Steven N. Ostrovsky.................. 0 0 6,945
Jerry Heymann........................ 0 0 6,945
Paul D. and Rebecca L. Ostrovsky
JTWROS............................. 0 0 6,945
Paulette Tauber Mintz................ 0 0 6,945
Irwin Tauber......................... 0 0 6,945
Mark Lawrence Dunetz................. 0 0 2,778
OTHER
Hyman Doctor......................... 0 0 1,250
Jack Henderson....................... 0 0 2,500
Marilyn Gonzalez..................... 0 0 2,500
Ann Korner........................... 0 0 1,000
Michel Bergerac(14).................. 0 0 25,000
A.E. Cohen(15)....................... 0 0 25,000
Walter Haeussler..................... 0 0 8,750
E. Donald Shapiro(7)................. 0 0 25,000
Jean Bolognia........................ 0 0 6,250
Ashok Chakraborty.................... 0 0 3,000
Michael P. Osber..................... 0 0 3,000
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON
WARRANTS WARRANTS STOCK
NAME BEING SOLD BEING SOLD BEING SOLD
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
John Pawelek(16)..................... 0 0 12,500
Stefano Sodi......................... 0 0 1,500
James Platt.......................... 0 0 500
John Spears(17)...................... 0 0 376,312
Morris Friedman(18).................. 0 0 8,676
Jay Kestenbaum(19)................... 0 0 12,215
Nathan Eisen......................... 0 0 21,030
Albert Milstein(20).................. 0 0 24,431
Melvin L. Katten(21)................. 0 0 5,997
Norman Steinberg(22)................. 0 0 3,997
Yale University(23).................. 0 0 159,304
Sintong Pharmaceuticals U.S., Inc.... 0 0 23,859
D.H. Blair Investment Banking
Corp.(24).......................... 275,000 550,000 1,075,000
Martin A. Bell(25)................... 0 0 18,649
Dov Perlyski......................... 0 0 18,086
D.H. Blair Investment Banking
Corp.(24).......................... 0 0 18,649
Alan Stahler......................... 0 0 43,516
Kalman Renov(25)..................... 0 0 43,516
J. Morton Davis(25).................. 0 0 9,751
Michael Solomon...................... 0 0 12,247
Richard Mish(26)..................... 0 0 7,320
Alex Salm............................ 0 0 4,505
Rich Elkin........................... 0 0 12,951
Robert Fiandra....................... 0 0 845
Mark Newman.......................... 0 0 564
Greg Carter.......................... 0 0 5,350
Elliot Scheier....................... 0 0 1,127
David Lerner......................... 0 0 1,127
Frank Monte.......................... 0 0 564
Richard Molinsky(27)................. 0 0 620
Joe Nesc............................. 0 0 282
Morris Betesh........................ 0 0 564
Joe Andrews.......................... 0 0 282
Cindy Wertheimer..................... 0 0 1,971
Lindsay A. Rosenwald, M.D.(28)....... 0 0 227,458
Michael S. Weiss..................... 0 0 40,929
Wayne L. Rubin....................... 0 0 40,929
Jeffrey S. Levine.................... 0 0 11,102
Joseph Edelman....................... 0 0 68,941
Mark A. Abeshouse.................... 0 0 11,228
Bernard Gross........................ 0 0 8,038
Tim McInerney........................ 0 0 1,587
Peter M. Kash........................ 0 0 131,112
Scott Katzmann....................... 0 0 1,799
Martin S. Kratchman.................. 0 0 3,752
CLASS A WARRANTHOLDERS (OTHER)
Leonard Adams........................ 0 5,500 11,000
Frank Adimari........................ 0 220 440
Bruce W. Bennett & Julie A. Bennett
JTTEN.............................. 0 13,750 27,500
Cede & Co. (FAST ACCOUNT)............ 0 3,001,202 6,002,404
Christine P. Colby................... 0 17 34
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON
WARRANTS WARRANTS STOCK
NAME BEING SOLD BEING SOLD BEING SOLD
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Douglas C. Floren Cust. David S.
Floren under the CT UNIF GIFT MIN
ACT................................ 0 2,200 4,400
Douglas C. Floren Cust. Clay L.
Floren Cust. under the CT UNIF GIFT
MIN ACT............................ 0 2,200 4,400
Joseph Friedman & Sylvia Friedman
JTTEN.............................. 0 1,100 2,200
Daniel M. Hart Cust. West A Hart UGMA
IL................................. 0 1,000 2,000
Daniel M. Hart....................... 0 1,000 2,000
Mark Hermsen......................... 0 50 100
Mitchell S. Kramer................... 0 20 40
Thomas C. Noddings c-o John
Noddings........................... 0 11 22
Philadep & Co........................ 0 47,420 94,840
Prudential Securities Incorporated... 0 375,000 750,000
Ruth M. Siegel Cust. Yoakov Yitzchok
Siegel under IL UNIF TRANS MIN
ACT................................ 0 200 400
Theodore R. Zeran.................... 0 2,310 4,620
CLASS B WARRANTHOLDERS
Frank Adimari........................ 0 0 220
Amro A. Attia........................ 0 0 1,116
Cede & Co. (Fast Account)............ 0 0 2,766,566
Christine P. Colby................... 0 0 17
Douglas C. Floren Cust. Clay L.
Floren under the CT UNIF GIFT MIN
ACT................................ 0 0 2,200
Douglas C. Floren Cust. David S.
Floren under the CT UNIF GIFT MIN
ACT................................ 0 0 2,200
Joseph Friedman and Sylvia Frideman
JTTEN.............................. 0 0 1,100
Herbert Harris....................... 0 0 1,100
Daniel M. Hart Cust. West A. Hart
Under the IL UNIF TRANS MIN ACT.... 0 0 1,000
Daniel M. Hart....................... 0 0 1,000
Mark Hermsen......................... 0 0 50
Nicolaas M. Klaver & Barbara C.
Klaver JT TEN...................... 0 0 2,000
Mitchell S. Kramer................... 0 0 20
Thomas C. Noddings................... 0 0 11
Philadep & Co........................ 0 0 8,805
Prudential Securities Incorporated... 0 0 375,000
Ruth M. Siegel Cust. Yoakov Yitzchok
Siegel UTMA IL..................... 0 0 200
</TABLE>
- ------------------
(1) Mr. Katz is also the beneficial and record holder of an additional 6,000
shares of Common Stock, 6,000 Class A Warrants and 6,600 Class B Warrants.
(2) Mr. Lamberg is also the beneficial and record holder of an additional 6,500
shares of Common Stock, 7,150 Class A Warrants and 7,150 Class B Warrants.
(3) Mr. Mayers is also the beneficial and record holder of an additional 10,000
shares of Common Stock, 1,000 Class A Warrants and 11,000 Class B Warrants.
(4) Mr. Milstein is also the beneficial and record holder of additional 38,681
shares of Common Stock, 8,000 Class A Warrants and 8,000 Class B Warrants.
(5) Mr. Mulholland is also the joint beneficial holder and record holder with
his wife of an additional 10,000 shares of Common Stock.
(Footnotes continued on next page)
38
<PAGE>
(Footnotes continued from previous page)
(6) Mr. and Mrs. Schaeffer are also the joint beneficial holders of an
additional 40,000 shares of Common Stock, 10,000 Class A Warrants, 11,000
Class B Warrants and 12,500 shares of Class A Preferred Stock.
(7) Mr. Shapiro is a director of the Company. For a complete description of Mr.
Shapiro's beneficial holdings of Company securities, see 'Principal
Stockholders.'
(8) Mr. Sukonick is also the beneficial and record holder of an additional
5,000 shares of Common Stock, 5,500 Class A Warrants and 5,500 Class B
Warrants.
(9) Mr. Wolfe is also the beneficial and record holder of an additional 8,000
shares of Common Stock, 8,000 Class A Warrants and 8,000 Class B Warrants.
(10) Mr. Zelman is also the beneficial and record holder of an additional 20,000
shares of Common Stock.
(11) This stockholder is the beneficial holder of more than 5% of the Company's
Common Stock. See 'Principal Stockholders.'
(12) Mr. and Mrs. Schaeffer are also the joint beneficial holders of an
additional 40,000 shares of Common Stock, 51,250 Class A Warrants, and
11,000 Class B Warrants.
(13) Mr. Grossman is also the beneficial holder of an additional 12,500 shares
of Common Stock.
(14) Mr Bergerac is a director of the Company. For a complete description of Mr.
Bergerac's beneficial holdings of Company securities, see 'Principal
Stockholders.'
(15) Mr. Cohen is a director of the Company. For a complete description of Mr.
Cohen's beneficial holdings of Company securities, see 'Principal
Stockholders.'
(16) Mr. Pawelek is a consultant to the Company and is also the beneficial and
record holder of an additional 22,500 Class B Warrants.
(17) Mr. Spears is President, Chief Executive Officer and a Director of the
Company. For a complete description of Mr. Spears' beneficial holdings of
Company securities, see 'Principal Stockholders.'
(18) Mr. Friedman is also the beneficial and record holder of an additional
14,500 shares of Common Stock, 2,000 Class A Warrants and 2,000 Class B
Warrants.
(19) Mr. Kestenbaum is also the beneficial and record holder of an additional
17,500 shares of Common Stock, 5,000 Class A Warrants and 5,000 Class B
Warrants.
(20) Mr. Milstein is also the beneficial and record holder of an additional
14,250 shares of Common Stock, 21,750 Class A Warrants and 8,000 Class B
Warrants.
(21) Mr. Katten is also the beneficial and record holder of an additional 6,125
shares of Common Stock, 3,000 Class A Warrants and 3,000 Class B Warrants.
(22) Mr. Steinberg is also the beneficial and record holder of an additional
3,125 shares of Common Stock and is also the beneficial holder, through an
IRA account, of an additional 2,000 shares of Common Stock, 2,000 Class A
Warrants and 2,000 Class B Warrants.
(23) Yale University is a party to various license agreements with the Company.
See 'Business.'
(24) D.H. Blair Investment Banking Corp. is a consultant to the Company and was
the underwriter of the Company's initial public offering in August 1995 and
was placement agent for certain previous private placements. See 'Certain
Transactions.'
(25) This stockholder is an officer of D.H. Blair Investment Banking Corp. See
'Certain Transactions.'
(26) Mr. Mish is also the beneficial holder of 2,500 shares of Common Stock,
2,750 Class A Warrants and 2,750 Class B Warrants.
(Footnotes continued on next page)
39
<PAGE>
(Footnotes continued from previous page)
(27) Mr. Molinksy is also the beneficial and record holder of an additional
12,250 shares of Common Stock.
(28) Dr. Rosenwald is the Chairman and sole shareholder of Paramount Capital,
Inc. which is a financial advisor to the Company and acted as placement
agent for the Company's May 1995 private placement of Class A Preferred
Stock. He is also the beneficial and record holder of an additional 29,509
shares of Common Stock. Dr. Rosenwald may also be deemed the beneficial
holder of 22,528 shares of Common Stock held by his wife as custodian for
his children. Dr. Rosenwald disclaims beneficial ownership of all shares
held by his wife and children.
(29) Kingdon Capital Management Corp. ("KCMC") is a general partner of Kingdon
Partners, L.P. and Kingdon Associates, L.P. and is the investment advisor
to M. Kingdon Offshore NV (collectively, the "Kingdon Funds"). As a result
of such relationships, KCMC may be deemed to beneficially own the shares
offered for sale by the Kingdon Funds, which consists of more than 5% of
the Company's Common Stock. See "Principal Stockholders."
PLAN OF DISTRIBUTION
The Company is registering the Securities on behalf of the Selling
Securityholders. All costs, expenses and fees in connection with the
registration of the Securities offered hereby will be borne by the Company.
Brokerage commissions, if any, attributable to the sale of the Securities will
be borne by the Selling Securityholders.
Sales of Securities may be effected from time to time in transactions
(which may include block transactions) on the NASDAQ SmallCap Market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Securityholders may effect such transactions by selling
Securities directly to purchasers or to or through broker-dealers which may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the Selling Securityholders
and/or the purchasers of Securities for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Securityholders and any broker-dealers that act in connection with the
sale of the Securities might be deemed to be 'underwriters' within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the Securities as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Securityholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the Securities against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
Because the Selling Securityholders may be deemed to be 'underwriters'
within the meaning of Section 2(11) of the Securities Act, the Selling
Securityholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a 'distribution' of the shares,
such Selling Securityholder, any selling broker or dealer and any 'affiliated
purchasers' may be subject to Rule 10b-6 under the Exchange Act, which Rule
would prohibit, with certain exceptions, any such person from bidding for or
purchasing any security which is the subject of such distribution until his
participation in that distribution is completed. In addition, Rule 10b-7 under
the Exchange Act prohibits any 'stabilizing bid' or 'stabilizing purchase' for
the purpose of pegging, fixing or stabilizing the price of Common Stock in
connection with this offering.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 35,000,000 shares
of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01
par value.
COMMON STOCK
Common Stock. Holders of Common Stock have the right to cast one vote for
each share held of record on all matters submitted to a vote of holders of
Common Stock, including the election of directors. Holders of Common Stock are
entitled to receive such dividends, pro rata based on the number of shares held,
when, as and if declared by the Board of Directors, from funds legally available
therefor, subject to the rights of holders of any outstanding preferred stock.
In the event of the liquidation, dissolution or winding up of the affairs of the
Company, all assets and funds of the Company remaining after the payment of all
debts and other liabilities, subject to the rights of the holders of any
outstanding preferred stock, shall be distributed, among the holders of
40
<PAGE>
the Common Stock. Holders of Common Stock are not entitled to preemptive,
subscription, cumulative voting or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and non-assessable.
REDEEMABLE WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant at an exercise price
of $4.73 at any time until 5:00 P.M., New York City time, on August 13, 2000.
The Class A Warrants are redeemable by the Company on 30 days' written notice at
a redemption price of $.05 per Class A Warrant if the 'closing price' of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $7.30 per share. 'Closing
price' shall mean the closing bid price if listed in the over-the-counter market
on Nasdaq or otherwise or the closing sale price if listed on the Nasdaq
National Market or a national securities exchange. All Class A Warrants must be
redeemed if any are redeemed.
Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $6.37 at any time
after issuance until 5:00 P.M. New York City Time, on August 13, 2000. The Class
B Warrants are redeemable by the Company on 30 days' written notice at a
redemption price of $.05 per Class B Warrant, if the closing price of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $9.80 per share. All Class B
Warrants must be redeemed if any are redeemed.
General. The Class A Warrants and Class B Warrants were issued pursuant to
a warrant agreement (the 'Warrant Agreement') among the Company, the Underwriter
and American Stock Transfer & Trust Company, New York, New York, as warrant
agent, and are evidenced by warrant certificates in registered form. The
Warrants provide for adjustment of the exercise price and for a change in the
number of shares issuable upon exercise to protect holders against dilution in
the event of a stock dividend, stock split, combination or reclassification of
the Common Stock or upon issuance of shares of Common Stock at prices lower than
the market price of the Common Stock, with certain exceptions.
The exercise prices of the Warrants were determined by negotiation between
the Company and the Underwriter and should not be construed to be predictive of
or to imply that any price increases in the Company's securities will occur.
A Warrant may be exercised upon surrender of the Warrant certificate on or
prior to its expiration date (or earlier redemption date) at the offices of
American Stock Transfer & Trust Company, New York, New York, the warrant agent,
with the form of 'Election to Purchase' on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified or bank check payable to the order of the
Company) for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and payment in accordance
with the terms of the Warrants will be fully paid and non-assessable.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
TRANSFER AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
BUSINESS COMBINATION PROVISIONS
The Company is subject to a Delaware statute regulating 'business
combinations,' defined to include a broad range of transactions, between
Delaware corporations and 'interested stockholders,' defined as persons who have
acquired at least 15% of a corporation's stock. Under the law, a corporation may
not engage in any business combination with any interested stockholder for a
period of three years from the date such person
41
<PAGE>
became an interested stockholder unless certain conditions are satisfied. The
statute contains provisions enabling a corporation to avoid the statute's
restrictions.
The Company has not sought to 'elect out' of the statute and, therefore,
the restrictions imposed by such statute apply to the Company.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities
offered hereby have been passed upon for the Company by Wiggin & Dana, New
Haven, Connecticut.
EXPERTS
The consolidated financial statements of Vion Pharmaceuticals, Inc. and
subsidiaries (formerly OncoRx, Inc.) at December 31, 1995 and for the period May
1, 1994 (commencement of operations) to December 31, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, which, as to the period May 1, 1994 (commencement of operations), to
December 31, 1994 is based on the report of Richard A. Eisner & Company, LLP,
independent auditors. The financial statements referred to above are included in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
42
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE ENTITY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors--Ernst & Young LLP......................... F-2
Report of Independent Auditors--Richard A. Eisner & Company, LLP.......... F-3
Audited Consolidated Financial Statements--Years Ended December 31, 1995
and 1994
Consolidated Balance Sheet................................................ F-4
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Changes in Shareholders' Equity................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Audited Consolidated Financial Statements........................ F-8
Unaudited Consolidated Financial Statements--Six Months Ended June 30,
1996 and 1995
Consolidated Balance Sheets............................................... F-16
Consolidated Statements of Operations..................................... F-17
Consolidated Statement of Shareholders' Equity............................ F-18
Consolidated Statements of Cash Flows..................................... F-19
Notes to Unaudited Consolidated Financial Statements...................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS--ERNST & YOUNG LLP
Board of Directors
OncoRx, Inc.
We have audited the accompanying consolidated balance sheet of OncoRx, Inc. (a
development stage enterprise) as of December 31, 1995, and the related
consolidated statements of operations, shareholders equity, and cash flows for
the year then ended, and for the period May 1, 1994 (commencement of operations)
to December 31, 1995. 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 audit. We did not audit the financial
statements of OncoRx, Inc. for the period May 1, 1994 (commencement of
operations) to December 31, 1994, which statements reflect a net loss of
$475,946 for the period then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data provided for the period May 1, 1994 (commencement of operations)
to December 31, 1994, is based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of OncoRx, Inc. at
December 31, 1995, and the consolidated results of its operations and its cash
flows for the year then ended and the period from May 1, 1994 (commencement of
operations) to December 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
OncoRx, Inc. will continue as a going concern. As more fully described in Note
1, the Company has no revenues since commencement of operations and has incurred
recurring operating losses. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
ERNST & YOUNG LLP
Hartford, Connecticut
February 15, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS--RICHARD A. EISNER & COMPANY, LLP
The Board of Directors and Stockholders
OncoRx, Inc.
New Haven, Connecticut
We have audited the accompanying statements of operations, changes in
shareholders' equity and cash flows of OncoRx, Inc. (a development stage
company) for the period from May 1, 1994 (commencement of operations) through
December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the results of operations and cash flows of OncoRx, Inc. for
the period from May 1, 1994 (commencement of operations) through December 31,
1994 in conformity with generally accepted accounting principles.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 6, 1995
With respect to Note 6
March 30, 1995
With respect to Notes 1, 2 and 7
April 20, 1995
F-3
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents................................... $ 2,350,933
Short-term investments...................................... 2,291,108
Other current assets........................................ 18,825
-----------
Total Current Assets..................................... 4,660,866
Net Property And Equipment.................................... 335,871
Other Assets:
Security deposits........................................... 50,658
Research contracts prepayments.............................. 416,945
-----------
467,603
-----------
Total Assets........................................... $ 5,464,340
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Obligation under capital lease--current..................... $ 15,272
Accounts payable and accrued expenses......................... 309,073
-----------
Total Current Liabilities................................ 324,345
Obligation under capital lease--long term..................... 76,763
Common stock subject to put option............................ 100,000
-----------
Total Liabilities........................................ 501,108
Shareholders' Equity:
Preferred stock, $0.01 par value, authorized--5,000,000
shares None issued....................................... 0
Common stock, $0.01 par value, authorized--20,000,000 shares
Issued and
outstanding--7,530,288 shares............................ 75,302
Additional paid-in capital.................................. 14,913,435
Accumulated deficit during the development stage............ (10,025,505)
-----------
Total Shareholders' Equity............................... 4,963,232
-----------
Total Liabilities and Shareholders' Equity............. $ 5,464,340
-----------
-----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM MAY 1, 1994 FROM MAY 1, 1994
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1995
-------------------- ----------------- --------------------
<S> <C> <C> <C>
Operating Expenses:
Research and development........... $ 422,417 $ 2,710,783 $ 3,133,200
General and administrative......... 53,529 1,831,790 1,885,319
Purchased research and
development...................... 0 4,481,405 4,481,405
Amortization of finance charges.... 0 545,439 545,439
Interest income......................... 0 (84,044) (84,044)
Interest expense........................ 0 45,162 45,162
-------------------- ----------------- --------------------
Net Loss................................ $ (475,946) $(9,530,535) $(10,006,481)
-------------------- ----------------- --------------------
-------------------- ----------------- --------------------
Net Loss Per Share...................... $ (0.15) $ (1.59)
-------------------- -----------------
-------------------- -----------------
Weighted Average Common Stock And
Common Stock Equivalents
Outstanding........................ 3,174,693 6,007,154
-------------------- -----------------
-------------------- -----------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK DEFICIT DURING TOTAL
-------------------- ADDITIONAL DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL STAGE EQUITY
--------- ------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash--July
1994.................................. 2,693,244 $26,932 $ (19,877) $ 7,055
Common stock issued for services--
August 1994........................... 159,304 1,593 (1,176) 417
Net loss................................ (475,946) (475,946)
--------- ------- -------------- -------------
Balances--December 31, 1994............. 2,852,548 28,525 0 (496,999) (468,474)
Stock options issued for compensation--
February 1995......................... 540,000 540,000
Reverse acquisition of MelaRX
Pharmaceuticals, Inc.--April 1995..... 2,000,000 20,000 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements--April 1995..... (274,859) (2,749) 2,029 (720)
Private placement of common stock--
April 1995............................ 76,349 763 205,237 206,000
Warrants issued with bridge notes--
April 1995............................ 200,000 200,000
Initial public offering of common stock
at $4.00 per share--August 1995 and
September 1995........................ 2,875,000 28,750 9,667,460 9,696,210
Receipts from sale of unit purchase
option................................ 250 250
Issuance of common shares............... 1,250 13 488 501
Net loss................................ (9,530,535) (9,530,535)
--------- ------- --------------- -------------- -------------
Balances at December 31, 1995........... 7,530,288 $75,302 $14,913,435 $(10,025,505) $ 4,963,232
--------- ------- --------------- -------------- -------------
--------- ------- --------------- -------------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM MAY 1, 1994 FROM MAY 1, 1994
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1995
------------------- ----------------- -------------------
<S> <C> <C> <C>
Cash Flows Used For Operating
Activities:
Net loss.............................. $(475,946) $(9,530,535) $ (10,006,481)
Adjustments to reconcile net loss to
cash flows provided by operating
activities:
Purchased research and
development...................... 0 4,481,405 4,481,405
Amortization of financing costs.... 0 345,439 345,439
Depreciation and amortization...... 306 25,316 25,622
(Increase) in other current
assets........................... 0 (17,839) (17,839)
(Increase) in other assets......... 0 (465,888) (465,888)
Increase in accounts payable and
accrued expenses................. 126,610 147,931 274,541
Stock issued for services.......... 417 0 417
Stock options issued for
compensation..................... 0 540,000 540,000
------------------- ----------------- -------------------
Net cash (used in) operating
activities.................... (348,613) (4,474,171) (4,822,784)
------------------- ----------------- -------------------
Cash Flows Used For Investing
Activities:
Purchase of Marketable securities..... 0 (2,291,108) (2,291,108)
Acquisition of fixed assets........... (3,062) (247,353) (250,415)
Cash portion of MelaRx acquisition.... 0 4,061 4,061
------------------- ----------------- -------------------
Net cash used in investing
activities.................... (3,062) (2,534,400) (2,537,462)
------------------- ----------------- -------------------
Cash Flows Provided By Financing
Activities:
Initial public offering............... 0 9,696,210 9,696,210
Net proceeds from issuance of common
stock.............................. 107,055 206,000 313,055
Repurchase of common stock............ 0 (720) (720)
Net proceeds from bridge financing.... 0 1,704,269 1,704,269
Repayments of bridge financing........ 0 (2,000,000) (2,000,000)
Advances from stockholder............. 250,000 0 250,000
Repayments to stockholders............ (250,000) (250,000)
Receipts from sale of unit purchase
option............................. 0 250 250
Issuance of common shares............. 0 501 501
Repayment of equipment capital
lease.............................. 0 (2,386) (2,386)
------------------- ----------------- -------------------
Net cash provided by financing
activities.................... 357,055 9,354,124 9,711,179
------------------- ----------------- -------------------
Net Increase In Cash.................... 5,380 2,345,553 2,350,933
Cash--Beginning......................... 0 5,380 0
------------------- ----------------- -------------------
Cash--Ending............................ $ 5,380 $ 2,350,933 $ 2,350,933
------------------- ----------------- -------------------
------------------- ----------------- -------------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Vion Pharmaceuticals, Inc (formerly OncoRx, Inc.) (the 'Company') was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
In April 1995, the Company merged into OncoRx Research Corp. a previously
unaffiliated company ('Research'). The stockholders of the Company were issued
shares of common and preferred stock of MelaRx Pharmaceuticals Inc. ('MelaRx'),
the 100% owner of Research, in exchange for all of the outstanding shares of the
Company (see Note 2). In August 1995, the Company completed an initial public
offering ('IPO') (see Note 7) resulting in net proceeds to the Company of
approximately $9,696,000.
The accompanying financial statements are prepared assuming the Company
will continue as a going concern; however, at its current and planned rate of
spending, the Company's cash, cash equivalents and short term investments are
not sufficient to allow it to continue operations through the year. The Company
requires substantial new revenues and other sources of capital in order to meet
such budgeted expenditures and to continue its operations throughout the year.
The Company is seeking to enter into one or more significant strategic
partnerships with pharmaceutical companies for the development of its core
technologies, through which it would anticipate receiving some of the
substantial revenues and financing required to continue operations beyond the
year end. The Company has entered into preliminary discussions with several
major pharmaceutical companies concerning such a strategic alliance, but there
can be no assurance that the Company will be successful in achieving such an
alliance, nor can the Company predict what funds might be available to it if it
can achieve such an alliance. The Company is also seeking to raise funds through
additional means, including (1) spin-off, refinancing, or partial sale or
disposition of its rights to certain of its non-core technologies; (2) equipment
lease financing; and (3) private placements of its securities. No assurance can
be given that the Company will be successful in arranging financing through any
of these alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
2. ACQUISITION
On April 20, 1995, the Company merged into OncoRx Research Corp., a
wholly-owned subsidiary of MelaRx, which was renamed OncoRx, Inc. after the
merger. The stockholders of the Company were issued 2,654,038 common and 23,859
preferred shares of MelaRx in exchange for 2,000,000 shares of common stock of
the Company valued at $2.16 per share (fair value).
As the shareholders of the Company obtained a majority interest in the
merged company for accounting purposes, the Company is treated as the acquirer.
Therefore, the transaction is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately.
The following unaudited pro forma data presents information as if the
acquisition had occurred at the beginning of fiscal year 1995 and as of May 1,
1994 (date of commencement of operations) for fiscal year 1994. The pro forma
information is provided for information purposes only. It is based on historical
information and
F-8
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITION--(CONTINUED)
does not necessarily reflect the actual results that would have occurred if the
transaction had been in effect on the dates indicated nor is it necessarily
indicative of future results of operations of the combined enterprise.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994(1)
----------------------- -----------------------
(UNAUDITED)
<S> <C> <C>
Cost and expenses:
Research and development expenses............... $ 2,913,325 $ 2,032,632
General and administrative expenses............. 1,932,502 506,909
----------------------- -----------------------
Total operating expenses.......................... 4,845,827 2,539,541
----------------------- -----------------------
Loss before non-recurring charges(2).............. $ (4,804,038) $ (2,495,398)
----------------------- -----------------------
Loss before non-recurring charges per share(2).... $ )(0.80 $ )(0.50
----------------------- -----------------------
Weighted average shares........................... 6,007,154 4,944,695
----------------------- -----------------------
----------------------- -----------------------
</TABLE>
- ------------------
(1) Reflects results of operations of the Company for the period from May 1,
1994 (commencement of operations) through December 31, 1994.
(2) Loss before non-recurring charges does not reflect the purchased research
and development charge of $4,481,405 and a non-recurring charge of $545,439
relating to the bridge financing.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
Fair Value and Concentration of Credit Risks
The estimated fair value of amounts reported in the financial statements
have been determined by using available market information and appropriate
valuation methodologies. All current assets and current liabilities are carried
at cost, which approximates fair value, because of their short-term nature.
Short-term Investments
The Company accounts for short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company s investments in debt
securities, which typically mature in one year or less, are classified as
available for sale and are carried at fair value. The aggregate fair value of
the debt securities at December 31, 1995 was $2,291,108.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards No. 109, 'Accounting
for Income Taxes' (SFAS 109). Under this method, deferred income taxes are
recognized for the tax consequences of 'temporary differences' by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities.
F-9
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Defined Contribution Plan
The Company sponsors a defined contribution plan (the 'Plan') that covers
all employees who meet the eligibility conditions of the Plan, as defined.
Employee contributions to the Plan are voluntary and are based on eligible
compensation, as defined. In accordance with the terms of the Plan, no Company
contributions are made to the Plan.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Per Share Data
Net loss per share of common stock is computed using the weighted average
number of common stock and dilutive common stock equivalent shares outstanding.
The weighted average number of common stock and dilutive common stock equivalent
shares was 6,007,154 and 3,174,693 for the year ended December 31, 1995 and the
period from May 1, 1994 (commencement of operations) through December 31, 1994,
respectively. For purposes of computing net loss per share, options and warrants
granted by the Company during the 12 months preceding the IPO have been included
in the calculation of common and common equivalent shares outstanding as if they
were outstanding for all periods presented using the Treasury Stock method and
the IPO price of $4.00. Fully diluted earnings per share did not differ
significantly from primary earnings per share in any period.
4. PROPERTY AND EQUIPMENT
Plant and equipment is stated at cost. Depreciation of equipment is
computed under the straight-line method over the estimated useful lives of the
assets (three to seven years). The following is a summary of property and
equipment as of December 31, 1995:
<TABLE>
<S> <C>
Office equipment........................ $ 84,583
Furniture and fixtures.................. 10,470
Laboratory equipment.................... 172,018
Leased equipment under capital lease.... 94,422
--------
361,493
--------
Less accumulated depreciation........... (25,622)
--------
Net property and equipment.............. $335,871
--------
--------
</TABLE>
5. RESEARCH AND LICENSE AGREEMENTS
Yale/MelaRx Agreement
Pursuant to a license agreement between the Company and Yale University
('Yale'), as amended and restated as of August 1, 1992, the Company has obtained
rights to a synthetic form of melanin which the Company has named Melasyn. The
Company has entered into an agreement with Creative Polymers pursuant to which
Creative Polymers has agreed to be the exclusive selling agent for Melasyn and
will be entitled to 20% of the net sales of Melasyn.
The Company has an option to obtain an exclusive license for any inventions
that result from research projects relating to synthetic melanin by Yale funded
by the Company. The Company has agreed to reimburse
F-10
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RESEARCH AND LICENSE AGREEMENTS--(CONTINUED)
Yale for its costs in connection with the research projects in an amount
currently equal to $765,000 per year (subject to increase by up to 5% per year).
The Company and Yale entered into a License Agreement dated December 15, 1995
pursuant to which the Company received a nontransferable worldwide exclusive
license to three inventions relating to gene therapy for melanoma. Pursuant to
this agreement, the Company has agreed to pay Yale a $100,000 fee not later than
June 15, 1997, plus milestone payments based on the status of clinical trials
and regulatory approvals. In addition, Yale is entitled to royalties on sales,
if any, of resulting products and sublicensing revenues. The Agreement is for a
term ending June 30, 1998, subject to earlier termination as defined.
Yale/OncoRx Agreement
Pursuant to a license agreement (the 'Agreement') dated August 31, 1994, as
amended November 15, 1995, Yale granted the Company an exclusive,
nontransferable, worldwide license to make, have made, use, sell and practice
certain inventions and research for therapeutic and diagnostic purposes. The
term of the license is the expiration of any patents relating to any inventions
or, with respect to nonpatented inventions or research, 17 years. Yale is
entitled to royalties on sales, if any, of resulting products and sublicensing
revenues and, with regard to one patent, milestone payments based on the status
of clinical trials and regulatory approvals. The Company has agreed to plan and
implement appropriate research and development with respect to commercialization
of products based on the licensed inventions and research and will expend at
least $250,000 in the aggregate on research and development directed to the
development of products based on the inventions.
Yale Subscription Assignment and Assumption Agreement
On June 4, 1992, the Company entered into a Subscription, Assignment and
Assumption Agreement (the 'SAAA') with Yale. Pursuant to the agreement as
amended and extended, the Company is to provide funding for certain research in
the field of dermatology by Yale. The agreement expires in June 1998 and
provides for quarterly payments to Yale in accordance with agreed upon annual
budgets. The payments are recorded as expense when incurred. The Company was
granted exclusive licenses to inventions in countries where patents are
effective and nonexclusive licenses elsewhere expiring over the lives of the
patents and 20 years, respectively. The Company is obligated to pay royalties on
sales of licensed products.
Berkeley Agreement
In July 1994, the Company entered into a research agreement with The
Regents of the University of California on behalf of the Berkeley Campus
('Berkeley'). The agreement as amended expires on June 30, 1996 and provides for
the Company to fund research costs aggregating $1,208,236 through June 1996, of
which approximately $569,000 is payable in 1996. Approximately $275,000 and
$433,000 of research costs have been expensed by the Company through December
31, 1994 and December 31, 1995, respectively.
The Company also entered into an agreement with Berkeley providing for an
option to obtain licenses for certain inventions resulting from the research.
The Company has paid fees of $60,000 under the terms of the option agreement,
which expires July 25, 1996.
Carogen Agreement
In November, 1995, the Company entered into a license agreement with
Carogen, Inc. which provides for the licensing of certain patents and
technologies relating to synthetic melanins for which the Company currently
holds a license from Yale. The Company has not recognized any income from this
license since commencement of the agreement is contingent on Carogen's
fulfillment of certain conditions. Carogen has indicated that it intends to
commercialize the inventions and technology in the U.S., Europe, and Asia.
F-11
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMON STOCK SUBJECT TO PUT OPTION
On March 30, 1995, the Company entered into an agreement whereby an
investor, who had previously advanced funds to the Company, received 23,859
shares of preferred stock and was paid $125,000 in April 1995 and a further
$125,000 within two weeks after the closing of the IPO. Upon closing of the
Company s IPO, the 23,859 shares of preferred stock were automatically converted
into common stock. The investor has the option to require the Company to
repurchase the shares for $100,000.
7. SHAREHOLDERS' EQUITY
On April 20, 1995, 2,000,000 shares of common stock valued at $2.16 per
share were issued in conjunction with the merger with MelaRx (see Note 2).
Shortly prior to the consummation of the Merger, the Company issued 76,349
shares of common stock for net proceeds of $206,000 after deducting placement
fees of $14,000.
On August 17, 1995, the Company completed an IPO of 2,500,000 units,
consisting of an aggregate of 2,500,000 shares of common stock, 2,500,000
redeemable Class A warrants and 2,500,000 redeemable Class B warrants at a price
of $4.00 per unit. Each Class A Warrant entitles the holder to purchase one
share of common stock and one Class B Warrant at an exercise price of $5.20,
subject to adjustment. Each Class B Warrant entitles the holder to purchase one
share of common stock at an exercise price of $7.00, subject to adjustment.
These warrants are exercisable through August 13, 2000. In addition, in
conjunction with the offering, the underwriter was granted an option to purchase
from the Company at the public offering price, less underwriting discounts, up
to 375,000 additional units for the purpose of covering over allotments, if any.
On September 6, 1995, the Company issued such units to the underwriter.
The net proceeds to the Company of the IPO were approximately $9,696,000
before repayment of the bridge financing noted below.
In conjunction with the Company's IPO, the Company granted the underwriter
an option, exercisable over a period of three years commencing two years from
the date of the offering, to purchase up to 250,000 units at $5.20 per unit.
Bridge Financing
In April 1995, the Company issued $2,000,000 in 10% promissory notes and
warrants to purchase 1,000,000 shares of common stock at $3.00 per share for net
proceeds of $1,704,000. The promissory notes were recorded net of a discount of
$200,000, attributable to the fair value of the bridge warrants. The notes were
paid at the closing of the IPO of the Company's securities described above and
the warrants, which were exercisable over four years, were converted into Class
A warrants at that time.
8. EMPLOYEE STOCK OPTION PLAN
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, 'Accounting for Stock Issued to Employees.'
In July 1995, the Board of Directors of the Company adopted the Amended and
Restated 1993 Stock Option Plan (the 'Option Plan') of MelaRx. The Option Plan
provides for the granting of incentive stock options or non-qualified stock
options to employees, officers, directors, and consultants of the Company, to
purchase up to an aggregate of 534,750 shares of common stock. Options to
purchase 134,750 shares of common stock had previously been granted by MelaRx
under the Option Plan. Incentive options granted under the Option Plan are
exercisable for a period of up to ten years from the date of grant at an
exercise price which is not less than the fair market value of the common stock
on the date of the grant except that the term of an incentive option granted
under the Option Plan to a stockholder owning more than 10% of the outstanding
voting power may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Common Stock on the
F-12
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE STOCK OPTION PLAN--(CONTINUED)
date of grant. Options granted under the Option plan become exercisable in no
less than four equal annual installments commencing no earlier than the first
anniversary of the date of grant. No option may be granted under the Option Plan
after April 14, 2003.
The provisions of the Option Plan provided for the automatic grant of
non-qualified stock options to purchase shares of common stock ('Director
Options') to directors of the Company who are not employees or principal
stockholders of the Company ('Eligible Directors'). Eligible Directors of the
Company elected subsequent to the public offering will be granted a Director
Option to purchase 20,000 shares of common stock on the date such person is
first elected or appointed a director (an 'Initial Director Option'). Further,
commencing on the day immediately following the date of the annual meeting of
stockholders during the Company's fiscal year ending December 31, 1996, each
Eligible Director, other than directors who received an Initial Director Option
since the last annual meeting, will be granted a Director Option to purchase
5,000 shares of Common Stock ('Automatic Grant') on the day immediately
following the date of each annual meeting of stockholders, as long as such
director is a member of the Board of Directors. The exercise price for each
share subject to a Director Option shall be equal to the fair market value of
the common stock on the date of grant. Director Options are exercisable in four
equal annual installments, commencing one year from the date of grant. Director
Options will expire the earlier of ten years after the date of grant or ninety
days after the termination of the director's service on the Board of Directors.
Options granted under the Option Plan are summarized as follows:
<TABLE>
<S> <C>
Outstanding December 31, 1994...... 128,750
Options granted.................. 404,000
Options exercised................ --
Options canceled................. --
-------
Outstanding December 31, 1995...... 532,750
-------
-------
</TABLE>
Outstanding options at December 31, 1995 have exercise prices ranging from
$.131 to $5.00.
In addition, options to purchase an aggregate of 418,812 shares have been
granted outside the Option Plan at exercise prices ranging from $0.131 to $5.00
per share. Of such options, 286,312 were granted to an officer of the Company in
1995 resulting in the recognition of $540,000 of compensation expense.
Options granted outside the Option Plan are summarized as follows:
<TABLE>
<S> <C>
Outstanding December 31, 1994...... 127,000
Options granted.................. 291,812
Options exercised................ (1,250)
Options canceled................. (13,500)
-------
Outstanding December 31, 1995...... 404,062
-------
-------
</TABLE>
As of December 31, 1995, options to purchase 475,146 shares of Common Stock
were exercisable.
9. INCOME TAXES
At December 31, 1995, the Company has available for federal income tax
purposes net operating loss carryforwards of approximately $1,892,000 expiring
in 2009 through 2010. The difference between the deficit accumulated during the
development stage for financial reporting purposes and the net operating loss
carryforwards for tax purposes is primarily due to certain costs which are not
currently deductible for tax purposes and differences in accounting and tax
basis resulting from the merger described in Note 2. The ability of the Company
to realize a future tax benefit from a portion of its net operating
carryforwards is severely limited
F-13
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
due to changes in ownership of the Company. The Company has provided a full
valuation reserve against its deferred tax assets. The U.S. statutory rate is
34% however, the Company has recorded no provision or benefit for income taxes
in the financial statements due to recurring losses.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets:
Operating loss carryforwards.................... $ 783,800
Research and development costs.................. 1,226,400
------------
Total deferred tax assets......................... 2,010,200
Valuation allowance for deferred tax assets....... (2,010,200)
------------
Net deferred tax assets........................... 0
------------
------------
Total net deferred tax assets (liabilities)....... $ 0
------------
------------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is the lessee of equipment under capital leases expiring in
2000. Effective February 1, 1996, the Company entered into a noncancelable
operating lease for its facility expiring in 1999. The future minimum lease
payments under the capital and operating leases as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
-------- ---------
<S> <C> <C>
Year ending December 31:
1996............................................ $ 24,624 $ 137,500
1997............................................ 24,624 150,000
1998............................................ 24,624 150,000
1999............................................ 24,624 12,500
2000............................................ 20,520 --
Thereafter...................................... -- --
-------- ---------
Total minimum lease payments...................... 119,016 $ 450,000
-------- ---------
---------
Less amount representing interest................. 26,981
--------
Present value of minimum lease payments........... $ 92,035
--------
--------
</TABLE>
The cost of assets under capital leases amounted to $94,422 at December 31,
1995. Accumulated amortization relating to the leased equipment amounted to
$4,721 at December 31, 1995. Amortization expense included in depreciation
expense, relating to the leased equipment, amounted to $4,721, $0, and $4,721
for the year ended December 31, 1995, the period from May 1, 1994 (commencement
of operations) through December 31, 1994, and the period from May 1, 1994
(commencement of operations) through December 31, 1995, respectively.
Rent expense amounted to $37,765, $0 and $37,765 for the year ended
December 31, 1995, the period from May 1, 1994 (commencement of operations)
through December 31, 1994, and the period from May 1, 1994 (commencement of
operations) through December 31, 1995, respectively.
Under the terms of an employment agreement, the Company is obligated to pay
the chief executive officer of the Company an annual salary of $180,000,
increased annually by an amount no less than an annual cost-of-living
adjustment, through January 1998. The Company has the right, at any time after
January 1996, to terminate
F-14
<PAGE>
ONCORX, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
the employment agreement without cause upon ten days notice to the chief
executive officer and upon payment by the Company to the chief executive
officer, in a single lump sum on the termination date, an amount equal to one
year's base salary.
A former director of the Company is a party to a Consulting and Finder s
Agreement ('Agreement') with the Company. This Agreement entitles him to receive
a fee equal to 10% of the net after-tax profits of the Company attributable to
the sale or licensing of products or technology licensed pursuant to the Company
s agreement with Yale (see Note 5) each year, until the cumulative total of such
fees equal $3,000,000. Such fee continues to be payable not withstanding the
director s death or incapacity until the $3,000,000 has been paid.
In March 1995, the Company entered into an agreement with Response
Biomedical Corporation ('Response') in which the Company was granted an option
to be the exclusive distributor of a white blood cell monitoring device in the
United States and Canada for an initial seven year term from the date of FDA
approval. On June 7, 1995, the Company exercised the option and, accordingly, it
will be required to pay an aggregate of $725,000 to Response, based on the
achievement of certain milestones, and will be responsible for conducting tests
and making filings necessary for FDA and Canadian approval. Of the $725,000;
$50,000 has been paid as a result of achievement of the first milestone, the
consummation of the initial public offering.
The Company has various commitments relating to its research agreements
(see Note 5).
11. RELATED PARTY TRANSACTIONS
A director of the Company is a principal of a management consulting firm
that has rendered various consulting services for the Company. During 1995, the
Company paid the firm $80,000 for services rendered. These services continue
during 1996 on a month-to-month basis at $10,000 per month.
The Company and one of its directors entered into a five year consulting
agreement which is renewable for one additional year, providing for various
advisory services. Under the agreement, the director will receive an annual fee
of $48,000.
12. SUBSEQUENT EVENTS
On August 31, 1995, Oncor, Inc. filed an action in the United States
District Court for the District of Delaware entitled 'Oncor, Inc. v. OncoRx,
Inc.' The action sought injunctive relief and an undetermined amount of damages
for federal trademark infringement, deceptive trade practices and unfair
competition arising from the similarity between the names of the plaintiff and
OncoRx, Inc. In February 1996, the parties entered into a settlement agreement
and the Company agreed to discontinue the use of the OncoRx name and further
agreed to take actions to change its name to Vion Pharmaceuticals, Inc. The
Company plans to submit for approval a proposal regarding the name change at the
1996 annual meeting of stockholders. The parties have agreed to dismiss the case
upon implementation of the name change.
F-15
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 4,370,886 $ 2,350,933
Short-term investments..................... 8,204,367 2,291,108
Other current assets....................... 2,150 18,825
----------- ------------
Total current assets.................... 12,577,403 4,660,866
Net property and equipment................... 478,791 335,871
Other assets:
Security deposits.......................... 39,524 50,658
Research contracts prepayments............. 416,945 416,945
----------- ------------
456,469 467,603
----------- ------------
Total assets............................ $13,512,663 $ 5,464,340
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligation under capital lease--current.... $ 17,036 $ 15,272
Accounts payable and accrued expenses...... 568,418 309,073
----------- ------------
Total current liabilities............... 585,454 324,345
Obligation under capital lease--long term.... 67,571 76,763
Common stock subject to put option........... 0 100,000
----------- ------------
Total liabilities....................... 653,025 501,108
Shareholders' equity:
Preferred stock, $0.01 par value,
authorized--5,000,000 shares
Issued and outstanding--1996--1,250,000
shares; 1995--None..................... 12,500 0
Common stock, $0.01 par value,
authorized--20,000,000 shares
Issued and outstanding--1996--7,554,206;
1995--7,530,288 shares................. 75,541 75,302
Additional paid-in capital................. 26,591,878 14,913,435
Accumulated deficit during the development
stage................................... (13,820,281) (10,025,505)
----------- ------------
Total stockholders' equity.............. 12,859,638 4,963,232
----------- ------------
Total liabilities and stockholders'
equity................................. $13,512,663 $ 5,464,340
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
THREE MONTHS ENDED JUNE FROM MAY 1, 1994
30, SIX MONTHS ENDED JUNE 30, (INCEPTION) THROUGH
------------------------- ------------------------- JUNE 30,
1996 1995 1996 1995 1996
----------- ----------- ----------- ----------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development.... $ 1,423,736 $ 706,276 $ 3,045,947 $ 746,776 $ 6,179,147
General and
administrative............ 458,408 251,983 886,139 841,621 2,771,458
Purchased research and
development............... 0 4,481,405 0 4,481,405 4,481,405
Amortization of finance
charges................... 0 305,000 0 305,000 545,439
Interest income............... (94,505) 0 (142,195) 0 (226,239)
Interest expense.............. 2,457 44,384 4,885 44,384 50,047
----------- ----------- ----------- ----------- -------------------
Net Loss...................... $(1,790,096) $(5,789,048) $(3,794,776) $(6,419,186) $ (13,801,257)
----------- ----------- ----------- ----------- -------------------
----------- ----------- ----------- ----------- -------------------
Net Loss Per Share............ $ (0.23) $ (1.11) $ (0.48) $ (1.23)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average Common Stock
And Common Stock Equivalents
Outstanding................. 7,844,796 5,239,833 7,833,594 5,239,833
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 1, 1994 (INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK
PREFERRED STOCK ------------------- ADDITIONAL DEFICIT DURING TOTAL
------------------- COMMON PAID-IN DEVELOPMENT STOCKHOLDERS'
STOCK AMOUNT STOCK AMOUNT CAPITAL STAGE EQUITY
--------- ------- --------- ------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for
cash--July 1994............. 2,693,244 $26,932 $ (19,877) $ 7,055
Common stock issued for
services--
August 1994................. 159,304 1,593 (1,176) 417
Net loss...................... (475,946) (475,946)
--------- ------- --------- ------- ----------- -------------- -------------
Balances--December 31, 1994... 0 0 2,852,548 28,525 0 (496,999) (468,474)
Stock options issued for
compensation--
February 1995............... 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc.--April
1995........................ 2,000,000 20,000 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements--April
1995........................ (274,859) (2,749) 2,029 (720)
Private placement of common
stock--
April 1995.................. 76,349 763 205,237 206,000
Warrants issued with bridge
notes--
April 1995.................. 200,000 200,000
Initial public offering of
Units of one common share,
one A warrant and one B
warrant at $4.00 per
unit--August 1995 and
September 1995.............. 2,875,000 28,750 9,667,460 9,696,210
Receipts from sale of unit
purchase option............. 250 250
Issuance of common stock...... 1,250 13 488 501
Net loss...................... (9,530,535) (9,530,535)
--------- ------- --------- ------- ----------- -------------- -------------
Balances at December 31,
1995........................ 0 0 7,530,288 75,302 14,913,435 (10,025,505) 4,963,232
Issuance of convertible
preferred stock............. 1,250,000 $12,500 11,578,162 11,590,662
Issuance of common stock...... 23,918 239 100,281 100,520
Net loss...................... (3,794,776) (3,794,776)
--------- ------- --------- ------- ----------- -------------- -------------
Balances at June 30, 1996..... 1,250,000 $12,500 7,554,206 $75,541 $26,591,878 $(13,820,281) $12,859,638
--------- ------- --------- ------- ----------- -------------- -------------
--------- ------- --------- ------- ----------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, FOR THE PERIOD
---------------------------- FROM MAY 1, 1994
1996 1995 (INCEPTION)
------------ ----------- THROUGH
JUNE 30, 1996
(UNAUDITED) (UNAUDITED) ----------------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flows Used For Operating
Activities:
Net loss.................... $ (3,794,776) $(6,419,186) $(13,801,257)
Adjustments to reconcile net
loss to cash flows used
in operating activities:
Purchased research and
development............ 0 4,481,405 4,481,405
Amortization of financing
costs.................. 0 305,000 345,439
Depreciation and
amortization........... 45,991 3,617 71,613
Decrease (increase) in
other current assets... 16,675 (274,486) (1,164)
Decrease (increase) in
other assets........... 11,134 (1,468) (454,754)
Increase (decrease)
accounts payable and
accrued expenses....... 259,345 (47,441) 533,886
Stock issued for
services............... 0 0 417
Stock options issued for
compensation........... 0 540,000 540,000
------------ ----------- ----------------
Net cash used in
operating
activities.......... (3,461,631) (1,412,559) (8,284,415)
------------ ----------- ----------------
Cash Flows Used For Investing
Activities:
Purchase of marketable
securities............... (5,913,259) 0 (8,204,367)
Acquisition of fixed
assets................... (188,911) (7,682) (439,326)
Cash portion of MelaRx
acquisition.............. 0 4,061 4,061
------------ ----------- ----------------
Net cash used in
investing
activities.......... (6,102,170) (3,621) (8,639,632)
------------ ----------- ----------------
Cash Flows Provided By
Financing Activities:
Initial public offering..... 0 0 9,696,210
Net proceeds from issuance
of common stock.......... 0 206,250 313,055
Repurchase of common
stock.................... 0 (720) (720)
Net proceeds from bridge
financing................ 0 1,704,269 1,704,269
Repayments of bridge
financing................ 0 0 (2,000,000)
Advances from stockholder... 0 0 250,000
Repayments to
stockholders............. 0 (205,000) (250,000)
Receipts from sale of unit
purchase option.......... 0 0 250
Issuance of common stock.... 520 0 1,021
Deferred registration
costs.................... 0 (122,034) 0
Issuance of convertible
preferred stock.......... 11,590,662 0 11,590,662
Repayment of equipment
capital lease............ (7,428) 0 (9,814)
------------ ----------- ----------------
Net cash provided by
financing
activities.......... 11,583,754 1,582,765 21,294,933
------------ ----------- ----------------
Net Increase In Cash.......... 2,019,953 166,585 4,370,886
Cash--Beginning............... 2,350,933 5,380 0
------------ ----------- ----------------
Cash--Ending.................. $ 4,370,886 $ 171,965 $ 4,370,886
------------ ----------- ----------------
------------ ----------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A)--THE COMPANY:
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the 'Company') was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
On April 20, 1995, the Company merged into OncoRx Research Corp., a
wholly-owned subsidiary of MelaRx, which was renamed OncoRx, Inc. after the
merger. The stockholders of the Company were issued 2,654,038 common and 23,859
preferred shares of MelaRx in exchange for 2,000,000 shares of common stock of
the Company valued at $2.16 per share (fair value). In August 1995, the Company
completed an initial public offering ('IPO') resulting in net proceeds to the
Company of approximately $9,696,000.
As the shareholders of the Company obtained a majority interest in the
merged company for accounting purposes, the Company is treated as the acquirer.
Therefore, the transaction is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately.
(NOTE B)--BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month and six month periods ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report for the Fiscal year ended
December 31, 1995 on Form 10-KSB (File No. 0-26534).
(NOTE C)--PRIVATE PLACEMENT OF CONVERTIBLE PREFERRED STOCK
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of convertible preferred stock, at $10.00 per share, resulting in net
proceeds to the Company of $11,591,000. Each share of convertible preferred is
initially convertible into 2.777777 shares of the Company's common stock. The
shares of preferred stock pay semi-annual dividends of 5% per annum, payable in
additional shares of preferred stock, and a 15% one time dividend if the Company
redeems the issue within 3 years. The issue also contains a provision for a
special dividend after 2 years under certain conditions if the Company's common
stock falls below the conversion price. The issuance of the preferred stock at
closing also triggered certain adjustment provisions of the Company's
outstanding warrants, resulting in the issuance of additional warrants.
(NOTE D)--SUBSEQUENT EVENTS
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
Convertible Preferred Stock, and pursuant to the Warrant Agreement governing the
rights of the Class A Warrants and the Class B Warrants, an adjustment was made
to the exercise price of the Class A Warrants and the Class B Warrants and there
was a corresponding distribution of additional Class A Warrants and Class B
Warrants. Specifically, on July 12, 1996 (the 'Payment Date') each holder of a
Class A Warrant at the close of business on July 3, 1996 (the 'Record Date') was
issued an additional 0.1 Class A Warrants and the exercise price of the Class A
Warrants was reduced from $5.20 to $4.73. In addition, on the Payment Date each
holder of a Class B Warrant on the close of
F-20
<PAGE>
VION PHARMACEUTICALS, INC.
(FORMERLY ONCORX, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
business on the Record Date was issued an additional 0.1 Class B Warrants and
the exercise price of the Class B Warrants was reduced from $7.00 to $6.37.
At a Special Meeting of Stockholders held on August 14, 1996, stockholders
approved a proposal to increase the authorized Common Stock of the Company from
20,000,000 shares to 35,000,000 shares. On July 31, 1996, there were 7,554,206
shares of Common Stock outstanding. In addition, there were 4,262,383 shares of
Common Stock issuable upon exercise of outstanding Class A Warrants, 4,262,383
shares issuable upon exercise of Class B Warrants underlying such Class A
Warrants, 3,162,605 shares issuable upon exercise of outstanding Class B
Warrants, 1,075,000 shares issuable upon exercise in full of a unit purchase
option granted to the underwriter of the Company's August 1995 public offering,
3,472,242 shares issuable upon conversion of Class A Preferred Stock, 749,721
shares issuable upon exercise in full of other warrants issued in connection
with previous private placements, 1,186,812 shares issuable pursuant to options
granted, including 782,750 options granted under the Company's Amended and
Restated 1993 Stock Option Plan and 217,250 shares reserved for issuance under
the Company's Amended and Restated 1993 Stock Option Plan, representing an
aggregate of 25,942,242 shares of Common Stock outstanding or reserved for
issuance. The increase in the authorized Common Stock will allow the Company to
satisfy its obligations to the holders of its Class A Preferred Stock to allow
for its conversion into Common Stock, and provides the Company with greater
flexibility to issue Common Stock for other appropriate corporate purposes.
At a Board of Directors Meeting held on July 25, 1996, the directors of the
Company resolved to amend the Company's Certificate of Incorporation to
eliminate the Series A Convertible Preferred Stock which had been issued
pursuant to a previous private placement. All shares of Series A Convertible
Preferred Stock have been previously converted into Common Stock.
F-21
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. 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, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................. 2
Risk Factors...................................... 3
Use of Proceeds................................... 11
Price Range of Common Stock and Dividends......... 11
Background of the Company......................... 11
Plan of Operations................................ 12
Business.......................................... 14
Management........................................ 27
Certain Transactions.............................. 31
Principal Stockholders............................ 32
Selling Securityholders........................... 34
Plan of Distribution.............................. 40
Description of Securities......................... 41
Legal Matters..................................... 42
Experts........................................... 42
Financial Statements.............................. F-1
</TABLE>
17,737,545 SHARES OF COMMON STOCK
1,084,183 REDEEMABLE CLASS A WARRANTS
4,812,383 REDEEMABLE CLASS B WARRANTS
VION PHARMACEUTICALS, INC.
------------------------
PROSPECTUS
------------------------
SEPTEMBER 6, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws of the Registrant provide that
the Registrant shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the 'GCL'). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director with certain limited exceptions set forth in
Section 102(a)(7).
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the distribution of
the securities being registered hereby are as follows (asterisks indicate an
estimate):
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
SEC Registration Fee................................... $ 15,398.25
Printing and Engraving Expenses........................ 10,000.00*
Accounting Fees and Expenses........................... 18,000.00*
Legal Fees and Expenses................................ 22,000.00*
Blue Sky Fees and Expenses............................. 5,000.00*
Miscellaneous Expenses................................. 101.75*
-----------
Total............................................. $ 65,500.00*
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion gives retroactive effect to the recapitalization
of the Company effected in March 1995. During the past three years, the Company
and its predecessors have sold and issued the following unregistered securities:
In July 1993, MelaRx issued an aggregate of 467,250 shares of Common
Stock at $5.00 per share to accredited investors.
In July 1994, Old OncoRx issued an aggregate of 2,693,244 shares of
Common Stock at par value per share in connection with its organization.
In August 1994, Old OncoRx issued an aggregate of 159,304 shares of
Common Stock to Yale University in exchange for certain license agreements.
In March 1995, Old OncoRx issued 23,859 shares of Preferred Stock to
Sintong Pharmaceuticals U.S., Inc. at $4.19 per share.
In April 1995, Old OncoRx issued 76,346 shares of Common Stock at
$2.88 per share to accredited investors.
In April 1995, the Company issued 40 units, each unit consisting of a
note in the principal amount of $50,000 bearing interest at 10% per annum
and warrants to purchase 25,000 shares of Common Stock at an exercise price
of $3.00 per share, to accredited investors for an aggregate purchase price
of $2,000,000.
In May 1996, the Company issued 1,250,000 shares of its Class A
Convertible Preferred Stock at $10.00 per share to accredited investors.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the certificates evidencing the
shares bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933, as
amended.
II-1
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among MelaRx Pharmaceuticals, Inc.,
OncoRx Research Corp. and OncoRx, Inc. dated as of April 19, 1995(1)
2.2 -- Certificate of Merger, dated April 20, 1995(1)
3.1 -- Restated Certificate of Incorporation of the Registrant, as amended
3.2 -- By-laws of the Registrant(1)
4.1 -- Form of Bridge Note(1)
4.2 -- Form of Warrant Agreement for Warrants issued in connection with the
bridge financing(1)
4.3 -- Form of Underwriter's Unit Purchase Option(1)
4.4 -- Form of Placement Agent's Warrant(1)
4.5 -- Form of Warrant Agreement for Class A and Class B Warrants(1)
5.1 -- Opinion of Wiggin & Dana
10.1 -- License Agreement between Yale University and Old OncoRx, dated as of
August 31, 1994(1)
10.2 -- Letter Agreement between Yale University and Old OncoRx dated August
19, 1994(1)
10.3 -- Extension Agreement between Yale University and MelaRx
Pharmaceuticals, Inc., dated as of July 1, 1992(1)
10.4 -- Form of License Agreement between Yale University and MelaRx
Pharmaceuticals, Inc.(1)
10.5 -- Letter Agreement between Yale University and MelaRx Pharmaceuticals,
Inc., dated as of February 2, 1995(1)
10.6 -- Research Agreement between The Regents of the University of California
and MicroFab Biosystems, Inc., dated as of July 25, 1994(1)
10.7 -- Option Agreement between The Regents of the University of California
and MicroFab Biosystems, Inc. dated as of July 25, 1994(1)
10.8 -- Consulting Agreement between Mauro Ferrari and MicroFab Biosystems,
Inc., dated as of July 25, 1994(1)
10.9 -- Option Agreement between MelaRx Diagnostics Inc. and Response
Biomedical Corp., dated as of March 30, 1995(1)
10.10 -- Distribution Agreement between MelaRx Diagnostics Inc. and Response
Biomedical Corp., dated April 4, 1995(1)
10.11 -- Employment Agreement between the Registrant and John A. Spears, dated
as of January 16, 1995(1)
10.12 -- 1995 Stock Option Plan of Old OncoRx(1)
10.13 -- Stock Option Agreement between Old OncoRx and John A. Spears, dated
February 2, 1995(1)
10.14 -- Employment Letter from MelaRx Pharmaceuticals, Inc. to Thomas Mizelle,
dated as of July 29, 1994(1)
10.15 -- Marketing Services Agreement between MelaRx Pharmaceuticals, Inc. and
Creative Polymers, Inc. dated as of March 21, 1994(1)
10.16 -- 1993 Stock Option Plan of the Registrant(1)
10.17 -- Lease Agreement between Science Park Development Corporation and
MelaRx Pharmaceuticals, Inc., dated as of May 5, 1993 (Annual)(1)
10.18 -- Lease Agreement between Science Park Development Corporation and
MelaRx Pharmaceuticals, Inc. dated as of May 5, 1993
(Month-to-Month)(1)
10.19 -- Letter Agreement between Old OncoRx and Sinton Pharmaceuticals U.S.,
Inc. dated March 30, 1995(1)
10.20 -- Option Agreement between the Registrant and PMP, Inc., dated April 27,
1995(1)
10.21 -- Agreement between MelaRx Pharmaceuticals, Inc. and certain
shareholders, dated February 17, 1995(1)
10.22 -- Consulting and Finder's Agreement between MelaRx Pharmaceuticals, Inc.
and Jacob A. Melnick, dated June 4, 1992, as amended by Agreement
dated February 17, 1995(1)
10.23 -- Form of Indemnification Agreement(1)
10.24 -- Letter Agreement between Yale University and OncoRx, Inc. (formerly
MelaRx Pharmaceuticals, Inc.), dated July 5, 1995(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
10.25 -- Amendment, dated July 19, 1995, to Amended and Restated Stock Option
Plan of Registrant (1)
10.26 -- Lease between Science Park Development Corporation and OncoRx, Inc.
dated August 10, 1995(2)
10.27 -- Master Lease Agreement between Citicorp Leasing, Inc. and OncoRx, Inc.
dated September 27, 1995(2)
21.1 -- Subsidiaries of the Registrant*
23.1 -- Consent of Ernst & Young L.L.P.
23.2 -- Consent of Richard A. Eisner & Company, L.L.P.
23.3 -- Consent of Wiggin & Dana (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on signature page)*
</TABLE>
- ------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-93468), effective August 14, 1995.
(2) Incorporated by reference to the Quarterly Report on form 10-QSB for the
quarter ended September 30, 1995.
* Previously filed.
ITEM 28. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement, and
(iii) Include any additional or changed material information on the
plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(3) The undersigned registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this registration statement as
of the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial
bona fide offering of those securities.
II-3
<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 New
Haven, State of Connecticut on September 5, 1996.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ JOHN A. SPEARS*
------------------------------------
Name: John A. Spears
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ---------------------------------------- -------------------
<S> <C> <C>
Chairman of the Board
- -------------------------
William R. Miller
/s/ JOHN A. SPEARS* Director, President and Chief Executive September 5, 1996
- ------------------------- Officer (Principal Executive Officer)
John A. Spears
/s/ THOMAS E. KLEIN Vice President--Finance and Chief September 5, 1996
- ------------------------- Financial Officer (Principal Accounting
Thomas E. Klein Officer)
Director
- -------------------------
Michel C. Bergerac
/s/ FRANK T. CARY* Director September 5, 1996
- -------------------------
Frank T. Cary
/s/ A.E. COHEN* Director September 5, 1996
- -------------------------
A.E. Cohen
/s/ JAMES FERGUSON* Director September 5, 1996
- -------------------------
James Ferguson
/s/ MICHAEL C. KENT* Director September 5, 1996
- -------------------------
Michael C. Kent
/s/ ALAN C. SARTORELLI* Director September 5, 1996
- -------------------------
Alan C. Sartorelli
/s/ E. DONALD SHAPIRO* Director September 5, 1996
- -------------------------
E. Donald Shapiro
/s/ WALTER WRISTON* Director September 5, 1996
- -------------------------
Walter Wriston
*By: /s/ THOMAS E. KLEIN
- -------------------------
Thomas E. Klein
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT 3.1
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VION PHARMACEUTICALS, INC.
FIRST: The name of the Corporation is VION PHARMACEUTICALS, INC.
SECOND: The address, including street, number, city, and country, of the
registered office of the Corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: Authorization, Designation and Amount. The total number of shares
of all classes of stock which the Corporation shall have authority to issue is
40,000,000 shares, consisting of (a) 35,000,000 shares of Common Stock, par
value $.01 per share (the "Common Stock"), of which 2,307,550 shares are
designated as Series A Common Stock (the "Series A Common Stock") and (b)
5,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). The powers, terms, conditions, designations, preferences and
privileges, relative, participating, optional and other special rights, and
qualifications, limitations and restrictions, of the Series A Common Stock and
the Preferred Stock shall be set forth in this Article FOURTH.
PART A. PREFERRED STOCK
(a) Designation of Preferred Stock. The Board of Directors of the
Corporation (the "Board of Directors") is hereby expressly authorized to
provide for, designate and issue, out of the authorized but unissued shares of
Preferred Stock, one or more series of Preferred Stock subject to the terms and
conditions set forth herein. Before any shares of any such series are issued,
the Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares of any such
series:
-2-
<PAGE>
(1) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
(2) whether the shares of such series shall have voting rights
or powers in addition to any voting rights required by law and, if so, the
terms of such voting rights or powers, which may be full or limited;
(3) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any shares
of stock of any other class or series;
(4) whether the shares of such class or series shall be subject
to redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(5) the amount or amounts payable with respect to shares of such
class or series upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding up, or upon
any distribution of the assets, of the Corporation;
(6) whether the shares of such class or series shall be subject
to the operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such class or series for retirement or
other corporate purposes and the terms and provisions relative to the operation
thereof;
(7) whether the shares or series shall be convertible into, or
exchangeable for, shares of stock of any other class or series of any other
securities and, if so, the price or prices or the rate or rates of conversion
or exchange and the method, if any, of adjusting the same, and any other terms
and conditions of exchange;
(8) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of the Common Stock or
shares of stock of any other class or series;
(9) the conditions or restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other class or
series; and
-3-
<PAGE>
(10) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative,
participating, optional or other special rights of each series of Preferred
Stock, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. The
Board of Directors is hereby expressly authorized from time to time to increase
(but not above the total number of authorized shares of Preferred Stock) or
decrease (but not below the number of shares thereof then outstanding) the
number of shares of stock of any series of Preferred Stock so designated
pursuant to this Part A.
PART B. COMMON STOCK AND SERIES A COMMON STOCK
1. Common Stock.
(a) Voting. Each holder of Common Stock shall be entitled to one vote
for each share of Common Stock held of record on all matters as to which
holders of Common Stock shall be entitled to vote, which voting rights shall
not be cumulative. In any election of directors, no holder of Common Stock
shall be entitled to more than one vote per share.
(b) Other Rights. Except as described in paragraph 2 below with
respect to Series A Common Stock, each share of Common Stock issued and
outstanding shall be identical in all respects with each other such share and
each share of Common Stock shall be entitled to all of the rights and
privileges, and subject to the limitations and qualifications, of shares of
Common Stock provided by the Delaware General Corporation Law.
2. Series A Common Stock.
(a) Same Rights as Common Stock. Except as set forth in subparagraph
(b) below, each share of Series A Common Stock issued and outstanding shall
have all of the powers and privileges, and shall be subject to all of the
qualifications and limitations of Common Stock, and shall be identical in all
respects to each share of Common Stock.
(b) Conversion.
(i) Each share of issued and outstanding Series A Common Stock shall
be automatically converted, without notice and without any action on the part
of the holder thereof, into:
(A) 1.55158 shares of Common Stock upon the closing of an
"Initial Public Offering" (as defined below) if such Initial Public Offering
closes prior to the "Deadline" (as defined below), after giving effect to the
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cancellation of shares of Series A Common Stock pursuant to the Agreement dated
as of February 17, 1995 among the holders thereof and the Corporation, a copy
of which may be obtained from the Secretary of the Corporation; or
(B) one share of Common Stock if there is no closing of an
Initial Public Offering prior to the Deadline and the cancellation of the
shares of Series A Common Stock required to be deposited in escrow pursuant to
the Agreement dated as of February 17, 1995 is not effective at such time;
(ii) Upon and after the conversion provided for in subparagraph
(b)(i), all rights of holders of shares of Series A Common Stock with respect
to Series A Common Stock, except the right to receive shares of Common Stock in
accordance with this Section, shall cease and the certificates representing the
Series A Common Stock will be deemed for all corporate purposes to evidence the
shares of Common Stock into which such Series A Common Stock is converted,
whether or not the Corporation has received the certificates representing such
shares. The authorized shares of Series A Common Stock shall thereafter resume
the status of authorized but unissued shares of Common Stock and may be
reissued as shares of Common Stock (but not as Series A Common Stock).
(iii) Upon such conversion the Corporation shall issue to each holder
of record of Series A Common Stock the number of shares of Common Stock
issuable on conversion of the shares of Series A Common Stock held by such
holder. However, such conversion shall be effective whether or not certificates
representing the Common Stock have been issued to any such holder.
(c) Definitions.
(i) An "Initial Public Offering" shall mean an underwritten
public offering of the Corporation's Common Stock pursuant to a Registration
Statement declared effective under the Securities Act of 1933, as amended (the
"Securities Act").
(ii) The "Deadline" shall mean September 1, 1995, provided that
if the Corporation has filed a Registration Statement under the Securities Act
with respect to a public offering under the Securities Act prior to September
1, 1995, but such Registration Statement has not yet been declared effective on
September 1, 1995, the Corporation may extend the Deadline for a period of up
to 60 days. The Corporation shall give prompt notice of such extension by
certified mail, return receipt requested to each holder of Series A Common
Stock.
FIFTH: The Corporation is to have perpetual existence.
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SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH: The Board of Directors is expressly authorized to adopt, amend or
repeal by-laws of the Corporation.
EIGHTH: Elections of the directors need not be by written ballot except
and to the extent provided by the by-laws of the Corporation.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of
paragraph (7) of subsection (b) of Section 102 of the General Corporation Law
of the State of Delaware, as the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
directors and officers of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall
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insure to the benefit of the heirs, executors and administrators
of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
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VION PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
CLASS A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
VION PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation and in accordance with Section 151 of the General Corporation Law
of the State of Delaware, the Board of Directors of the Corporation adopted the
following resolution establishing a series of 3,500,000 shares of Preferred
Stock of the Corporation designated as "Class A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation, as amended, a series of Preferred Stock, par value $.01
per share, of the Corporation is hereby established and created, and
that the designation and number of shares thereof and the voting and
other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
Class A Convertible Preferred Stock
Section 1. Designation and Amount. The shares of such series
shall be designated as "Class A Convertible Preferred Stock" and the number of
shares constituting such series shall be 3,500,000.
Section 2. Issuance of Additional Shares. The number of
authorized shares of the Class A Preferred Stock may be reduced or eliminated
by the Board of Directors of the Corporation or a duly-authorized committee
thereof in compliance with the General Corporation Law of the State of Delaware
stating that such reduction has been authorized, but the number of authorized
shares of Class A Preferred Stock shall not, except as contemplated in Section
10(c) be increased nor shall it be decreased to be less than the then
outstanding shares of Class A Preferred Stock.
Section 3. Certain Definitions. For purposes hereof
the following definitions shall apply:
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"Board" shall mean the Board of Directors of the
Corporation.
"Business Day" shall mean any day excluding Saturday, Sunday
and any day which shall be in the State of New York a legal holiday or a day on
which banking institutions in the State of New York are authorized by law to
close.
"Common Stock" shall mean the Common Stock, par value $.01
per share, of the Corporation.
"Corporation" shall mean Vion Pharmaceuticals, Inc., a
Delaware corporation.
"Dividend Payment Date" shall have the meaning assigned to
such term in Section 4(a)(i) hereof.
"Fair Value" shall have the meaning assigned to such term in
Section 9(j) hereof.
"Issuance Date" shall mean the date of original issuance of
the Class A Preferred Stock.
"Junior Stock" shall mean the Common Stock and any shares of
Preferred Stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are by their terms expressly made junior
to the shares of Class A Preferred Stock at the time outstanding as to the
distribution of assets on any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation and are not subject to mandatory redemption or
repurchase prior to the date on which no shares of Class A Preferred Stock are
outstanding.
"Majority of the Class A Preferred Stock" shall mean more
than 50% of the outstanding shares of Class A Preferred Stock.
"Preferred Stock" shall mean the unclassified Preferred
Stock, par value $.01 per share, of the Corporation.
"Record Date" shall have the meaning assigned to such term in
Section (4)(a)(i) hereof.
"Redemption Date" shall have the meaning assigned to such
term in Section 7(b) hereof.
"Redemption Price" shall have the meaning assigned to such
term in Section 7(c) hereof.
"Redemption Notice" shall have the meaning assigned to such
term in Section 7(d) hereof.
"Class A Conversion Ratio" shall have the meaning assigned to
such term in Section 9(b) hereof.
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"Class A Preferred Stock" shall mean the Class A Preferred
Stock, par value $.01 per share, of the Corporation.
"Special Dividend Date" shall have the meaning assigned to
such term in Section 4(a)(ii) hereof.
"Subsidiary" shall mean any corporation, limited liability
company or other entity, a majority of the voting stock or interest of which
is, at the time as of which any determination is being made, owned by the
Corporation either directly or through one or more Subsidiaries.
"Voting Stock" shall mean any shares having general voting
power in electing the Board (irrespective of whether or not at the time stock
of any other class or classes has or might have voting power by reason of the
occurrence of any contingency). The Common Stock and the Class A Preferred
Stock are Voting Stock.
Section 4. Dividends.
(a) Dividends and Distributions. (i) The holders of the
outstanding Class A Preferred Stock shall be entitled to receive semi-annual
dividends, on a cumulative basis, equal to five percent (5%) (on a per annum
basis) of the Class A Preferred Stock held by such holder, payable, in arrears,
in additional shares of Class A Preferred Stock. Upon the Dividend Payment
Date, to the extent permitted by applicable law, the holder shall be deemed to
be the holder of record of the shares of Class A Preferred Stock issuable upon
each such semi-annual dividend, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Class A
Preferred Stock shall not then have been actually delivered to the holder. Each
such dividend described above shall be payable on or about the first day of
April and October in each year as fixed by the Board, or such other dates as
are fixed by the Board (each a "Dividend Payment Date"), to the holders of
record of Class A Preferred Stock at the close of business on or about the 15th
day of the month next preceding such first day of April or October, as the case
may be, as fixed by the Board (each a "Record Date"). Such dividends shall
become payable beginning on the first Dividend Payment Date for which the
Record Date is subsequent to the Issuance Date. Dividends payable for any
partial dividend period shall be computed on the basis of the actual days
elapsed in such period.
(ii) In the event that on the date that is twenty-
four (24) months after the Issuance Date (the "Special Dividend Date"), the
average closing bid price of the Common Stock for the thirty (30) consecutive
trading days immediately preceding the Special Dividend Date (the "Subsequent
Trading Price") is less than 100% of the then applicable Conversion Price, then
the Company shall pay a one time dividend of Class A Preferred Stock for each
share of Class A Preferred Stock outstanding equal to
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the lesser of (a) one share of Class A Preferred Stock or (b)(x) one share of
Class A Preferred Stock multiplied by (y) the then applicable Conversion Price
divided by the Subsequent Trading Price, minus one; provided, however, that the
Company shall have the option of delaying the Special Dividend Date for up to
60 days at its sole discretion and the dividend calculation shall be made as if
such date were the Special Dividend Date.
(iii) If the Corporation calls the Class
A Preferred Stock for redemption at any time prior to three (3) years from the
Issuance Date, the Corporation will pay a one time dividend payable in shares
of Class A Preferred Stock equal to fifteen percent (15%) of the Class A
Preferred Stock held by such holder which shall be in addition to any
cumulative dividends described in subparagraph (i) hereof and any Special
Dividend described in subparagraph (ii) hereof. Prior to the Redemption Date,
the holder will be entitled to convert such shares of Class A Preferred Stock
issuable pursuant to this Section 4(a)(iii).
(b) To the extent the amount of any dividend payable to any
holder of Class A Preferred Stock does not equal an integral multiple of one
share of Class A Preferred Stock, such fractional share shall be rounded up to
the next whole integral number of shares.
(c) Subject to the prior and superior rights of the holders
of any shares of any series or class of capital stock ranking prior and
superior to the shares of Class A Preferred Stock with respect to dividends,
the holders of shares of Class A Preferred Stock shall be entitled to receive,
as, when and if declared by the Board of the Corporation, out of assets legally
available for that purpose, dividends or distributions in cash, stock or
otherwise.
(d) If and when the Corporation shall declare any dividend or
distribution on the Common Stock (other than a stock dividend), the Corporation
shall, concurrently with the declaration of such dividend or distribution on
the Common Stock, declare a like dividend or distribution, as the case may be,
on the Class A Preferred Stock in an amount per share equal to (x) the amount
of the dividend or distribution per share of Common Stock multiplied by (y) the
number of shares of Common Stock into which one share of Class A Preferred
Stock is then convertible.
(e) Any dividend or distribution payable to the holders of
the Class A Preferred Stock pursuant to this Section 4(d) shall be paid to such
holders at the same time as the dividend or distribution on the Common Stock by
which it is measured is paid.
(f) All dividends or distributions declared upon the Class A
Preferred Stock shall be declared pro rata per share.
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Section 5. Liquidation Rights of Class A Preferred Stock. In
the event of a liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary (a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Class A Preferred Stock then outstanding shall first be entitled
to be paid out of the assets of the Corporation available for distribution to
its shareholders, whether such assets are capital, surplus, or earnings, before
any payment or declaration and setting apart for payment of any amount shall be
made in respect of Junior Stock, an amount equal to $10.00 per share of Class A
Preferred Stock plus an amount equal to all declared and unpaid dividends
thereon (subject to appropriate adjustment to reflect any stock split,
combination, reclassification or reorganization of the Class A Preferred
Stock). Following payment in full of the full preferential amounts set forth in
the immediately preceding sentence, the holders of the Class A Preferred Stock
shall not be entitled to any further distribution in the event of a Liquidation
Event. If upon any Liquidation Event, whether voluntary or involuntary, the
assets to be distributed to the holders of the Class A Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full
preferential amounts aforesaid, then all of the assets of the Corporation to be
distributed shall be so distributed ratably to the holders of the Class A
Preferred Stock on the basis of the number of shares of Class A Preferred Stock
held. All shares of Class A Preferred Stock shall rank as to payment upon the
occurrence of any Liquidation Event above senior to the Common Stock as
provided herein and, unless the terms of such series shall provide otherwise,
senior to all other series of the Corporation's preferred stock.
Section 6. Merger, Consolidation.
(a) At any time, in the event of:
(1) any consolidation or merger of the
Corporation with or into any other corporation or other entity, or any other
corporate reorganization or transaction or series of related transactions by
the Corporation in which in excess of 50% of the Corporation's voting power is
transferred, or
(2) a sale or other disposition of all or
substantially all of the assets of the Corporation (any such event in (1) or
(2) a "Merger Event"), then:
in the case of a Merger Event, the holders of the
Class A Preferred Stock shall receive for each share of Class A Preferred Stock
in cash or in securities (including, without limitation, debt securities)
received from the acquiring corporation or other entity or person, or a
combination thereof, at the closing of any such transaction, an amount equal to
$10.00 (subject to appropriate adjustment to reflect any stock split,
combination, reclassification or reorganization of Class A
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Preferred Stock) plus an amount equal to all declared and unpaid
dividends on such shares; and
Such payments shall be made with respect to the Class A
Preferred Stock by (i) redemption or purchase of such shares by the Corporation
or (ii) purchase or acquisition of such shares by the surviving or acquiring
corporation, entity or person immediately upon consummation of the Merger
Event. Before any payment or distribution is made to the holders of the Junior
Stock, the full preferential amounts stated in this subsection 6(a)(2) shall
first be paid to the holders of the Class A Preferred Stock. In the event the
full amount of such payment is not paid to the holders of the Class A Preferred
Stock upon or immediately prior to such transaction in accordance herewith,
then all cash and securities (including, without limitation, debt securities)
to be distributed in respect of the proposed transaction shall be distributed
ratably among the holders of the Class A Preferred Stock.
(b) Any securities or other property to be delivered to the
holders of the Class A Preferred Stock or Common Stock pursuant to Section 6(a)
hereof above shall be valued as follows:
(1) (A) If traded on a securities exchange or
quoted on the Nasdaq National Market System, the value shall be deemed to be
the average of the closing prices of the securities on such exchange or market
over the 30-day period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices over the
30-day period ending three (3) days prior to the closing; and
(C) If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by
the Corporation's Board.
(2) All other securities or other property shall
be valued at the fair market value thereof, as determined in good faith by the
Corporation's Board.
(c) In the event the requirements of Section 6(a) hereof are
not complied with, the Corporation shall forthwith either:
(1) Cause such Merger Event to be postponed until
such time as the requirements of this Section 6 have been
complied with; or
(2) Cancel such Merger Event, in which event the
rights, preferences and privileges of the holders of the Class A
Preferred Stock shall revert to and be the same as such rights,
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preferences and privileges existing immediately prior to the date of the first
notice referred to in Section 6(d) hereof.
(d) The Corporation shall give each holder of record of Class
A Preferred Stock written notice of such impending transaction not later than
thirty (30) days prior to the shareholders' meeting called to approve such
transaction, or thirty (30) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the
final approval of such transaction. The first of such notices shall describe
the material terms and conditions of the impending transaction and the
provisions of this Section 6, and the Corporation shall thereafter give such
holders prompt notice of any material changes. The transaction shall in no
event take place sooner than thirty (30) days after the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of a Majority of the Class A Preferred Stock.
(e) The provisions of this Section 6 are in addition to the
protective provisions of Section 10 hereof.
(f) A consolidation or merger of the Corporation with or into
another corporation, other than in a transaction described in this Section 6,
shall not be considered a Merger Event and accordingly the Corporation shall
make appropriate provision to ensure that the terms of this Certificate of
Designations survive such transaction.
Section 7. Redemption.
(a) Restriction on Redemption and Purchase. Except as
expressly provided in this Section 7, the Corporation shall not have the right
to purchase, call, redeem or otherwise acquire for value any or all of the
Class A Preferred Stock.
(b) Optional Redemption. At any time, beginning six (6)
months after the Issuance Date, the Corporation may, at its option, redeem for
cash the Class A Preferred Stock in whole, but not in part, at the Redemption
Price hereinafter specified, in the event that the closing bid price of the
Corporation's Common Stock for twenty (20) trading days in any thirty trading
(30) day period, exceeds [insert price which is 150% of the closing bid price
on the Issuance Date]. The Corporation shall not redeem Class A Preferred Stock
or give notice of any redemption unless the Corporation has sufficient and
lawful funds to redeem all of the then outstanding Class A Preferred Stock. The
date on which the Class A Preferred Stock is to be redeemed pursuant to this
Section 7(b) is herein called the "Redemption Date." If the Corporation redeems
the Class A Preferred Stock at any time prior to three (3) years from the
Issuance Date, the Corporation will pay an additional dividend pursuant to
Section 4(a)(iii).
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The "closing bid price" for each trading day shall be the
reported closing bid price on the NASDAQ Small-Cap Market or the NASDAQ
National Market System (collectively referred to as, "NASDAQ") or, if the
Common Stock is not quoted on NASDAQ, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading (based on
the aggregate dollar value of all securities listed or admitted to trading) or,
if not listed or admitted to trading on any national securities exchange or
quoted on NASDAQ, the closing bid price in the over-the-counter market as
furnished by any NASD member firm selected from time to time by the Corporation
for that purpose, or, if such prices are not available, the fair market value
set by, or in a manner established by, the Board of the Corporation in good
faith. "Trading day" shall mean a day on which the national securities exchange
or NASDAQ used to determine the closing bid price is open for the transaction
of business or the reporting of trades or, if the closing bid price is not so
determined, a day on which NASDAQ is open for the transaction of business.
(c) Redemption Price. The Redemption Price of the Class A
Preferred Stock (the "Redemption Price") shall be an amount per share equal to
$10.00 (subject to appropriate adjustment to reflect any stock split,
combination, reclassification or reorganization of the Class A Preferred Stock)
plus all declared and unpaid dividends thereon, to and including the Redemption
Date.
(d) Redemption Notice. The Corporation shall, not less than
thirty (30) days nor more than sixty (60) days prior to the Redemption Date,
give written notice ("Redemption Notice") to each holder of record of Class A
Preferred Stock to be redeemed. The Redemption Notice shall state:
(1) that all of the outstanding shares of Class A
Preferred Stock are to be redeemed and the total number of
shares being redeemed;
(2) the number of shares of Class A Preferred Stock
held by the holder which the Corporation intends to redeem;
(3) the Redemption Date and Redemption Price;
(4) that the holder's right to convert the Class A
Preferred Stock into shares of the Common Stock as provided
in Section 9 hereof will terminate on the Redemption Date;
and
(5) the time, place and manner in which the holder
is to surrender to the Corporation the certificate or
certificates representing
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the shares of Class A Preferred Stock to be
redeemed.
(e) Payment of Redemption Price and Surrender of Stock. On
the Redemption Date, the Redemption Price of the Class A Preferred Stock
scheduled to be redeemed or called for redemption shall be payable to the
holders of the Class A Preferred Stock. On or before 5:00 p.m. New York City
time on the Redemption Date, each holder of Class A Preferred Stock to be
redeemed, unless the holder has exercised his right to convert the shares as
provided in Section 9 hereof, shall surrender the certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price for
such shares shall be payable to the order of the person or entity whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be cancelled and retired.
(f) Termination of Rights. If the Redemption Notice is duly
given, and, if at least ten (10) days prior to the Redemption Date, the
Redemption Price is either paid or made available for payment through the
arrangement specified in subsection (g) below, then notwithstanding that the
certificates evidencing any of the shares of Class A Preferred Stock so called
or scheduled for redemption have not been surrendered, all rights with respect
to such shares shall forthwith after the Redemption Date cease and terminate,
except only (i) the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor or (ii) the
right to receive shares of Common Stock upon exercise of the conversion rights
provided in Section 9 hereof on or before the Redemption Date.
(g) Deposit of Funds. At least ten (10) days prior to the
Redemption Date, the Corporation shall deposit with any bank or trust company
in New York, New York, a sum equal to the aggregate Redemption Price of all
shares of the Class A Preferred Stock scheduled to be redeemed or called for
redemption and not yet redeemed, with irrevocable instructions and authority to
the bank or trust company to pay, on or after the Redemption Date, the
Redemption Price to the respective holders upon the surrender of their share
certificates. The deposit shall constitute full payment for the shares of Class
A Preferred Stock to the holders thereof, and from and after the date of such
deposit (even if prior to the Redemption Date), the shares of Class A Preferred
Stock shall be deemed to be redeemed and no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares of Class A
Preferred Stock and shall have no rights with respect thereto, except the right
to receive from the bank or trust company payment of the Redemption Price of
the shares of Class A Preferred Stock, without interest, upon surrender of
their certificates therefor or the right to convert such shares of Class A
Preferred Stock into shares of Common
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Stock as provided in Section 9 hereof. Any monies so deposited and unclaimed at
the end of one year from the Redemption Date shall be released or repaid to the
Corporation, after which time the holders of shares of Class A Preferred Stock
called for redemption shall be entitled to receive payment of the Redemption
Price only from the Corporation.
Section 8. Voting Rights.
(a) Class A Preferred Stock. Each holder of shares of Class A
Preferred Stock shall be entitled to vote on all matters and, except as
otherwise expressly provided herein, shall be entitled to the number of votes
equal to the largest number of full shares of Common Stock into which the
shares of Class A Preferred Stock of such holder could be converted, pursuant
to the provisions of Section 9 hereof, at the record date for the determination
of the shareholders entitled to vote on such matters.
(b) Voting Together. Except as otherwise expressly provided
herein or as required by law, the holders of Class A Preferred Stock and Common
Stock shall vote together and not as separate classes.
(c) Amendment of Conversion Terms of Class A Preferred Stock.
Without the approval by the holders of a Majority of the Class A Preferred
Stock, the Corporation will not (i) change by amendment the Restated
Certificate of Incorporation of the Corporation or the terms and provisions of
the Class A Preferred Stock which adversely affects the rights and preferences
of the holders of the Class A Preferred Stock nor (ii) authorize the issuance
of capital stock ranking senior to the Class A Preferred Stock.
Section 9. Conversion. The holders of Class A
Preferred Stock shall have the following conversion rights:
(a) Right to Convert. The shares of Class A Convertible
Preferred Stock shall be convertible, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation at any time prior to the
Redemption Date, into fully paid and nonassessable shares of Common Stock and
such other securities and property as hereinafter provided.
(b) Class A Conversion Price. The shares of Class A
Convertible Preferred Stock shall be convertible initially at the ratio of
2.777777 shares of Common Stock for each full share of Class A Convertible
Preferred Stock and shall be subject to adjustment as provided herein (the
"Class A Conversion Ratio"). The initial conversion price per share of Common
Stock is $3.60 and shall be subject to adjustment as provided herein (the
"Conversion Price"). For purposes of this resolution, the "Class A Conversion
Ratio" applicable to a share of Class A Convertible Preferred Stock shall be
the number of shares of Common Stock and
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number or amount of any other securities and property as hereinafter provided
into which a share of Class A Preferred Stock is then convertible and shall be
determined by dividing the then existing Conversion Price into $10.00.
(c) Mechanics of Conversion. Each holder of Class A Preferred
Stock that desires to convert its shares of Class A Preferred Stock into shares
of Common Stock shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Class A Preferred Stock or Common Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same and
shall state therein the number of shares of Class A Preferred Stock being
converted. Thereupon the Corporation shall promptly issue and deliver to such
holder a certificate or certificates for the number of shares of Common Stock
to which such holder is entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the certificate or certificates representing the shares of Class A Preferred
Stock to be converted, and the person or entity entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date. In the event
that a notice to convert is given following a notice of a Merger Transaction,
Liquidation Event or a Redemption but prior to the consummation of one of the
foregoing events and such event is not consummated, the conversion shall, at
the option of the holder of the Class A Preferred Stock who tendered for
conversion, be voidable and such holder shall have the right to maintain
ownership of the shares of Class A Preferred Stock tendered for conversion,
provided that the holder shall have notified the Corporation accordingly within
sixty (60) days after such failure to consummate the event.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time after the Iss- uance Date effects
a subdivision of the outstanding Common Stock, the Class A Conversion Ratio
then in effect immediately before that subdivision shall be proportionately
increased, and conversely, if the Corporation at any time or from time to time
after the Issuance Date combines the outstanding shares of Common Stock into a
smaller number of shares, the Class A Conversion Ratio then in effect
immediately before the combination shall be proportionately decreased. Any
adjustment under this subsection (d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If
the Corporation at any time or from time to time after the Issuance Date makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Class A Conversion
Ratio then in effect shall be increased as of the time of such
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issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Class A Conversion Ratio then
in effect by a fraction (1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution,
and (2) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; provided, however, that, if such
record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Class A
Conversion Ratio shall be recomputed accordingly as of the close of business on
such record date and thereafter the Class A Conversion Ratio shall be adjusted
pursuant to this subsection (e) as of the time of actual payment of such
dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Issuance Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Class A Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which
they would have received had their shares of Class A Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period subject to all other adjustments called for during such period under
this Section 9.
(g) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Issuance Date, the Common Stock issuable upon the conversion of the Class A
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets, provided for
elsewhere in this Section 9), then and in any such event each holder of Class A
Preferred Stock shall have the right thereafter to convert such Class A
Preferred Stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
change, by holders of the maximum number of shares of Common Stock into which
such shares of Class A Preferred Stock could have been converted immediately
prior to such recapitalization,
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reclassification or change, all subject to further adjustment as
provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Issuance Date there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 9) or a merger or consolidation of the Corporation
with or into another corporation, or the sale of all or substantially all of
the Corporation's properties and assets to any other person (other than as
provided for in Section 6), then, as part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the Class
A Preferred Stock shall thereafter be entitled to receive upon conversion of
the Class A Preferred Stock the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 9
with respect to the rights of the holders of the Class A Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 9 (including adjustment of the Class A Conversion
Ratio then in effect and the number of shares purchasable upon conversion of
the Class A Preferred Stock) shall be applicable after that event and be as
nearly equivalent as may be practicable.
(i) Adjustment for Issuances. If at any time or from time to
time after the Issuance Date, the Corporation shall issue or sell Common Stock
or rights, options, warrants or other securities convertible into Common Stock,
excluding those rights, options, warrants or other securities convertible into
Common Stock outstanding as of the Issuance Date, at a price per share which is
lower than both (A) the then effective Conversion Price and (B) the average
closing bid price (as defined in Section 7(b)) for the thirty (30) consecutive
trading days immediately prior to such issuance, then the conversion ratio
shall be increased by multiplying the conversion ratio theretofore in effect by
a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such shares, rights,
options, warrants or convertible securities plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible securities plus the number of shares which the aggregate offering
price of the total number of shares offered would purchase at the then
effective Conversion Price, provided, however, that no such adjustment shall be
made which results in a decrease in the conversion ratio. Such adjustment shall
be made whenever such rights, options, warrants or convertible securities are
issued, and shall become effective
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immediately and retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or convertible
securities. Notwithstanding the foregoing, no adjustment will be required on
account of (i) the exercise of any of the options presently outstanding under
the Company's Amended and Restated 1993 Stock Option Plan (the "Plan") for
officers, directors and certain other key personnel of the Company or (ii) the
issuance or exercise of any other securities which may hereafter be granted or
exercised under the Plan or under any other employee benefit plan of the
Company.
(j) Adjustment for Distributions. If at any time or from time
to time after the Issuance Date, the Corporation shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subparagraphs (f)
and (i) above), then in each case the conversion ratio shall be increased by
multiplying the conversion ratio theretofore in effect by a fraction, of which
the numerator shall be the then Fair Value on the date of such distribution,
and of which the denominator shall be such Fair Value on such date minus the
then Fair Value (as so determined) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights, options, warrants
or convertible securities applicable to one share, provided, however, that no
such adjustment shall be made which results in a decrease in the conversion
ratio. Such adjustment shall be made whenever any such distribution is made and
shall become effective on the date of distribution retroactive to the record
date for the determination of stockholders entitled to receive such
distribution. "Fair Value" shall equal the average closing bid price for the
thirty (30) consecutive trading days immediately prior to the date of
distribution multiplied by the then current conversion ratio.
(k) Adjustment for Expirations. Upon the expiration of any
rights, options, warrants or conversion privileges, the issuance of which
necessitated an adjustment to the conversion ratio as set forth herein, if such
shall not have been exercised, then the conversion ratio shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been
had it been originally adjusted (or had the original adjustment not been
required, as the case may be) on the basis of (A) the fact that Common Stock,
if any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion privileges, and (B) the fact that such shares of Common
Stock, if any, were issued or sold for the consideration actually received by
the Corporation upon such exercise plus the consideration, if any, actually
received by the Corporation for the issuance, sale or grant of all such rights,
options, warrants or conversion privileges whether or not exercised.
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(l) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Class A Conversion Ratio, the Corporation, at its
expense, shall cause its Chief Financial Officer or Chief Accounting Officer to
compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by certified mail, return receipt requested,
postage prepaid, to each registered holder of the Class A Preferred Stock at
the holder's address as shown in the Corporation's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of (1)
the Class A Conversion Ratio at the time in effect and (2) the type and amount,
if any, of other property which at the time would be received upon conversion
of the Class A Preferred Stock.
(m) Notices of Record Date. In the event (i) that the
Corporation fixes a date for determination of stockholders of record of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or (ii) of any capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation, any merger or consolidation of the
Corporation with or into any other corporation or other entity, or any transfer
of all or substantially all of the assets of the Corporation to any other
person or entity or any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, the Corporation shall mail to each holder of
Class A Preferred Stock at least thirty (30) days prior to the record date
specified therein, or, if applicable, the effective date of such transaction or
event specified therein, a notice specifying (1) the record date for the
purpose of determining the stockholders who are entitled to receive such
dividend or distribution and a description of such dividend or distribution,
(2) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, or (3) the date, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
(n) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Class A Preferred Stock. To the extent
the amount of any share of Common Stock payable to any holder of Class A
Preferred Stock does not equal an integral multiple of one share of Common
Stock, such fractional share shall be rounded up to the next whole integral
number of shares.
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(o) Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times following the date which is ninety (90) days
after the Issuance Date, reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Class A Preferred Stock.
(p) Notices. Any notice required or permitted by this Section
9 or any other provision hereof to be given shall be in writing and be deemed
given upon the earlier of actual receipt or three (3) days after the same has
been deposited in the United States mail, by certified or registered mail,
return receipt requested, postage prepaid, and addressed (i) to each holder of
record of Class A Preferred Stock at the address of such holder appearing on
the books of the Corporation, or (ii) to the Corporation at 4 Science Park, New
Haven, CT, 06511 or (iii) to the Corporation or any such holder, at any other
address for the giving of notice specified in a written notice given to the
other.
(q) Payment of Taxes. The Corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Class A Preferred Stock, including, without limitation,
any tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
the shares of Class A Preferred Stock so converted were registered.
(r) No Amendment or Impairment. The Corporation shall not
amend its Restated Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all times
in good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Class A Preferred Stock against impairment.
Section 10. Restrictions and Limitations. So long as any
shares of Class A Preferred Stock remain outstanding, the Corporation shall
not, and shall not permit any Subsidiary to, without the vote or written
consent by the holders of a Majority of the Class A Preferred Stock:
(a) Redeem, purchase or otherwise acquire for value,
any share or shares of Class A Preferred Stock, otherwise than by
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redemption in accordance with Section 7 hereof, or any warrant, option or right
to purchase any Class A Preferred Stock;
(b) Declare or pay any dividends on or declare or make any
other distribution, direct or indirect (other than a dividend payable solely in
shares of Common Stock), on account of the Junior Stock or set apart any sum
for any such purpose;
(c) Increase (other than by redemption or conversion)
the total number of authorized shares of Class A Preferred Stock;
or
(d) Take any action which would result in taxation of the
holders of Class A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986 (or any comparable provision of the Internal Revenue Code of 1986
as hereafter from time to time amended).
Section 11. No Reissuance of Class A Preferred Stock. No
share or shares of Class A Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued.
Section 12. Outstanding Shares. For purposes of this
Certificate of Designations, all shares of Class A Preferred Stock shall be
deemed outstanding except (i) from the date, or the deemed date, of surrender
of certificates evidencing shares of Class A Preferred Stock, all shares of
Class A Preferred Stock converted into Common Stock, (ii) from the date of
registration of transfer, all shares of Class A Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation and (iii) any and all
shares of Class A Preferred Stock held in escrow prior to delivery of such
stock by the Corporation to the initial beneficial owners thereof.
Section 13. Status of Acquired Shares. Shares of Class A
Preferred Stock received upon conversion pursuant to Section 9 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Class A Preferred Stock.
Section 14. Preemptive Rights. The Class A Preferred
Stock is not entitled to any preemptive or subscription rights in
respect of any securities of the Corporation.
Section 15. Severability of Provisions. Whenever possible,
each provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or otherwise adversely affecting the remaining provisions hereof.
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If a court of competent jurisdiction should determine that a provision hereof
would be valid or enforceable if a period of time were extended or shortened or
a particular percentage were increased or decreased, then such court may make
such change as shall be necessary to render the provision in question effective
and valid under applicable law.
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EXHIBIT 5.1
<PAGE>
WIGGIN & DANA
One Century Tower
New Haven, CT 06508
(203) 498-4400
September 5, 1996
Vion Pharmaceuticals, Inc.
4 Science Park
New Haven, CT 06511
Ladies and Gentlemen:
We refer to Amendment No. 1 to the Registration Statement on
Form SB-2 (No. 333-7483) (the "Registration Statement") to be filed by Vion
Pharmaceuticals, Inc. (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to 17,737,545
shares of Common Stock, $.01 par value per share, of the Company (the "Common
Stock"), 1,084,183 Redeemable Class A Warrants (the "Class A Warrants") and
4,812,383 Redeemable Class B Warrants (the "Class B Warrants") (the Class A
Warrants and Class B Warrants, collectively, the "Warrants", and the Common
Stock and the Warrants, collectively, the "Securities").
As counsel for the Company, we have examined such corporate
records, other documents and such questions of law as we have considered
necessary or appropriate for the purposes of this opinion and, upon the basis
of such examination, advise you that, in our opinion the Securities are legally
issued, fully paid and non-assessable, or when issued upon exercise of Warrants
in accordance with the terms thereof, will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities
Act of 1933.
Very truly yours,
/s/ Wiggin & Dana
<PAGE>
EXHIBIT 23.1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 15, 1996, in Amendment No. 1 to the
Registration Statement (Form SB-2 No. 333-7483) and related Prospectus of Vion
Pharmaceuticals, Inc. (formerly OncoRx, Inc.) for the registration of shares of
its common stock, Redeemable Class A Warrants, and Redeemable Class B Warrants.
/s/ Ernst & Young LLP
------------------------------
ERNST & YOUNG LLP
Hartford, Connecticut
September 3, 1996
<PAGE>
EXHIBIT 23.2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
OncoRx, Inc.
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form SB-2 of our report dated March 6, 1995, (with respect to Note
6, March 30, 1995 and with respect to Notes 1, 2 and 7, April 20, 1995) on our
audit of the financial statements of OncoRx, Inc. (a development stage company)
for the period from May 1, 1994 (commencement of operations) through December
31, 1994. We also consent to the reference to our firm under the caption
"Experts."
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
September 3, 1996
